“Cash-flow is the lifeblood of any business” - we have all heard the phrase, to the point that it has become accepted common wisdom bordering on a cliché. It is easy to understand why when you break it down to the most basic business principle. No matter how great your business is, if you run out of cash the game is up.
Add to this that virtually every business decision culminates in the transfer of value, usually represented by the need to collect or pay out money, and it becomes clear why cash flow is so closely correlated to the health and well-being of any business.
Whether you are selling the latest smartphone, purchasing stock from a supplier, acquiring a new office block, or funding a subsidiary in a foreign market, every transaction needs a way to get settled. Yet markets are complex, global, and competitive. There is a vast ecosystem of suppliers and a myriad of payments and financial services solutions catering to this most simple problems: How to move money from A to B efficiently and risk-free.
Reducing risks for ecommerce businesses
Finding the right payment tool is only part of the problem, effectively executing a solution that drives business value is by far the greater challenge. Companies need to find a way through the complexity to gain from the tremendous opportunities and provide their customers and suppliers with more meaningful and straightforward ways of doing business. What works for a small company trading locally in a single state is unlikely to be suited for a multinational with complex structures and supply chains needing money to be moved all across the globe.
What these companies have in common, though, is the need to have flexibility and agility in how they operate, allowing them to grow and adapt quickly as market and business conditions change.
Much has been written about the collection side in an exploding ecommerce environment accelerated by the recent pandemic. Providing choice and flexibility is a great way to promote higher sales conversion and resonate with new market participants. An equally important but often overlooked aspect of any business is the ability to optimize payout capabilities to bridge the gap between receipts and payments, thereby maximizing cash flow, reducing risk, and providing exceptional third-party experiences.
Increase consumer loyalty
The pandemic and the financial challenges that came with it prompted companies to re-think their strategic payment capabilities and implement long-term solutions to strengthen their balance sheet and promote efficiencies. According to PYMNTS' report, 71% of CFOs stated that they had increased their use of digital payments since 2020.
Credit card-enabled digital payments have become particularly popular, followed by digital payments made by direct deposit and alternative solutions such as PayPal. The importance of payment digitalization is spread across industries.
Still, finance and insurance are facing particular pressure to optimize their payments systems to improve their processes, customer experiences and cash flow.
Interestingly they are also the ones that have experienced the most significant improvement in working capital and data security since the onset of the pandemic.
Despite businesses’ increasing awareness and eagerness to improve their payment systems, the complexity of the ecosystem makes payment digitalization a challenging journey. With hundreds of different payment methods, thousands of payment processors, and new technology emerging daily, payments are far from a simple topic.
More payment options equals more paying customers
Navigating this topic requires expert-level payment knowledge and experience, which most companies don’t have the capacity or inclination to develop in-house. Complexity in technologies, business processes, efficiencies and risks inevitably come to the forefront when designing an optimum cash management system. These challenges, however, often end up stifling innovation and delaying the speed at which initiatives can be deployed.
Creating exceptional business performance requires focusing on the collection (accounts receivable) and payout (accounts payable) capabilities to which every company is exposed.
Maximizing the payment terms to suppliers while minimizing the time to collect is no longer the only consideration for a business. Offering a wider variety of payment methods, automation, and embedded finance products have the potential to increase the target market's potential size and drive a whole host of benefits, including risk reduction, improved sales conversion, margin improvement, happier customers, and healthier happier supply chains.
When it comes to customers, offering a wide variety of payment methods that best suit their individual needs significantly improves the likelihood of a sale. Not only does this benefit the bottom line, but it also increases customer satisfaction and retention rates.
Equally, offering flexibility on AR solutions increases the likelihood of a payment being collected, minimising bad debt and improving the cash cycle.
It’s also no longer only about a smooth payment journey; businesses need to cater to their customers’ payment needs and offer them the methods they want in a manner that suits them. Ultimately, with the overwhelming competition and the high standards set by innovative industries like ecommerce, customers are looking for companies that can deliver the whole package.
Lack of payment choice may be enough for them to look for services elsewhere. Customer experience is all-encompassing and involves an array of essential factors. Companies must differentiate their offering with flexible collection, refund, payout, and reward offerings. These are proven to increase customer satisfaction, conversion rates, and loyalty.
Understand which payment options to offer
Embedded financial services are another excellent opportunity for companies to leverage their specific customer and supplier knowledge base to launch their own financial service offerings. This could make the customer journey more accessible, faster, and more convenient - precisely what customers want from any service or product they buy.
Aside from delivering a better customer experience overall, embedded finance comes with a range of benefits for companies, such as increasing cross-selling opportunities, maximising revenue, and increasing margins while using data to reduce risk. Despite being a relatively new concept, embedded finance is already valued at $22.5 billion in the US and is expected to grow nine times more by 2025, according to a Statista report.
Automation is another critical piece of payment digitalization. Businesses need to look for technology partners to help automate and simplify manual business tasks and processes around payments and cut through the complexity of back-office functions like accounting and reconciliation.
Reducing dependency on manual data processing and shifting payment data to the cloud enables companies to save on human resources and makes losing or mishandling data much less likely. Making sure that all payment information is easily accessible and automating most of these processes is key to better overall cash flow management and significantly improved analytical capabilities.
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Carl Stempel is the CFO and co-founder of Imburse. He grew up in Pretoria, South Africa surrounded by a family of entrepreneurs and knew from an early age that it was never a case of if he would go into business for himself, but when. Carl has a degree in Accountancy and a Master’s in Taxation from the University of Pretoria.