Being a small business owner is challenging enough without having to worry about getting paid. As a new study from the online payments specialists at WePay reveals, many entrepreneurs are struggling with maintaining steady cash flow and the effects of payment fraud.
Market research firm Survata recently surveyed of 505 small business owners in the United States on behalf of WePay. Forty-one percent said they had experienced a cash flow issue and 16 percent said they were the victims of payment fraud. A quarter reported that they suffered a payment chargeback, essentially the act of pulling money out of a company's account, plus a fine, because of a disputed transaction.
Some businesses have suffered repeatedly. Eight percent of those who were hit with payment fraud said it happened 10 or more times. And it often doesn't take long to become a victim.
Twenty-one percent said they experienced payment fraud within a year of opening its doors. More than half (51 percent) experienced fraud within two years.
These struggles are taking their toll the finances of a small business. Fifty-nine percent of businesses hit with cash flow problems describe the financial impact as "highly consequential or consequential." A similar number of respondents (56 percent) said that the same about the emotional impact.
What is a small business owner to do? Tina Hsiao, vice president of Risk and Chargeback Operations at WePay, offered the following advice.
Align up front on expectations
"When you take on a new client or project, it pays (pun intended) to invest the time getting clear on details of the deliverable, deliverable timing, and payment timing. Going one step further, capture it in an estimate or invoice," Hsiao urged. "The extra effort will go a long way in ensuring there’s no disputed charge later, nor any surprise like you expecting to be paid immediately upon service delivery while your client is planning to pay net 60."
Dispute disputed charges
Don't take a dispute lying down, Hsiao.
"We've come to see many entrepreneurs take the hit and move on," she observed. "And we appreciate this may be the path of least resistance on smaller transactions. Yet you can fight and win a chargeback claim."
Entrepreneurs have options when the dreaded chargeback notice arrives.
"Step one should be to engage your customer directly to clear up any confusion. It may help to remind them of your return policy, restocking fees, and/or terms of service. You can also dispute through the bank, presenting documentation including signed contracts or receipts, relevant emails, and screenshots of shipment tracking.
Open up to additional payment methods
"Many entrepreneurs refuse to accept credit cards or even ACH given their fees. None of us likes added cost," Hsiao noted about the desire among many small business owners to eke out savings wherever possible.
"Yet holistically, we've come to find allowing customers to pay with their preferred payment method increases customer conversion. And if you can help them to pay you immediately, better still. Also, if you assign value to not chasing down and waiting on payments, added fees can very well be ROI positive," Hsiao said.
Use a platform with integrated payments
As with other small business challenges, technology can help solve a cash crunch.
"WePay's survey found those SMBs that process all of their customer payments inside their go-to management software platform or app - like a Shopify, Zoho or BuilderTREND - report a 15 percent lower incidence of cash flow management issues," said Hsiao. "This finding fits with our broader experience that software with integrated payments can make it much easier for clients to pay you immediately… and it's inside something you're already using."
Plus, the benefits extend well beyond quick payments.
"Some of the best platform offer extensive risk and fraud protections. They can additionally give you access to new customer-friendly payment options like Apple Pay or Android Pay," added Hsiao.
Be skeptical when it's too good to be true
Hsiao recommends that small business owners keep their guard up. A seemingly lucrative burst of new business can turn into a nightmare if you rush in.
"As entrepreneurs do more business online, they're increasingly falling victim to fraud that only becomes apparent at the time of payment," Hsiao said. "Don't be scared - be prepared: Seek more information and assurance if you see warning signs like a high value rush order from a new client, a person overseas wanting to work with your local business from afar, or someone suggesting you pay their subcontractor from a lump sum they will pay you."