Coronavirus, stimulus create financial and logistical challenges for merchants
The recent $2 trillion coronavirus rescue package and other government moves such as a new Federal Reserve credit facility are designed to provide a lifeline for small businesses, but they also create complications as businesses must quickly accumulate payment records and other information to apply for the loans.
One of the greatest concerns from merchants across the world is the continued drop in business and cashflow, said Suneera Madhani, founder and CEO of Fattmerchant. “To counter these concerns, businesses need to be able to digitize their business offerings, as well as their ability to receive payments,” Madhani said.
The task ahead for small businesses is daunting, as it is for fintech lenders. Kabbage, which has lobbied for the U.S. stimulus package to address small-business needs, has closed offices in India and furloughed staff in the U.S. A Square spokesperson said the company has made changes to tighten its eligibility criteria.
While it’s ill-advised, nearly a third of small-business owners use their private bank and payment accounts for their business, according to Seed, which provides small-business research. That can complicate the business’ financial picture and make it harder to apply for SBA-affiliated loans, according to Lil Roberts, CEO and founder of Xendoo, a Fort Lauderdale, Fla.-based small-business technology company.That mix of personal and business finances creates several challenges for companies that need to seek a loan. The companies must locate payment records to add to tax statements and other financial information, and the businesses must figure out a way to pay their own business or personal bills once the loans come in.
All of these problems are fueling the sudden fast transfer to digital channels to make and receive payments — and also to potentially link to accounting programs. It’s likely that as the crisis and recovery unfold, there will be an expansion in payment products that tie directly to accounting and ERP systems.
There have been a lot of these linkages over the past couple of years, providing a potential boost for technology firms that can offset the effect of an economic downturn — provided the emergency small-business capital is successful.
Quicken, for example, has linked to Mastercard and U.S. Bank to tie financial management to card accounts. And Discover Financial Services in 2018 launched a small-business version of its Discover It card to complete with small business cards from Amex and Chase. The Discover card helps business owners separate personal and business spending with direct links to QuickBooks, Quicken and Excel.
Intuit in the past couple of years has also strengthened its ties to small business payments through an integration with Bill.com, which on Tuesday morning announced it would waive the first three months of subscription fees for new customers experiencing a decline in revenue because of the virus.
Bill.com also extended business hours to accommodate clients that have displaced or decentralized workforces because of work-from-home orders. The company is also making donations and created a fund that allows its employees to make donations to a small business of their choosing.
"The impact will differ based on each business's unique situation," said Rene Lacerte, Bill.com's founder and CEO, in a statement on the company's website. "Some businesses need immediate help figuring out how to work remotely. Some need help late at night or early in the morning because working from home requires a different set of work hours. And some just need access to cash to keep the lights on."
The rush to digitize and integrate payment, financial, intentory, accounting and tax documents will accelerate as businesses seek new loans, according to Xendoo’s Roberts.
“Everybody is changing their behavior right now,” Roberts said. “A majority of these businesses still don’t pay their bills online. What happens when more of that work becomes digital?”
The threat to businesses of course depends on the category, with businesses that have a heavily online or e-commerce component expected to fare better. Online payments and shopping allow businesses to maintain transaction flows, albeit at a slower pace, and be better positioned for a recovery.
“Online merchants will suffer in a far more variable way,” said David O’Connell, a senior analyst at Aite’s Wholesale Banking practice. “Online merchants have lower fixed costs, and they can generate payment flows through delivering remote service or online sales. Their revenue and expenses can expand and contract with demand.”
Many food and beverage businesses are now leaning on customers to purchase gift cards and vouchers in order to maintain a level of cash flow, Madhani said, adding her firm has partnered with Gift Up to provide merchants with the ability to offer digital gift cards.
“Previously, some customers only had physical options, so we want to open up their ability to transact from anywhere until things return to normal,” Madhani said. “We’re all in a position where we can help small businesses in some way and ensure we continue to add value to each of our customers — to help them make it through and still come out on top."