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How digital payments can save your business’s cash flow

A small business owner sending payments online in his workshop.

Maintaining a healthy cash flow is crucial for any business, regardless of size. Still, small and medium-sized businesses (SMBs) are particularly vulnerable to cash flow issues, especially in today’s volatile market. The good news is that embracing digital payments—both incoming and outgoing—can help.

First, what’s cash flow? 

As the name suggests, cash flow is the balance of money flowing in and out of your business at any given time. Cash flow can either be positive or negative. If more money came in than was spent, your cash flow will be positive. Positive cash flow is often also referred to as healthy. If you spent more than you brought in, however, your cash flow will be negative. 

It is worth noting that, unlike revenue or profit, cash flow takes into account not just earnings, but any infusion of cash (or equivalents), including a loan or an investment. So, there could be a situation where you have a positive cash flow, for example, because you took out a loan, but if you don’t generate revenue, it will turn negative soon enough. 

Why cash flow health is so important

A healthy cash flow means you have enough money to pay your vendors, suppliers, utility bills, rent, and employees, and are still left with some extra cash for unexpected expenses or for growing your business. Cash flow health means your business is more resilient in uncertain times as it has some reserves it can lean into if push comes to shove. 

Depending on industry and size, small businesses typically only have adequate cash to survive between 16 and 47 days without income. This means that in case of illness, a global or local crisis, or a downturn in the economy, many small businesses will have no choice but to shut down within a few weeks at best. In fact, according to a U.S. Bank survey, 82% of small businesses that shut down cite poor cash flow management as a key reason for closing their doors. 

To help their cash flow without breaking the bank, many small businesses are embracing new technologies, and specifically transitioning to digital payments. 

7 ways digitizing payments helps with cash flow

Switching to digital payments is not just a matter of convenience (which is also a big deal for busy entrepreneurs like you). It helps businesses improve their cash flow management without requiring monetary investment, special equipment, or training. If you have an internet connection and can operate a computer or a mobile phone, you can start sending and receiving digital payments online.

Here are some of the top ways in which digital payments will help your small business manage its cash flow. 

1. Scheduling

Many digital payment tools like Melio allow you to schedule payments in advance. This obviously saves time as you can handle all your payments in one sitting. It also improves your cash flow as it ensures you pay on time and never a minute too soon. So, you can hang on to cash longer without fear of forgetting a bill and incurring late fees and penalties. 

Timely payments also preserve the good relationships you work so hard to build with your vendors. These, in turn, translate to discounts and better net terms, all of which improve your cash flow.

2. Efficiency

We’re sure you’ve heard this one before but it doesn’t make it any less true: time is money, especially for small businesses. Using digital payment tools can save you hours every week on writing and sending out checks, reconciliation of incoming payments, and keeping track of money coming in and out of your accounts. 

If you’re wasting less time on payments, you’re practically adding to your cash reserves by cutting staff hours and focusing on generating revenue instead of busy work. More cash means better cash flow. It’s that simple. 

3. Getting paid faster

Providing your customers with an easy way to pay you online makes it more likely for them to pay on time and sometimes even sooner. Instead of constantly waiting for that check to arrive in the mail, you can already have the money in the bank, improving your cash flow. 

If you need a quick infusion of available cash, by using Melio to get paid, you may even be eligible to cash in earlier without affecting your customers. If, for example, your customer sent you an ACH bank transfer, which takes up to three business days, for a fee of just 1%, you can opt to get the payment directly to your debit card within 30 minutes. 

4. Safety

Checks and cash—still two of the most prevalent payment methods among businesses—can easily be lost or stolen. The time it takes you to get them back (if that’s even a possibility) can have a seriously negative impact on your cash flow. Digital payments, on the other hand, are monitored, so you know where your money is at all times, and it can’t end up in the wrong hands.

Online payment companies also have state-of-the-art security protocols protecting your information and funds from misconduct, and there’s always someone to turn to in the odd case something goes wrong. 

5. Better choices

When it comes to cash flow, sometimes just having flexibility and choices can make all the difference. When you use Melio for your payments, you can choose to pay with ACH to preserve cash by saving on fees (we charge exactly 0% for ACH payments). 

If you’re currently low on cash and need a little extra float until some money comes in, you can easily pay your bills with a credit card, even if your vendors don’t accept cards. This way, for a 2.9% fee, your vendor gets paid immediately, whichever way they prefer—check or ACH—while you get to hang on to your cash until your next billing cycle, providing up to 60 days of additional float. 

6. Tracking

Maintaining cash flow health is a delicate dance that requires constant monitoring of money coming in and out of your accounts. By using digital payment tools—especially if you pay and get paid on the same platform—you can get a clear picture of your finances at any given time. You can also see all of your scheduled payments in order to better plan ahead. 

Knowing exactly what’s coming in and out of your account and when will help you avoid payments accidentally depleting your cash flow. It will also allow you to know just how much cash you have to play around with at the moment. 

7. Approval workflows

As your business grows, you will likely find yourself delegating at least some of your bookkeeping, either to an external professional or to another member of your team. Online payment tools typically offer approval workflows that allow you to maintain control of finances coming out. This is crucial as you wouldn’t want a surprisingly high utility bill, for example, to diminish your cash before you have time to prepare for it. 

With approval workflows, you can choose to review each payment or set thresholds for larger payments that require approval so you’re never caught off guard. 

Better cash flow is just a few clicks away

Digital payment tools are a simple and cost-effective way for businesses, especially smaller ones, to improve their cash flow, without revolutionizing their entire workflow. All you have to do is sign up for Melio today—it’s free and only takes a few minutes to set up. 

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.