End the Wait: SMBs and the Protracted Challenge of Delayed Payments

AI transforms SMBs from data-rich to decisively smart.

Just two years ago, artificial intelligence (AI) was a mere buzzword. Now, according to recent findings from an Intuit QuickBooks survey, AI is recasting the financial game for SMBs, with 83% already utilizing it in their operations. From data analytics (36%) to financial management (26%), forward-thinking small merchants are leveraging AI not only to predict financial challenges but also to master them, transforming potential “what ifs” into an actionable “what’s next.”

Can small businesses turn chaos into cash with a unified platform?

An American Express study spotlights a farewell party in full swing: 73% of small businesses are gearing up to ditch multiple cash management tools in favor of a single, streamlined platform. Why? The chance to ramp up operational efficiency and unlock deeper insights into cash flow dynamics. This promises both greater financial agility and significant time savings, as 84% anticipate reclaiming up to eight hours weekly for core business tasks.

An Insider on Why Digital Transformation Is Crucial to SMB Cash Flow

PYMNTS Intelligence interviews Jason Carlson, Chief Financial Officer of experiential media company Mood Media, on why SMBs must invest in digital transformation now to ensure their viability and success in the long run.

Embracing digital transformation in payment processing allows businesses to enhance their operational effectiveness and better serve their customers’ needs, contributing to their long-term success.”

Delayed payments not only severely affect small businesses’ cash flow: They also jeopardize SMBs’ financial health.

The cash flow of a small business is its lifeblood, Carlson told PYMNTS Intelligence in a recent interview — especially during times of rising inflation.

“Timely payments from customers are crucial for sustaining operations, as small businesses often lack the financial reserves to weather prolonged delays in payment,” he explained.

Moreover, he said, inflationary periods — such as the current one — can compound cash flow challenges, with the diminishing value of money increasing the urgency for businesses to receive payments promptly.

“Delayed payments can severely disrupt day-to-day operations, impeding the ability to pay bills, procure inventory or meet crucial payroll obligations,” Carlson said. “In short, prolonged cash flow problems can lead to business failure.”

Furthermore, the considerable time and effort spent chasing overdue payments can divert valuable resources from other essential activities, he added, such as business development and innovation. Owners and managers may find themselves caught in a cycle of constantly chasing payments — reducing their productivity and hindering the potential for business growth and expansion.

Manual processing is a major contributor to the problem of late payments.

Manual payment processing presents significant challenges for businesses, Carlson said, as the time- and labor-consuming administrative tasks involved can introduce an increased risk of human error and inefficiencies in payment workflows. Relying on paper-based methods for receivables collection can further exacerbate these issues, particularly in managing overdue payments, impacting overall business performance. It can even encumber banking partnerships.

“Outdated technological infrastructure can hinder efficient payment processes, making it difficult for businesses to keep pace with evolving banking technology,” Carlson noted.

It is imperative that SMBs implement proactive measures to optimize cash flow management.

These proactive strategies, said Carlson, include setting clear payment terms, invoicing promptly, offering incentives for early payments and establishing robust credit control processes. To enhance efficiency, he advised, businesses should consider adopting digital solutions and leveraging technology to automate repetitive tasks and minimize errors. The long-term benefits of improved efficiency and reduced risks can ultimately outweigh the initial investment. Investing in modern payment platforms and strengthening banking relationships can also help businesses stay competitive and adapt to the evolving financial technology landscape.

“Embracing digital transformation in payment processing allows businesses to enhance their operational effectiveness and better serve their customers’ needs, contributing to their long-term success,” Carlson asserted.

As difficult as the transition may seem, there are promising solutions — and key steps SMBs can take to make their implementation easier.

According to Carlson, both direct debit and credit card payments are popular and effective solutions for businesses seeking to streamline their payment processes. Direct debit offers the convenience of automatically pulling payments directly from customers’ bank accounts, either on a scheduled basis or upon request.

On the other hand, credit card payments are widely accepted and preferred by many customers due to their ease of use.

“Selecting the right banking partner is crucial, as they can provide customized services that align with the specific needs and challenges of your business and facilitate the implementation of payment solutions,” Carlson said.

Engaging in transparent discussions up front about expectations and requirements, he said, can help drive a more efficient implementation process, ensuring that the chosen solution meets the needs of a business and its customers.

“By considering the advantages and disadvantages of direct debit and credit card payments and choosing a suitable banking partner, businesses can enhance their payment processes, manage cash flow effectively and optimize efficiency,” he concluded.

From Delay to Payday: Strategies for SMBs to Improve Cash Flow

The problem of delayed payments is not simply a nuisance for SMBs — it’s a threat to cash flow and growth potential. Sticking to outdated and ineffective cash management practices is no longer feasible. The game has changed, and SMBs looking to thrive in today’s economy need to embrace modern cash management tools that both address and anticipate their needs. However, progressing from the recognition of this need to actual implementation is a challenge for SMBs, making transparent steps essential.

PYMNTS Intelligence prescribes the following actionable roadmap:

• Transition to a unified cash management platform: Adopt a single platform that consolidates AP/AR automation along with your company’s other financial management tools. An integrated approach simplifies operations, enhances visibility and empowers informed decision-making across your financial ecosystem.
• Implement real-time payments: Incorporate instant payment methods, thereby eliminating payments delayed in transit and dramatically shortening the invoice-to-payment cycle. Payer confirmation is immediate, enhancing transparency and therefore boosting trust in business-to-business (B2B) transactions.
• Optimize payment terms through data analytics: Utilize data analytics to understand payment term trends within your firm’s industry and negotiate optimal payment terms with vendors. Analyzing your company’s own payment capabilities and vendor expectations can lead to more strategic payment term agreements that benefit both parties, helping to ensure liquidity and therefore healthy cash flow.

The future of business isn’t just digital: It’s integrated — and it’s now. SMBs must seize the moment to address the core issues of delayed payments and turn a critical vulnerability into a strategic asset.

Late payments from buyers have a major impact on businesses’ working capital — especially that of SMBs. That’s one reason why these businesses are exploring automation and digital tools, like those provided by American Express, to streamline manual back-end tasks, helping them gain efficiency, prevent late payments, and — ultimately — better control their cash flow.”

Acknowledgment
The B2B and Digital Payments Tracker^® Series is produced in collaboration with American Express, and PYMNTS Intelligence is grateful for the company’s support and insight. PYMNTS Intelligence retains full editorial control over the above findings, methodology and data analysis.