From XU Magazine, 
Issue 20

Learnings from around the world: Insights and advice for scaling SMBs

In 2018, GoCardless took the number of countries in its global payments network to 30 – and have even more in the pipeline for this year, starting with the US.

As we expand into these new markets, we have the opportunity to work with small businesses all over the world and get a real understanding of their challenges – not only in terms of getting paid but also how small business owners manage and utilise the influx of new apps and technology and the level of support they receive from legislation and government initiatives.

In this article, we hear from industry leaders Sholto Macpherson, Alexi Boyd and GoCardless’ Carolyn Breeze to understand how SMBs in different markets are tackling their challenges and where they might be able to learn from each other.

Moving to the cloud

Small businesses are increasingly using cloud software to manage their accounts and day to day admin more efficiently. These services range from electronic storage and email services to full cloud accounting software and add-on apps that automate data entry, payments and other processes associated with running a business.

According to research, SMBs in Australia and New Zealand are ‘global leaders’ when it comes to the adoption of cloud technology – with half of businesses implementing cloud services on some level.

Cloud accounting expert, Sholto Macpherson, notes how businesses in New Zealand and Australia were early adopters of  cloud accounting:

“Australians and New Zealanders alike were quick to move to cloud accounting software – as such their adoption rates are some of the highest in the world. In part, I think this because many were already using desktop accounting software so it wasn’t such a big leap – for example from spreadsheets and paper filing.”

In the UK, though adoption rates are strong compared to the rest of Europe – they still fall behind their peers in Australia and New Zealand, with 40% of firms now using some sort of cloud software.

However, with the number of apps and software available, some argue that adoption isn’t always an indicator of how well these tools are being utilised. Host of podcast, Small Biz Matters, Alexi Boyd says:

“While adoption rates are high, particularly for ANZ, when you look more closely, this tends to be in industries where you have to be an early adopter or where legislation makes moving to the cloud unavoidable – for example in accounting and bookkeeping.”

In the UK, for example, Making Tax Digital has encouraged more businesses to embrace cloud technology. Sholto adds:

“With MTD, the UK government has a successful campaign promoting the digitisation of tax – and actually getting these businesses to start using cloud software to manage it. While this is happening in Australia and New Zealand, it isn’t getting the same amount of promotion.”

Tackling late payment culture

As well as pushing small businesses to start their digital journey, governments have also started to be more vocal in supporting small businesses in the fight against late payments On average, it takes the average SMB 40 days to get paid for an invoice with 30 day payment terms.

For Alexi, this is  a legacy problem that sees SMBs stuck at the end of the payment chain, she says:

“Big businesses pay small businesses last – and it’s a choice, to keep that cash on their balance sheet. Small business get payment terms thrust upon them, without negotiation, that can be up to 90 days after the work has been completed.”

In the UK, the government has recently introduced new legislation to help “tackle the scourge of late payments”. This requires big businesses to report on their payment practices and for companies to nominate a non-executive director to take responsibility for the supply chain.

Though it is still too early to tell whether or not these measures are enough to see the end of late payments for good, many see this as a positive move in support of SMBs and their importance to the economy. Alexi adds:

“You need legislation in place to break that cycle and hold businesses accountable. The Australian government is encouraging larger businesses to be transparent about their payment terms. But that doesn’t mean it is actually legislated – I would like to see legislation for 30 day maximum payment terms on invoices.”

The cash flow challenge

While late payments remain a challenge, and technology adoption is still part of a digital journey for so many SMBs, cash flow has remained one of the biggest challenges faced by small business owners. According to Xero research, just 50% of small businesses are cash flow positive, in the UK and Australia.

There are many factors that contribute to a businesses cash flow which is why, in the past, businesses have struggled to stay in control. Sholto says:

“Without the right systems, cash flow is a huge challenge and a massive pain to do properly. Itís incredibly time consuming to work out when payments are coming in and going out and then chase late payers.”

Cloud accounting software has helped to automate invoicing and billing processes and apps exist to automate data entry and credit control  but  despite this innovation and new technology – one thing has been left behind and that’s the way businesses get paid. GoCardless’ General Manager for Australia, Carolyn Breeze, says:

“The way people get paid is fundamental to fixing cash flow. It’s shocking to think that 52% of businesses still get their invoice paid through outdated methods like cheques. It leads people to think that getting paid late and poor cash flow are just part of running a small business when it doesn’t have to be the case.”

It’s shocking to think that 52% of businesses still get their invoice paid through outdated methods like cheques. - Carolyn Breeze, GoCardless' General Manager for Australia

Taking control of cash flow

While late payment culture is unlikely to change overnight, there are steps some universal measures that small businesses can put in place to help take control of cash flow and make sure they get paid.

Starting with the right payment method

Traditional payment methods like standing order, cheque, bank transfer and even card payments leave the business reliant on the client to initiate payments. However, automated payments like Direct Debit and GoCardless allow you to pull payment from the customer when it’s due, putting you back in control. Carolyn Breeze says:

“Getting paid shouldn’t be a pain for small business owners. Pulling funds from your clients’ account with Direct Debit creates much more predictable cash flow – and clients can relax knowing they don’t need to manually pay their invoice each month.”

Having the right payment method in place allows you to optimise these processes and ensure that the business avoids cash gaps in the future.

“Integrate payments in to a good accounting software and let it do the work for you. You have everything you need all in one place, and it makes it so much easier to keep all of your communications with clients consistent – leaving no room for confusion about when you expect to be paid and how you want to receive those payments.” Alexi says.

Sholto speaks to a lot of small businesses and finds that a major challenge even with apps in place is financial literacy and the accuracy of the data produced – which comes back to the point of not only using technology but knowing how to use it well. He says:

“Business owners [other than accountants] don’t launch an enterprise for the love of administration and bookwork. So it’s not surprising that one of the most common reasons SMBs fail is because they run out of cash. They don’t know how to read a P&L, create a budget or forecast cash flow. And these are vital to success. The key is to find a great accountant who can teach you how to do it yourself – and ideally one who does it for their own firm.”

Why leave it there?

Take control of your cashflow

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