The biggest payment challenges for SMEs

Small businesses all around the world are feeling the pinch due to economic and political influences beyond their control. From tariffs, to FX volatility, to uncertainty over trade agreements, when planning ahead is already tough, and margins razor-thin, the last thing SMEs need is issues with payments.


In the wake of political unrest in the UK, the number of small businesses trading internationally dropped to just 26%, down from 52% the previous year. However, this is not the only factor preventing SMEs from expanding into new territories. Transferring money across borders is not cheap, especially when making lots of small, frequent payments, with currency fluctuation and transaction fees impacting the bottom line.

Businesses that operate exclusively online, such as e-commerce companies may also be charged high processing fees when selling to customers in other countries. For this reason, it’s important to shop around to find a Payment Service Provider that is able to offer preferential rates on cross border transactions in a number of different currencies.

For less frequent and one-off payments abroad, there are a number of FinTechs that specialise in money transfers with much lower fees than those charged by high street banks.


Payment fraud is on the rise, and cybercriminals are constantly developing new tactics to target small businesses. SMEs are not doing themselves any favours though, with many not conducting ample checks before authorising a payment. Invoice fraud, where a scammer pretends to be an authoritative person within the organisation, such as the managing director, will contact the accounting team asking for an attached invoice to be paid. This type of fraud can be difficult to detect so it’s crucial to keep staff up to date on the latest developments in cybercrime.

For online businesses, fraud comes in many forms. Fraudulent transactions made with stolen credit card details are a huge issue for merchants, but chargebacks, often called ‘friendly fraud’ present a far bigger problem. This happens when a customer raises a dispute about the transaction with their bank, rather than contacting the merchant for a refund. This can be a genuine mistake – perhaps a customer doesn’t recognise the name of the business on their statement and contacts their bank to stop the payment.

This type of chargeback can be reduced by making sure the name of the business is easily recognisable to the customer when the transaction appears on their statement. Payment Service Providers should be able to issue merchants their own segregated accounts, which can be easily done via a virtual IBAN. A virtual IBAN improves payments acceptance, settlement times, and reconciliation because payments are made in the name of the virtual IBAN account holder.

However, a refund may be requested falsely, with a customer stating goods were not received when they were, in an attempt to get the item for free. Until it becomes easier for businesses to identify and fight this type of fraud, unfortunately, it will continue to impact merchants of all sizes and industries.

Late payments

According to research by Bacs, in the UK alone, the costs SMEs face in collecting late payments are estimated to be £6.7bn. In addition, 78% of SMEs are having to wait one month or more beyond their agreed terms to be paid. This payment challenge is resulting in serious disruption to SMEs’ day to day operations, and is even forcing some small businesses to close entirely.

In the Spring Statement, the Chancellor announced plans to clamp down on late payments with a requirement for listed companies to report on their payment performance in the annual report and accounts. This legislation aims to level the playing field for smaller businesses who cannot afford to be left waiting for invoices to be settled by larger companies in the supply chain.

Mike Cherry, National Chairman of The Federation of Small Businesses stated: “Poor payment practices by big businesses towards their smaller suppliers are rife and pernicious, leading to the closure of 50,000 small firms a year. Four out of five small businesses have been paid late, and we told the Chancellor that today was the moment to act, to tackle this scourge once and for all.”

Late payments happen for a number of reasons. One major reason behind customers not paying on time is that they are waiting on a late payment from their customer. This perpetual cycle in which everyone is playing catch up is eating away at small businesses, unable to reinvest due to cash flow being unpredictable.

The good news is that to offset the impact of late payments, SMEs can access instant cash via receivables financing. Cash is borrowed against a due invoice, which is settled once the payment has been made.


It’s not just late payments that present a challenge to SMEs. Delayed payments caused by a fragmented financial ecosystem are a big issue, too.

Waiting for payments to be settled when a customer makes payment via slow-to-clear methods, such as cheque, has been a problem for decades. Yet even as payments become more digitised on the front end, the infrastructure that makes these payments possible remains archaic.

Fortunately, there have been initiatives that have seen clearing times improve significantly, with the introduction of Faster Payments in the UK and SEPA across the EU. In addition, financial utilities that focus exclusively on optimising the international B2B payments process are helping to ensure small businesses are paid more quickly, with transactions between parties in two countries now possible in seconds, rather than days.

There is still a long way to go when it comes to improving payments for SMBs – an area which has so often been underserved by banks held back by legacy systems. But thanks to innovators in the financial industry, these challenges are finally being tackled head-on after being accepted as part and parcel of running a business for so long.

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