The future of payments for SMEsCreative Curiosity
The future of payments for SMEs
According to the RBA statistics (released 12 March 2019), Australians borrowed an incredible $26.6 billion in January alone. With average transaction of $109.10, this over-dependence on credit cards during the Christmas season for households is carried well into the new year and will largely impact small business’ (SMEs) who have a slow start. With very limited cash flow many SMEs look to either increase credit card limits or apply for a new credit card, however with the Australian government’s crackdown on credit cards continuing it may no longer be a viable option.
Changes from January 1, 2019
From January 1st 2019, ASIC have continued to target irresponsible lending and introduced stricter credit limit assessments for new applications and credit card increases. These reforms are designed to protect the consumer however the new assessment criteria is based on the cardholder’s ability to repay the entire credit limit within just a three-year period. For example, the minimum monthly payment required on a credit card with a $10,000 limit increases to $357 per month, compared to $200 per month prior to January 1, 2019. These changes will have a significant bearing on SMEs who currently use credit cards as a revolving line of credit to free up working capital. It is likely they will be approved for a lower credit limit than they would have previously or not be eligible for a credit card increase under the reform.
Alternate payment options for Business’
This now presents a vital opportunity for accountancy and legal firms to get a grasp on what the future of payments may look like for SMEs and ensure they are offering their clients a full suite of choices including fee funding to pay their invoices. The world of payments will look very different in the next five years. A fee funding facility like Smartfee enables SME’s the option of spreading the payment of their fees over a number of manageable, monthly instalments instead of having to pay their fees in one lump sum. Unlike credit cards, the interest rate and term is fixed with the client being able to choose instalment plans from 3 to 10 months and no compounding interest. There are also no additional fees for the SMEs or firms, and most importantly Smartfee does all the work. Once the first instalment is paid by the client, the full payment is made to the referring firm. Smartfee takes over management of the payments so firms can get back to generating more business. This creates a win for both parties who need to keep cash flow a focus.
All business’ know offering the right payment methods ultimately manages their cash flow more effectively though how do the options actually stack up for a client paying you? The Australian Tax Office reports that as of November 2018, 90% of small business failures are due to cash flow issues. This statistic drives the conversation about payment options and payment preferences. If an SME does not have the cash flow to pay their invoices for professional services upfront and their selected preference is credit cards, then how much will they end up being charged?
It is evident, the payments industry’s rapid evolution will continue this year. A key takeaway from the Royal Commission is that consumers want more transparency and understanding of the value they receive for the ongoing advice they pay for. Providing a broad range of flexible and cost effective payment solutions such as fee funding, that create cash flow for SMEs will start to become mandatory as the consumer starts to demand more options. Offering just a cash or a credit card option may no longer be enough. With so many moving pieces on the payments landscape, there is only one thing that is certain, business’ will be the winners when they start to look progressively at their current payment offerings from all perspectives and the true cost of your client.