For many people, launching a business is the culmination of a dream. Bringing brilliant ideas to life and hearing happy customers spreading the word can be deeply satisfying.
Ultimately though, business is about the bottom line. It’s about getting paid in full, on time and maintaining a healthy cash flow. Failing to recognise or act upon these mundane realities can quickly see a dream business turn into a nightmare.
Westpac figures show most businesses operate with around two months’ worth of funds at their disposal. This means they face a perilous existence, just scraping by in terms of managing income versus outgoings.
The cost of late payments
A late payments study by PayPal and Intuit Australia in late 2015 found that Australia’s small businesses were groaning under the weight of $26 billion collectively owed to them – an average of $13,200 per business.
As a result, more than a quarter of business owners were forced to take out a loan to cover expenses like staff wages, rent or bills. Others cut back on buying groceries or delayed making mortgage payments to make ends meet.
According to Kate Carnell from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), serious consequences can arise from late payments: “When big customers pay really slowly and you’ve got to pay your staff and your suppliers, it can send you out the back door.”
In partnership with a range of other agencies, the ASBFEO is currently conducting an inquiry to examine payment times and practices in Australia. Its final report is scheduled to be released in March 2017.
Cash, credit, polymer and plastic
Fortunately, small businesses and sole traders can take steps to secure a financially healthy future.
Signing up for merchant services can minimise the risk of going to the wall. By saving time, sparing hassle and allowing them to concentrate on what they do best, they can also help small businesses and sole traders maximise their potential.
Financial comparison research agency Canstar defines merchant services as the payment terminal and software used by a business to accept credit card and EFTPOS or debit card payments. The system ensures same-day settlement or overnight payment.
Such ‘instant payment’, says Anne Nalder, founder and CEO of the Small Business Association of Australia, is one of the biggest benefits merchant trading facilities bring to a small business.
Not having to waste 12 days a year, which is the average amount of time small business owners spend chasing unpaid invoices, is a further bonus.
“This is particularly helpful for tradies who go to homes to do work,” Nalder explains. “It is also excellent for retailers as many people do not carry too much cash on them, so a card is beneficial.”
Additional benefits beckon
Merchant trading facilities can also ease paperwork and administration demands. “They make it easier and quicker if you have one of those little machines, otherwise there is paperwork involved in raising manual card payments,” Nalder says.
As transactions shift towards contactless payments, merchant facilities are becoming a must for businesses that want to remain relevant.
For instance, Australia has the highest contactless card penetration among surveyed markets, with almost 60 per cent of banking customers using or having used contactless cards, the RFi Group Payments Evolution Report 2016 revealed. At 45 per cent, the proportion of people who use contactless cards at least once a week is also highest in Australia.
This suggests that, from a customer point of view, card payments are considered easy and convenient. Therefore, being able to facilitate a customer’s preferred payment method thus means never missing out on a sale.
Good sense in shopping around
Merchant services are not one size fits all, however, so business owners should first consider their budget, needs and preferences.
Canstar recommends gaining a full understanding of the fixed and variable fees and charges. These can include things like installation, interchange and credit card merchant service fees.
Just as fees vary, so too do the services on offer. Smoothing cash flow peaks and troughs by making it easier for small businesses and sole traders to accept and receive payments is really just the start.
Some merchant services also track orders, send automatic reminders to your customers, notify when payments are made, send out receipts and produce a summary of takings by day, week and month.
Can they make the morning coffee? Not yet, but they’re probably working on it.
Words by Denise Cullen
The articles represent the views of the authors and not necessarily that of the Bank. You should seek independent professional advice before acting on any matters set out in the articles