Any small or medium size business owner understands the importance of getting paid and the value of getting paid quickly. We internet retailers really enjoy the ability to get paid quickly via credit card rather than having to invoice and collect on services rendered. So much so, that “three day money” has become a key financial consideration in a world of 60, 90, or even 120 day money. We must be careful though… our cash is only in transition to us for a matter of days rather than weeks or months, which may give us the false impression that a day or two here and there is of little consequence.
In our case, we’ve recently began considering new payment processing options as alternatives to our existing merchant services. Amongst the monthly charges, transactional charges, integration requirements, PCI compliance implications, etc., we quickly came to the cash flow impact, which may trump them all. Our current suite of products allows for each days credit card transactions to settle in our account the following morning. Some of the options we have looked at can have that cash tied up for 3 to 5 days, or more. There may be some associated process or rate savings but that transition is certainly an issue to address. A simple example: Let’s say a company sells $50,000 a day via credit card transactions and those funds are deposited next day. If that company transitions to a payment processor that requires four days to deposit, the day they flip the switch they start four days with no deposits. $200,000 just got moved from the “in the bank and available for use” bucket to the “in transit and unavailable” bucket, for good. Better be ready.
Of course a loan, credit line, reserves, etc., can provide the working cash needed to cover the new transit time if other benefits, such as new customers who will value the convenience and security of alternative payment methods, make the switch worth it. The small or medium size business owner needs to have those tools in place before they’re left holding the bag, the empty bag.