Cashflow a Major Barrier for Small to Medium Businesses Looking to go Global

But, with the rapid development and adoption of new technologies, all types of small-to-medium businesses now have the tools to connect with previously unreachable audiences
Cashflow a Major Barrier for Small to Medium Businesses Looking to go Global
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ANZ general manager at GoCardless
4 min read
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Australia and New Zealand, by all definitions, are isolated from the rest of the Western World. Not only are we almost a full calendar day ahead of - most of - the world, but our geographical location poses a challenge for business logistics and communication. Luckily, with the rapid development and adoption of new technologies, all types of small-to-medium businesses, or SMBs, now have the tools to connect with previously unreachable audiences.

While these technologies have acted as a great equalizer, giving SMBs the tools to establish a global presence regardless of location - and for little-to-no cost - subscription and service-based Australian SMBs still face a number of additional barriers to accessing the global market.

These barriers vary. Some are geographical, some relate to language and cultural differences, local competition also comes into play, along with confusing taxation codes and logistics channels for product-based businesses. But one of the biggest barriers facing SMBs, backed up by a report from the Australian Securities and Insolvencies Commission (ASIC), is cash flow, with 48.8 percent reported to be struggling to achieve a good cash flow, and an additional 35.5 percent stating cash flow is their biggest pain point.

This cash flow issue is highlighted in a report from Xero stating that only 54.6 percent of Australian SMBs were cash flow positive as of July 2019. So what can SMBs do to overcome these cash flow issues?

There is only so much in-house policy creation that can be done to ensure clients pay on time, and it’s near-impossible to conduct a means test on every client or customer to ensure they have the funds to pay for products or services rendered. But one method, relatively untapped by Australian and New Zealand SMBs, is bank debit, a form of direct debit.

Bank debit refers to the act of pulling funds directly from the payers’ bank account after obtaining permission, or a mandate, from payers to pull funds at variable times, and for variable amounts to pay for products or services. Bank debits negate the need for cheques, cash, or cards - all methods which rely on the payer to take action -  and are especially useful for businesses with a recurring payment model, like subscription or service-based businesses.

This method of payment has been slowly but surely growing in popularity since its inception in 1968, and recent stats show there’s no sign of this growth abating. In the last ten years alone the volume of bank debit transactions processed per year has increased from 2.9 million, to 4.1 million. Because of this slow and steady growth experts have forecasted that the number of global transactions will rise to 4.6 billion by 2026. This begs the question - why aren’t more subscription and service based SMBs taking advantage of this growth?

The short answer is accessibility and awareness. Many SMBs don’t know there is a mechanism to pull funds straight from their payers' accounts through bank debit - and neither do the bigger players in the market. In fact, out of 44 top global subscription websites - including both HelloFresh and Spotify - only one offers bank debit as a payment option. That’s a whole lot of missed sales opportunities, with a GoCardless study across both Australia and New Zealand finding that 49 percent of people prefer to pay installments via bank debit, and 36 percent would choose bank debit to pay for subscriptions, if it were offered as an option.

So how can a business enable bank debit payments?

It’s not as hard as many might think. A number of tools and services exist that enable SMBs to accept payment via bank debit globally without the need to manage multiple payment providers or banking systems. But, before just choosing any provider it’s important to research available options and find a solution that fits the businesses needs.


Key Considerations When Choosing a Provider:

  • Does the solution enable the business to access the global market through bank debit payments, without the need to manage multiple systems or bank accounts?
  • Does the solution offer users visibility over the flow of payments through a fully automated collection system?
  • Does the solution empower businesses to better manage and reconcile their payment flows by breaking them down by due date, successful payments and failed payments?

While it’s great to know what to look for, many SMBs are too time-poor to do this research. If that’s the case, it’s always smart to partner with an expert who can take the complexity out of accepting global bank debit payments - a small action that can potentially have a huge impact on a businesses’ bottom line.

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