Small business payments and cash flow in 2021: How to manage money in the post-pandemic economyPhoto from pexels

Originally Posted On: 2021 State of small business payments and cash flow | QuickBooks (


Money is the lifeblood of small business, but managing cash flow is increasingly among the most critical of many challenges facing small business owners.

Sixty percent of small business owners say that cash flow has been a problem at their business, and the problem has increased as these business owners navigate the post-pandemic economy.

Small business owners don’t have to face the challenges alone. QuickBooks surveyed 3,500 small business owners across six countries around the world to understand the causes of cash flow issues and how to support small businesses experiencing them. We also reviewed trends in the tools and methods small business owners utilize to better manage the money coming in and out of their businesses.

Businesses are adapting to new ways of working with their customers in our post-pandemic world. While many small businesses struggled with cash flow problems in the last year, data collected by QuickBooks show that more small businesses have found opportunities to recover in the first months of 2021. Our research shows small business owners are largely optimistic that their business will rebound and expect more revenue in the next 12 months

Use the chapters on the left to learn more about the common payments and cash flow challenges facing small businesses and the skills and tools small business owners say are helping them manage money coming in and out of their business as the economy begins to show signs of recovery.

Cash flow challenges

The majority of small businesses (60%) have experienced a cash flow issue at some point during their company’s history. And it likely comes as no surprise that 89% of small business owners that experience those issues say they have had a negative impact on their business.

The impact of cash flow issues can be wide-ranging and weigh on small business owners personally. Cash flow problems are among the top three causes of stress for 76% small business owners who experience them.

The majority of small business owners report that they used their personal savings to start their business, and the need to recoup those startup costs can increase their stress.

To learn how small business owners can approach these issues, we asked what they consider the primary causes of cash flow problems in 2021.

Decreasing sales or margins were reported to be the main contributor, a sign of the challenges facing small businesses in the post-pandemic economy. Unfortunately, those challenges don’t stop after sales have been made. More than a quarter of small business owners (27%) said not getting paid according to the agreed upon terms is a primary contributor to problems with their cash flow.

Chasing payments likely contributes to the hours of time small business owners spend each week managing the money in their business. About three in four small business owners say their cash outflows require a great deal or some active management.

A third spend three to five hours a week managing money, and more than a quarter (26%) spend six to nine hours doing so. Product-based business owners were more likely to spend time tied up in managing their money than owners of service- and project-based businesses.

The more time spent managing money, the less time small business owners can invest in focusing on growing their business.

Collecting payments

Despite the time small business owners are investing in actively managing the money in their businesses, the amount of money U.S. small business owners hold in uncollected receivables has continued to grow over the last three years.

Worldwide, an average 23% of all payments to small businesses are late, despite the majority of small businesses saying they are proactively working to mitigate overdue payments with incentives for early payments and by charging late fees.

It pays to invest in the right tools to collect payments to make the process easier, according to small business owners. Invoicing is one of the primary business processes small business owners indicate they wished they’d invested in sooner, according to 2020 research by QuickBooks.

Taking payments in new ways that make sense for customers can help businesses get paid on time. And many businesses are taking action to improve their collections process. Almost half of small business owners (47%) have started accepting payments in new ways since the start of the pandemic. Forty-six percent of small businesses that offer contactless payment methods for their customers started doing so during COVID-19.

Despite the effort business owners dedicate to collecting outstanding payments, nearly two-thirds of small business owners (63%) report they don’t know exactly how much cash comes into their businesses each month, and even more (67%) aren’t completely confident about how much money customers still owe them.

Controlling cash outflows

Unexpected variations in expenses can catch business owners off guard. Those surveyed said supplies, material, and labor costs were the hardest costs to predict.

When the majority of small business owners say their cash outflows require a great deal or some active management, the consequences of a lax approach can be serious.

Faced with cash flow problems, 79% of small businesses have struggled to pay a supplier, up from 71% pre-pandemic. These late payments damaged supplier relationships for nearly two-thirds of business owners surveyed (65%), and resulted in late fees for 72%.

Without a clear picture of their financial position, one cash flow misstep can set off a domino effect. Most small business owners (60%) have mistakenly thought they had more money than they did because they forgot about an expense they’d paid.

Impacts of cash flow problems

Seventy-two percent of small business owners surveyed reported that problems moving their money in a timely manner has disrupted their operations.

Cash flow problems impact businesses and employees through:

  • Restricted business growth (40%)
  • Missed opportunities to take on new projects (31%), hire (19%), and invest in capital (25%)
  • Inability to provide employees with pay raises (23%) or benefits (21%), and problems retaining employees (17%)
  • And crucially, missed tax payments (22%)

These problems don’t just impact the future position of small businesses. A 2020 Federal Reserve Banks survey found that nearly one in five small businesses would have to close if they experienced a two-month revenue loss. These threats to their businesses add up to a lot of stress for the majority of small business owners with cash flow problems, which can impact decision-making.

Nearly three in five small business owners (59%) have made a poor business decision due to concerns about insufficient cash flow.

Without the insight of how much money is flowing in and out of their business, it can be challenging for small business owners to make accurate financial projections. An understanding of cash inflows and outflows informs small business owners decisions about how and when they can sustainably grow their business.

On the bright side, small business owners also indicate they are finding effective tools to manage their money, and the vast majority say those tools help them manage their cash flow in a significant way.

Solving cash flow problems

When small business owners understand the financial health of their business, those insights empower better decision-making. But the more time business owners spend in operations actively managing the money in their business, the less time they have to focus on business growth.

Cash flow tools can be used to alleviate stress and build a more prosperous business. Nearly three in four small business owners (73%) use tools to manage their cash flow, and those who do say they are getting the job done.

Among those that use tools to manage their cash flow, 81% say they help a great deal.

Small business owners looking for a cash management tool should look for one that offers:

  • Historical tracking capabilities, including records of cash inflows and outflows over time
  • Time-saving automation
  • Integration with their other financial management tools

These are the features small businesses owners who aren’t happy with their current tools indicate they want the most. Most of all, they want the insight to project their company’s financial outlook so they can plan accordingly.

Beyond using the right tools, small business owners can stay ahead of cash flow problems by prioritizing the following five tactics.

Build and keep a cash reserve

Cash reserves are a key indicator of the financial security of a business.

Over a quarter of small business owners impacted by cash flow problems indicated that not having a cash reserve was the primary reason they struggled to manage their cash flow.

When funds run short, many business owners may rely on their personal money to support their business. Sixty-three percent contribute personal money to keep their business running at least once a year, and 29% do so at least once a quarter.

Cash reserves can protect business owners and help them avoid expensive debt by providing cash flow, in the event that unexpected expenses arise or revenue drops.

Take action on receivables

Despite widespread use of incentives, penalties, and other financial safeguards against overdue payments, customers’ failure to pay according to the agreed terms is the second most common reason small business owners struggle to maintain their cash flow.

When payments are late, most business owners use means like invoice factoring, collections, and legal or mediation services to help cushion the impact of delayed cash inflows. Tracking payments can help small business owners avoid being in the dark about the status of their receivables, and identify problems early.

Forecast and plan for cash flow variations

A small business’s growth is dependent on its leader’s informed decisions.

When a business is small, keeping track of business cash flow and forecast sales can be relatively straightforward. But as it grows, cash management can become more complex as more employees become involved with money coming into and going out of the business. Businesses with more than 49 employees are more likely than sole proprietors to have experienced cash flow issues.

Among business owners who experienced cash flow problems, 44% said they came as a surprise.

A quarter of small business owners said seasonal changes in demand were the primary cause of their cash flow problems. Using the right tools can help business owners stay prepared and plan ahead for variations in cash flows.

Planning for the future

Even before the coronavirus pandemic, small business owners were anticipating a recession. In 2019, nearly three in four small business owners (71%) believed there would be an economic recession in the coming two years.

study released in April 2021 by the U.S. federal reserve found that the pandemic has resulted in the permanent closure of around 200,000 U.S. more businesses than average historical levels during its first year. Without the funds to sustain themselves through fluctuations in sales volume, or the insight to plan for those fluctuations, businesses are at risk.

Despite the challenges they have weathered, the majority of small business owners are optimistic about their financial futures. Additional research conducted by QuickBooks shows that even some of the businesses most impacted by the COVID-19 pandemic are back to their pre-pandemic levels.

Businesses are rapidly evolving to meet market demands by testing new business models, developing new products, and offering customers new channels and methods to make purchases. In the U.S., 86% of small businesses have developed new products and services as a result of the coronavirus, according to our research in 2020.

The majority of small business owners expect their business’s revenue to grow over the next year as many economies begin to show signs of recovery.

Learn more: Additional cash flow management resources

If you’re looking for additional resources on managing cash flow or getting paid, our guides and resources below can help.

Cash flow management

Cash flow problems? Here’s how to bounce back to cash flow positive

Most small business owners experience cash flow problems at some point or another. Here are some suggestions to stay afloat when cash is tight

How to use envelope budgeting to manage small business cash flow

Envelope budgeting can help business owners better understand their expenses and manage their money. This guide explains how it works and how to use it in your business.

The critical differences between revenue, profit, and cash flow

Revenue is the total income generated by a business’s sales. Profit is your net income after expenses are subtracted from sales. Cash flow is the money going in and out of your business. Learn more about the differences and similarities between these elements of small business finances in our guide.

What is negative cash flow? 5 tips to manage it

Negative cash flow refers to a cash flow situation wherein cash outflows exceed inflows. Learn what negative cash flow means for a business and how to handle it.

Keeping a business cash reserve: What it is and why you need one

Cash reserves can keep your business afloat when cash flow runs short. Learn how to build a small business emergency fund with our guide.

Getting paid

How to choose the best payment method for small businesses

Getting paid is one of the most important parts of running a business. Learn more about payment options and which ones to accept at your business.

20 tips to get clients to pay their bills and invoices faster

Few things are more frustrating than waiting for an invoice to get paid. Learn 20 simple tricks and tips to ensure your bills get paid quickly.

How to follow up on past due invoices: Guide & payment reminder letter templates

This guide outlines how to follow up when payments are overdue, and includes payment reminder templates.

How to set up a small business billing system

A billing system is the process a business uses to bill and invoice customers. Learn how to set up a billing system for small businesses.

What are payment terms? How to use invoice payment terms to protect your business

Whether you’re invoicing for the first time or trying to inspire on-time payments, these payment terms will help you set boundaries with your clients and protect your business.

How to use recurring payments for automated billing

Recurring billing can help you get paid faster. This guide covers everything you need to know about automated payments and recurring bills.

Invoice templates and tools

Free invoice generator

Use this free invoice generator to create an invoice online. Enter your business information, upload your logo, and choose custom details within our invoice template. Then, you’re ready to download and send.

Free invoice templates

Download one of our free customizable invoice templates in Microsoft Word, Excel, PDF, and other formats.

Research methodology and sampling

The QuickBooks Payments and Cash Flow Survey was conducted by Wakefield Research among 3,500 small business owners of companies with 0-100 employees, including 1,000 in the U.S. and 500 in the U.K., Australia, Canada, India, and Brazil, between March 30 and April 20, 2021, using an email invitation and an online survey.

The margin of error is ±3.1 percentage points in the U.S. and ±4.4 percentage points elsewhere with a 95% confidence level. When reporting tracking data, quotas were set to ensure samples could be compared to data collected in 2019 in the U.S., U.K., Australia, Canada, and India. The data were weighted using U.S. Census size data to reflect the small business sector of the U.S. economy.

Review full results here.