Making Small Business Your Business

We all appreciate the importance of micro and small businesses to any economy anywhere in the world. These companies represent 50% or more of both employment and value creation, and most new jobs are created in the small business community. A staggering 92% of all European businesses employ fewer than 10 people, the average American company employs 19 people and the average Japanese company employs 10 people. So, what’s the big deal?

Small businesses are a mighty force and represent huge opportunities for banks in general and payment providers perhaps in particular. However, this market segment is very often underserved by banks, often due to a basic lack of understanding of the challenges and issues facing small businesses every day. 

What’s on their minds? 

In trying to understand what makes small business owners tick, one would have to take a step back and consider some of the basics. Many choose to start their own business, pursuing perhaps their lifelong dreams, others are forced down this path perhaps following loss of  their jobs. Either way, starting a business equals autonomy and the owner and the business becomes one and the same. They live and breathe with the business. They are all information hungry and time crunched. They use any available channel to help make decisions and they make them quickly. There is a hands-on approach by owner and they take great pride in what they have achieved, their company, their products and/or services, their staff and their customers. For most small business owners it’s hard work and long hours. It’s not a job, it’s a lifestyle.

What do they need?

The one universal issue across small businesses in any industry and any country anywhere is paying and getting paid in a timely fashion. In other words improving their cashflow. A significant share of small businesses that are forced to close, are not necessarily unprofitable. It’s cashflow issues that kills them. In addition, most small business owners will also tell you they spend far too much time on bureaucracy and simply managing the business, and not enough time catering for customers. Managing payments, both outgoing and incoming, is naturally an important part of this.

How can we help?

We tend to forget that small businesses are buyers and sellers of products and services, which in our world means they’re both cardholders and merchants. Subsequently, payment cards represent a great opportunity for small businesses, both from a payables and receivables viewpoint. Firstly, when paying with a business charge or credit card, a 40-45 days grace period comes automatically. Getting paid by cards, also when operating in the B2B space, would typically ensure payment inside 3-5 days, leaving 30+ days positive cashflow. In addition, business cards would also provide simplified accounting processes, increased spend control and a variety of perks and benefits, discounts and rewards. Using business credit cards also ensures a far smoother process when buying from abroad, as procedure becomes identical to the one applied for domestic purchases. From the merchant perspective, accepting payment by way of cards also simplifies the account processes, reduces credit risk significantly and ensures same procedures for international customers buying from abroad.

By the way: It is in a way a myth that small businesses don’t use payment cards. They increasingly do, but the typically business owners use their own personal cards and reimburse themselves afterwards. Typically more than 10% of consumer cards are used also for small business expenditure, representing 12-15% of total spend on those cards. Why is that not a good idea? It creates a blurring line between personal and business spend and it doesn’t leverage all the benefits of using a business card. From a card issuer perspective it’s not a great concept as you miss out on a higher interchange revenue and you are vulnerable to competitors approaching your customers with perhaps a more fit—for-purpose product. Using data mining and advanced analytics to identify businesses ‘hiding’ in your consumer base is highly recommended and investment well worth making.

Either way: Go out and conquer the minds, hearts and imagination of your small business customers. And when you do, do it with the respect and admiration they deserve.