Cash Flow Is Still King: Why Microbusinesses Are Turning To Instant Disbursements

The COVID-19 pandemic has hit smaller businesses hard, with many seeking new sources of funding such as government-sponsored loans to keep afloat. The health crisis has also caused many small businesses to shift their focuses, with some turning from selling wholesale — that is, sales to other businesses or universities — to offering their products directly to consumers.

Cash flow is thus still king, according to Caleb Benoit, founder of Illinois-based retail and wholesale coffee company Connect Roasters. The early months of the pandemic squashed revenues from the wholesale side of the coffee roaster’s business, Benoit explained in a recent PYMNTS interview, forcing the company to pivot to retail offerings to cover its existing costs, which remained undiminished.

“Our overhead costs are relatively small, but we have a physical space, so we have a lease and we have to pay that every month,” Benoit said. “Our landlord does not give us a discount if we are bringing in less revenue [in] March, April, May. We still have to pay our utilities, so I think that is the biggest and the most obvious challenge. Those overhead costs are not going away, regardless [of whether] business is booming or a pandemic sends your wholesale side of the business to zero.”

Keeping cash flow steady, especially for an SMB or microbusiness, requires having swift and transparent means of managing incoming payments and disbursements. Relying on paper checks or other legacy payment methods can put wrinkles in the process that are hard to smooth out, especially when economic conditions are still causing widespread concern.

Moving disbursements digital

Connect Roasters currently has approximately three to four employees and one brick-and-mortar location, which is in operation for roasting coffee and storing inventory but is not open to retail customers — though Benoit said he is still considering plans for the latter, despite having put them aside due to the pandemic. The microbusiness seeks to keep most of its payments digital so that operations — and cash flow — can run transparently and smoothly, Benoit said.

The company will accept or send out disbursements using paper checks during certain rare instances, however. There are still businesses that utilize checks for the majority of their bookkeeping, according to Benoit, either because they remain wary of digital technologies or they simply do not want to deal with the fees attached to online payments.

“One example of us receiving paper checks would be [from] a really small organization that is a customer, [and] it just so happens that is how they do all of their bookkeeping and their payments, accounts payable and accounts receivable,” said Benoit. “There is a small subset of our customers that still prefer to send us checks.”

This is relatively rare, however, as Connect Roasters handles approximately 90 percent of such transactions electronically. Other entities also appear to be tapping digital methods more often to send out funds to waiting businesses — including the government agencies tasked with distributing loans and grants to keep microbusinesses afloat. Connect Roasters applied for — and received — a federally supported PPP loan, an SBA loan and a state-run EIDL grant to keep its operations moving, Benoit said. All of these were disbursed to the business via electronic or direct deposit means.

“I was kind of surprised at how quick and seamless it was,” he said. “For the PPP loan, we worked with a local bank where we already had a relationship and we worked through them to communicate to the SBA. I heard some horror stories about some other businesses trying to go through bigger banks … but we had a lot of luck with our local bank.”

The microbusiness received the funding within a few days to a week, depending on the loan, he said, allowing it to meet its overhead costs while it focused more specifically on its direct-to-consumer business versus its wholesale operations. Having this diversity of income will be important for smaller businesses in the coming months, Benoit predicted, although that will still require them to be able to send and receive payments near-instantly.

The growing impact of instant payments

SMBs especially tend to be laser-focused on providing one particular service in one particular sales channel, which will need to change for these businesses to stay in the black as the pandemic continues to shift both consumers’ and B2B payments online.

“Let us say you are a coffee roaster going into the pandemic and 100 percent of your business was wholesale and that goes to zero,” Benoit said. “You are not set up to do any direct-to-customer sales, you are not set up to sell on Amazon, you have no grocery relationships … You are in a much worse place than if you had different channels you were selling through, so I think reliance on a single sales channel, that is going to change. You are going to see folks like us diversify their income streams … and try to own the relationship with the final customer as much as possible.”

This means that having a transparent view of cash flow is even more essential than in previous decades. Connect Roasters works with eCommerce platform provider Shopify to ensure it can both accept and send out payments in near-real time, for example — a capability that will likely prove critical in the days ahead, he added.

“When you are on platforms like Shopify, you can set up how often you are receiving disbursements from them,” he said. “You can do it on a weekly basis or even longer, I suppose — but anyone we are getting paid from, like a platform, we have set up to get a disbursement [basically] every day. Going back to the idea that cash flow is king, in this environment [in which] things are so uncertain, we do not want to be waiting for those payments any longer than we have to, so if Shopify will pay us out every single day, that is what we are going to choose.”

Making sure disbursements can be finalized as quickly and seamlessly as possible will likely become even more of a necessity for small businesses in the coming years. Reliance upon traditional payment methods such as paper checks has the potential to transform from a mild frustration for SMBs into a notable financial threat. It is essential for small businesses to examine how they can send and receive payments at the speeds necessary to stay successful in the new normal.