Small and medium enterprises are lean and agile operators disproportionately affected by a lack of access to affordable and fast financial services.
Although many financial institutions offer a wide range of services, including different accounts, cards, and loans, traditional providers have cumbersome onboarding processes. This leaves small businesses underserved because they haven’t been in business long enough to qualify, don’t have months to wait for bank approval, or have to spend their working hours managing their business, without queuing at a bank a branch.
Fortunately, fair, inclusive, and expedited financial services are now becoming readily available through an emerging industry called “embedded finance.”
What is Integrated Finance?
Embedded finance is the delivery of financial services through a partnership with a technology provider, rather than a bank or other traditional financial institution. Integrated funding partnerships are typically technology-driven and provide an end-to-end solution for small businesses, from application to payment.
Lending institutions are increasingly partnering with software platforms to offer small business loans. These platforms use commercial data that enables modern underwriting models based on real-time sales rather than historical information.
Modern lenders can provide capital almost instantly to help SMBs with payroll, replace critical equipment or pop up a pop-up, rather than weeks or months later when the opportunity has passed or the damage was done.
These financial products also help businesses avoid late payment fees, which often arise from fluctuations in cash flow, as reimbursement is automatically deducted from credit card processing receivables.
When employees need to be paid, small business owners face several challenges.
First, tax and payroll compliance can be very complicated. Many national and subnational governments have their own set of laws that determine when overtime must be paid to an employee who works more than eight hours a day or 40 hours a week.
Businesses must comply with complex wage and hour laws that often result in the need to complete numerous paperwork. A small business owner may have to track pay rates using accounting software or manually calculate rates for each employee according to local laws.
Integrated payroll platforms have automated this process, allowing small business owners to set a single pay rate and allowing their staff members to time themselves using company hardware or even mobile apps. Staff.
The platform then determines employee hours eligible for rate multiples (like overtime, night shifts, split shifts, etc.) and routes a convenient approval request at the end of each pay period. Once approved, the platform initiates payment to the employee’s preferred account or wallet.
Integrated Accounts Payable
Small businesses that operate on low margins can risk supplier relationship issues, evictions, and even closures if they don’t manage their cash flow. Using the best suppliers and paying them the right amount at the right time with the right payment methods can mean thousands of dollars and hundreds of hours saved at the end of a year.
With integrated accounts payable, contractors no longer have to wait for vendors to manually send invoices or cut and file checks with every transaction. Instead, purchase orders can be automatically placed when stock levels reach certain limits, invoices can be scanned and automatically routed for approval via a mobile alert, and all parties receive instant notification once payment has been made. .
With all payable invoices scanned, managed, approved, and tracked in one platform, business owners can control their expenses and ensure they have positive cash flow to run their stores with no surprises.
Although traditional banks still offer the widest selection of financial products and services to SMEs, their product line lacks momentum. Integrated services have emerged as a viable alternative as they allow small businesses to solve the problems they face today.
Three strategies are beginning to play out which only accelerate this change:
- Some banks are accepting their role as wholesaler rather than retailer and are partnering with FinTechs to integrate finance into direct-to-customer technology platforms
- Some banks are dramatically increasing their R&D budgets, adopting agile product development methodologies and investing more in proprietary technologies
- Some FinTechs become banks, either through acquisition or through regulatory channels to obtain licenses
The net effect for small businesses should be wider and faster access to more suitable financial services, thus giving them a fair chance to compete with large companies.