By Jay Singer
For many small business owners, keeping the lights on—literally—is a juggling act. Cash inflow is the lifeblood of every business, fueling all aspects of operations from employee salaries to electricity. So it’s no surprise that poor cash flow management is one of the top reasons small businesses fail. More specifically, small business owners globally cite cash flow projection as the most challenging aspect of cash flow management (1Mastercard Small Business Cash Flow Management Solutions Research, November 2017).
Small businesses are the backbone of our global economy, yet they have historically been underserved—many banking solutions fail to address their unique requirements. For some small businesses, challenges managing cash flow can be short-term. A business credit card is an ideal tool to solve for short-term needs, as it provides a detailed account of every purchase and highlights frequently used categories and opportunities to save. Many of today’s cards even come with innovative reporting options that illustrate spending trends and simplify year-end reporting and tax filing.
To solve for long-term financing and the predictive element of cash flow, however, small business owners need a clear reporting mechanism that provides a complete view of their financial accounts and forecasts inflows and outflows. As a result, small business owners are increasingly looking to integrated platforms powered by artificial intelligence and big data such as the Strands Business Financial Management (BFM) solution.
Mastercard recently integrated its digital payments technology into the Strands BFM, helping small businesses better understand their finances, project short-term cash flow and view personalized recommendations for products or services. Mastercard’s technology enables businesses to track their use of commercial credit cards, locate merchants that accept credit cards as well as provide loyalty rewards at select merchants and retailers.
With an integrated cash flow management solution, the first step is the aggregation of a business’s data (e.g. receivables, collections and invoices) to better understand its position. Once the data is compiled, the BFM tool can employ AI to forecast cash flow, a capability many small business owners lack. In fact, 21% of small business owners in North America (U.S. and Canada) do not have any projection management process in place. For those who do have a process, 22% say it is conducted by hand and 23% say their process revolves around custom spreadsheets.1
AI-enabled solutions can assist small business owners who are struggling to stay abreast of the various payment methods or invoice due dates for vendors and suppliers. The Strands BFM contains a layer of AI and machine-learning models that help manage accounts payables, receivables, budgets and inventory. It also delivers personalized alerts, highlights various options for when and how to pay vendors or suppliers and provides an interactive heat map that displays spending patterns.
Even with a profitable, sound business model, small businesses are in danger of failing without an effective cash flow management solution. While some small businesses are only looking for short-term cash flow solutions, integrated BFM platforms can benefit those seeking predictive analytics and tailored insights, capabilities that are often overlooked by the most common banking solutions.
1 Mastercard Global Research & Insights
Mastercard Small Business Cash Flow Management Solutions Research, November 2017 was executed among 4,806 Small Business Owners across 16 countries. Respondents consisted of individuals with an ownership stake and an active role in financial decision making for a business with 0 to 50 Employees. The markets surveyed are as follows: US, Canada Mexico, Colombia, Brazil, UK, France, Spain, Nordic Region, Turkey, UAE, South Africa, Japan, Hong Kong, Singapore, and India.
Jay Singer is Senior Vice President, Global Small Business Segment at Mastercard. In this role, he leads the global development and commercialization of the Mastercard innovative commercial products and solutions that serve small businesses.