Cash, confidence, peace of mind - how often do you have these?

If it’s not as often as you’d like, you’re not alone. Small businesses around the world face the same three existential threats:

1. Not getting paid on time (or at all).
2. Not knowing the financial health of your business.
3. Being stressed, wasting time, or eating into your personal life in order to keep things running.

These threats to small businesses have always existed, but the COVID-19 situation is undoubtedly making them worse.

As readers of XU Magazine, you’re more fintech-savvy than most small businesses. But are you really eliminating as many of the problems in your business that you could be?

• Are you still dealing with late payments?
• Are you still ever unsure about the financial health of your business?
• And are you still stressing or struggling from day-to-day?

Cash, confidence, peace of mind. That’s the goal, and it shouldn’t feel unreachable, because it isn’t.‍

How to start - Identifying the problem‍

Never start with a solution and look for a problem to fit it to. Start by identifying problems first. There’s a helpful lens for small businesses to look through to find the problems holding them back from cash, confidence, and peace of mind.

The order-to-cash process.

This is the end-to-end series of events that begins with you receiving an order from your customer, all the way through to seeing the cash arrive in your bank account. Key steps in this process are: pricing, invoicing, payment collection, forecasting, financing, and banking.

Last issue of XU Magazine, I explored the biggest problems small businesses face with pricing, invoicing, and payment collection - along with how to fix them with fintech. For this issue, I’ll be exploring the problems in the remaining parts of the process, and how fintech can help.‍

The experts behind the advice‍

The advice this article brings together isn’t just from the payments experts at GoCardless. It’s sourced from a number of great minds across the industry - financing experts Capital on Tap, banking experts Tide, the UK’s Small Business Commissioner, and more.

Together, these organisations have helped more than 250,000 small businesses around the world.‍

Forecasting - Biggest problems and how to solve them‍

What would you say is the biggest problem small businesses face with forecasting?

One fintech provider interviewed its users and was surprised to learn that it had nothing to do with technology or process - most didn’t have time to do it at all. Forecasting was a luxury they didn’t have time for.

If you’re doing some amount of forecasting, you’re already ahead of the pack. But that doesn’t make your business problem-free. If you’re still doing your forecasting in Excel - even if you’re a spreadsheet wizard - you’re wasting unnecessary time on a manual process that is prone to human error.

Float, Fluidly, and Futrli are just a few of the great forecasting apps that integrate with Xero, helping you better understand the financial health of your business, regain that confidence, and reduce your stress from uncertainty.

Financing - Biggest problems and how to solve them

There are a lot of ways for small businesses to inject in financing today. Overdrafts, credit cards, long term loans, asset-based finance - the list goes on. And there are many reasons businesses might need this finance - start up costs, balancing out an unexpected dip in cash flow, or growth plans, and more.

Amit Kahana, MD of Tide Capital and VP of Credit at Tide, suggests that the problem small businesses face isn’t what you might think. It’s not that the traditional routes to funding such as the incumbent banks are unfit for purpose. It’s that they cannot adapt as quickly to the specific and changing needs of modern small businesses as newer, fintech companies can.

What you should take away from that is that you shouldn’t just accept the problems you see with accessing finance. These problems aren’t just “facts of life” that have to be put up with - where banks may fail to offer you the best product for your needs, fintech companies may succeed.

Zoe Newman, Head of International Expansion at Capital on Tap, agrees with Amit, suggesting that the days are over where small businesses need to choose from what their bank has to offer. Instead, you can shop around various fintech suppliers to pick and choose a tailored set of solutions to best fit your exact needs.

The abundance of fintech companies in the market now means high competition, and high competition means the best deals for your business. Couple this with how easy-to-start (and easy-to-cancel) fintech solutions tend to be relative to banks’, and your business is in the best place it’s ever been to find the ideal solutions to its problems.

Before leaping into looking at what’s available in the fintech market, Philip King - the UK’s Small Business Commissioner - has a great bit of financing advice. Always take a look at your own books first, and see what outstanding money you’re owed from your customers. Keeping on top of your accounts receivable and ensuring you get paid on time could solve your problems without needing financing.

Banking - Biggest problems and how to solve them

Despite working for a challenger bank, Amit doesn’t believe the incumbent banks are doing a bad job. Instead, he suggests their large size and relatively older age means adapting to the needs of modern small businesses is difficult for them.

This is evident in Tide’s own features - namely, the ability to invoice. Traditionally, bank accounts provide transactional services for your business. But Tide heard from small businesses that they wanted to be able to invoice too. So Tide made it happen. Being able to quickly and effectively respond to market needs like this is how challenger banks can solve small business problems that the incumbent banks can’t.

Another problem Amit highlights is the barrier to opening and testing whether an account is right for you. With the rise of challenger banks, though - particularly in the UK - small businesses are more empowered than ever to try different providers, get started very quickly and easily, and learn firsthand which bank is best for them. That could even be banks, plural - Amit notes a relatively new behaviour of small businesses opening and using multiple different bank accounts concurrently.

Both Amit and Zoe highlighted another legacy problem with banking, and indeed financing as well. That is, a lack of interconnectivity. Xero’s own cloud accounting ecosystem has shown small businesses that software today should integrate easily and work well together. Challenger banks like Tide are leading the charge, bringing this world of interconnectivity to banking for small businesses. Tide recently launched an integration with GoCardless, for example, to bring its users the ability to easily collect their invoice payments via Direct Debit.

What to take away from this

Philip summarises the opportunity of fintech solutions well, suggesting that business owners don’t become business owners because they love the admin of running a business. They want to do the thing they love - the admin just comes hand-in-hand with it.

More and more, though, fintech solutions are eliminating that admin - helping you get paid sooner, be more confident in the health of your business, and get rid of unnecessary stress.

So take some time and plot out the order-to-cash process at your business. Identify where the problems are. Then take advantage of the fintech boom and get the best solutions for you.

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