Digitally Forward Small Businesses Use Instant Payments to Cover Payroll

No longer secondary considerations, the speed and efficiency of receiving non-recurring, or ad hoc, disbursements are becoming critical factors influencing an SMB’s operational stability and competitive position.

The payments landscape for small to medium-sized businesses (SMBs) in the United States is undergoing a significant transformation, largely propelled by the increasing adoption of instant payment methods.

Defining Digitally Forward SMBs

This shift is particularly pronounced among digitally forward SMBs — those operating in newer or rapidly changing industries, often relying less on traditional paper checks.

The PYMNTS Intelligence report, “Fast Funds, Steady Cash Flow: How Instant Disbursements Empower SMBs,” produced in collaboration with Ingo Payments, highlights how instant payments are increasingly becoming the go-to method for receiving ad hoc payments, especially for businesses with an urgent need for timely disbursements.

For the financial institutions and other payment providers that meet these needs, there are benefits to be had in the form of stronger relationships with these smaller corporate clients.

Digitally forward SMBs are identified in the report as those in sectors like financial services, retail, eCommerce, technology and healthcare insurance, generally characterized by less reliance on paper checks for receiving payments. These businesses are actively leading the charge toward instant payments. Their adoption of instant payment methods has doubled since 2023.

The data reveals a stark contrast: digitally forward SMBs receive a notable 41% of their payments instantly on average, compared to just 30% for less digitally forward businesses.

This embrace of instant methods is coming at the expense of traditional methods like checks and Automated Clearing House (ACH) transactions. While less digitally inclined SMBs are also reducing reliance on checks, their overall digital payment adoption still lags. By favoring instant methods, digitally forward SMBs are effectively streamlining their accounts payable and cash flow management processes.

The fundamental driver behind the preference for instant payments is the need for improved cash flow management. Ad hoc disbursements constitute an increasing share of monthly income for SMBs, and delays can quickly lead to cash-flow shortfalls. This is underscored by the fact that a substantial portion of SMBs — around 1 in 5 — report needing more than 40% of their ad hoc payments urgently. For these high-urgency businesses, the speed of every payment truly matters.

A Benefit for Micro SMBs

Micro SMBs (less than $100,000 annual revenue), which often have a more precarious cash flow position, are particularly likely to receive a high proportion of urgent payments. Tellingly, the share of micro SMBs that rely most on instant payments has tripled year over year, signifying a fundamental shift.

The most frequently cited reason for needing payments urgently is to pay employee wages. This highlights a critical link between the timely receipt of funds and an SMB’s ability to meet payroll obligations. For businesses where timely access to funds is paramount for operational needs, the value proposition of instant payments is clear. High-urgency SMBs are twice as likely to rely on instant payments the most often compared to low-urgency businesses. Specifically, 43% of high-urgency SMBs reported receiving instantly most often, compared to only 1 in 5 (20.3%) of low-urgency SMBs.

A Benefit for Providers Too

This critical need for speed translates into a willingness to pay for instant services — which of course benefits the providers. High-urgency SMBs are significantly more willing to incur a fee to receive payments instantly. A striking 70% of high-urgency SMBs reported having paid a fee to receive instantly in the past year, a stark contrast to 37% of low-urgency SMBs. This willingness underscores the high value placed on the immediacy of funds, particularly when it directly impacts the ability to cover urgent operational expenses like payroll.