Cash-Strapped SMBs Tap Digital Tools to Ease Working Capital Challenges

The past few years have put the resilience of Main Street SMBs to the test, and they’re still not out of the woods.

When the pandemic hit nearly three years ago, the great digital shift was focused on finding new ways to reach consumers, to find new delivery channels and navigate lockdowns and supply chain disruptions.

Now, even amid the great reopening, even with strong consumer demand, the smaller firms that power the U.S. economy are grappling with different, exogenous shocks — macro-economic ones.

Soaring inflation is crimping margins. Interest rates continue to march higher, making it harder to take on debt or tap traditional financing conduits to make sure enough money’s in the coffer to keep running.

If working capital is the oxygen that keeps any enterprise – large or small – healthy, SMBs have been gasping for breath.

Plastiq CEO Eliot Buchanan, Lamb and Honey CEO Cryss Simmons and BoxLock CEO Brad Ruffkess told Karen Webster that there’s a silver lining to keep in sight: The same pivots that helped transform business models are helping SMBs refocus and fine tune the ways they manage back office activities, including cash flow.

The payments providers (Plastiq among them) are fine-tuning their own offerings, too, to ensure that the digital tools previously aimed at larger enterprises are fully available to smaller companies. Multiple payment methods and disbursement options, they said, can bring buyers and suppliers closer together.

The urgency is there. PYMNTS research finds that 12% of Main Street SMBs are doubtful they will still be in business in 2024. And more immediately, in the here and now, 70% of the SMBs we surveyed said supplier costs have risen over the last year, with 57% of them raising prices as a result. But passing costs along to customers and consumers only goes so far, because they’re stretched, too.

Saving Time, Boosting Cash

Plastiq, noted Buchanan, has seen its own B2B clients (there are about a hundred thousand on the company’s platform) look increasingly toward better management of their money flows.

“We like to say that we focus on solving for the two biggest, most precious resources that a business owner has — cash and time,” he said. During the pandemic, the challenge for SMBS was to secure the cash/working capital they needed to stay afloat, and more recently they’ve been grappling with the demands of growth.

“SMB owners are control freaks,” said Buchanan, “and they want to touch and control all aspects of their operations…but as they scale, they can’t take it all on.” The onus has been to streamline the back office functions, and automate them, so that the SMBs might spend time capturing new business.

Focusing on Working Capital

Part of that efficiency lies with payments flexibility and efficient management of working capital. Working capital, of course, can be the result of several actions, from factoring receivables to instant settlement of eCommerce sales — but the overarching desire is to get money right away as opposed to waiting days for funds to arrive.

Improving the flow of information, funds, and relationships between buyers and suppliers is a greenfield opportunity for innovation. PYMNTS’ research has estimated that there remain more than a trillion dollars of outstanding receivables out there that smaller firms are “carrying” for larger suppliers on a given day. Part of the proverbial stutter step is tied to hiccups in back office approvals or the simple fact that SMBs are understaffed.

Plastiq’s embedded finance model helps sidestep those pain points and enables an all-in-one bill pay solution that offers access to working capital through short term financing. The technology allows the SMB that’s paying a vendor’s bill to use a credit card of their choice — while making sure the vendor is paid via wire transfer/ACH.

“The vendor gets paid right away without incurring a fee, and the customer who’s paying gets to use a credit card and defer the payment. It’s a win-win,” he said. Transparency and simplicity, he noted, breed trust — and trust is the glue that binds the buyers and suppliers together.

Resiliency and New Revenue Models Ensure Survival

A positive attitude goes a long way in helping to turn hurdles into opportunities. Even with the challenges in front of them, said Buchanan, “business owners are optimistic, otherwise they wouldn’t be business owners….and there’s quite a bit of resilience across the board.”

That resilience shows up in the continued pivot to new channels, in new revenue models and also in more fully digitizing how they take and receive payments.

Simmons said that her retail/wholesale business, focused on health and beauty products, shifted to serve a growing retail channel that wanted goods delivered to the doorstep during COVID-19 — call it “pampering on demand.”

The local delivery business helped sustain operations while hiring more staff. As for Lamb and Honey, said Simmons, “we were able to increase revenue by just being available…We became our own, personal Uber Eats.” Now, she said, the revenue model has expanded to include subscriptions, where customers (including commercial clients) can get a recurring supply of wellness products over a span of months.

BoxLock, which focuses on supply chains, also moved to the digital age — a dramatic turn borne out of necessity. Back in 2020, he said, the company’s business was 100% hardware-focused — its “smart padlocks” work to secure inventory as it makes its way across supply chains, and they also make for easier tracking.

By 2021, BoxLock had transitioned to its current model, with 90% of the top line coming from software and services — its platform features APIs and real-time notifications to help SMBs manage their supply chains (and save time and money).

“We’re a hardware-enabled SaaS,” he said.

There’s a significant amount of recurring revenue in place now, which of course carries higher margins and has reduced some of the company’s working capital needs. That shift has also changed the ways in which BoxLock approaches its interactions with customers, said Ruffkess.

“We’re doing a lot more ‘locking in’ of longer-term contracts, and we’re being very mindful of the payment terms of those contracts,” said Ruffkess.

As Buchanan told Webster of the outlook for SMBs headed into 2023 and beyond, “it’s going to take perseverance to get through whatever’s coming our way — but it you can persevere, you’re going to make it through and thrive.”