By Ray Birch
BOSTON—It’s time credit unions provide small businesses with greater support when it comes to their receivables, according to one analyst, who contends doing so will not only build stronger relationships beyond the pandemic, but also keep entrepreneurs afloat and head off defaults.
Christine Barry, research director at Aite Group, has completed a study detailing the advantages for FIs in providing small businesses with the means to automate, streamline and improve their receivables operations to help them get more of the payments they are owed. The report—The Higher Urgency for Small-Business Receivables Tools in the Wake of COVID-19—polled 1,008 U.S.-based small businesses.
“Collecting on receivables is always important for small business, because they tend to have very limited funds and are always on a tight budget,” said Barry, who noted forced closures from the pandemic and lower-than-normal monthly revenues are intensifying the financial challenges for businesses already surviving on razor-thin margins. “They really have to stay on top of rent and other expenses, maintain payroll, and run their operations. Receivables are critical at any time, but so much more now. They need to be getting any money they can into their business…Unfortunately, many small businesses have been let down by their financial institutions that do not yet offer the proper tools to achieve collection on those receivables.”
Highly Rated
Even prior to the economic downturn, many small businesses saw a lot of value in having their financial institutions offer them tools to more effectively and quickly collect on outstanding receivables, Barry explained.
“When asked to rate the importance of potential receivables tools their financial institutions could offer, small businesses attribute high value to the ability to use different payment methods (78%), to automatically send reminders to customers as due dates approach (75%), and to view the real-time status of invoices (78%),” she said.
While many FIs recognize the value of offering receivables management tools to their small-business customers, most have moved far too slowly to roll out the capabilities, stated Barry. Aite Group estimates just 10% of financial institutions offer receivables capabilities to their small business customers/members.
“While some banks have already formed direct partnerships with fintech providers, most will likely find they do not have the resources necessary to perform the vendor due-diligence or to invest in a third-party fintech company,” stated Barry. “Those financial institutions should instead speak with their online banking/cash management providers and urge them to vet these providers for inclusion in the small business marketplaces they should be building.”
Little Choice
Barry said businesses have been left with little choice but to look for less-efficient workarounds.
Christine Barry
“Many have had to seek solutions from nonbank providers or rely on paper-based processes and Microsoft Excel spreadsheets,” she said. “Small businesses need their financial institutions to help them more effectively manage, monitor, and collect funds coming into their business so they not only have a better feel for where they stand financially but also can more quickly bring cash into their organizations. Fortunately, technology has evolved, making solutions designed specifically for small businesses available in the market.”
The lack of available tools to date has led most small businesses to become dependent on manual processes and applications to track their cash and consolidate information. Manual processes are error-prone and inefficient, taking time and resources away from what is most important—running and growing the business, according to Barry.
Barry said if there is a silver lining from the pandemic, it is the “bright light being shown on those financial institutions that have adopted the right strategies and made the necessary investments to deliver the types of capabilities their small-business customers need.”
Build Loyalty—Or Lose It
More important, Barry said, the current economic struggles underscore the need for credit unions and banks to add receivable solutions to their online business banking platforms. Doing so, she said, will allow FIs to deliver greater value to business clients and create opportunities to deepen relationships, position themselves as partners, and enjoy greater access to deposits once the economy turns around.
She said financial institutions will win customer/member loyalty, “or quickly lose it, depending on the path they take over the coming months. Prior to the pandemic, approximately 14% of small businesses were already stating they will definitely switch banking institutions in the next two to three years, and an additional 36% were saying they might. Those numbers will rise if the right actions aren’t taken.”
Barry said partnerships with fintechs on receivable solutions that can be integrated with the FI’s online banking platform deliver the most-needed support now. She recognized, however, some FIs may not be able to move that quickly.
“Meanwhile, if they can’t deliver a solution to businesses now, they can at least recommend solutions to their small business clients—direct them to the resources,” said Barry. “That not only will help their clients in the months ahead, it will position the financial institution as a trusted advisor.”
The Benefit of a Clear Advantage
More intelligent and automated receivables processes are simply highly needed now by Main Street, concluded Barry.
“Those with something already in place have a clear advantage and will benefit from it in the current environment as they demonstrate value when their clients need it most,” said Barry. “These financial institutions will stand out from the pack, as their clients will have access to important tools to help them weather the current storm. The remainder of the industry must be a fast follower and raise receivables capabilities to a higher priority on their product roadmaps to better position themselves to assist clients.”