New report on microbusinesses leverages proprietary invoicing data to unveil the macro trends shaping US microbusinesses
Wave, an all-in-one money management solution for small businesses, announced a new report, “Macro Trends in Microbusiness: The Wave Report on Getting Paid 2021,” that explores payment trends shaping microbusiness cash flow in the United States. The study, which leverages anonymized invoicing data of over 300,000 US microbusiness owners, found that when these business owners make it easier for their customers to make online payments directly from a digital invoice, their customers are more likely to make payments on-time, helping to improve cash flow and ease income volatility. In fact, in 2021, 15.4% more digital invoices were paid on time when embedded with payment features.
Microbusinesses (defined by the US Small Business Administration as having fewer than 10 employees1), make up 92% of all businesses in the United States. According to a report from the Center for Financial Services Innovation, the financial health needs of microbusiness owners are largely overlooked, but the volatile nature of running a small business makes the need to plan for irregular income and expenses all the more important. A recent Wave poll of 1,000 US microbusinesses found that one in four owners have waited more than a year to get paid or simply haven’t been paid at all for their work.
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Microbusinesses, especially those running service-based or virtual businesses, largely rely on paper or digital invoices to get paid rather than collecting payment at a retail point-of-sale or on the job. Payment terms are set up by the business owner, and timely payment is dependent on customer behavior. Wave’s report examines the state of payments for this group, and the factors contributing to on-time customer payment.
Noteworthy findings from the report include:
- Microbusinesses are getting paid on time more frequently, but there is room for improvement: On-time payments continue to rise, likely due to the growing adoption of digital payments, accelerated by the COVID-19 pandemic. However, although 78.5% of invoices were paid on time in 2021, just over 1 in 5 (21.5%) were overdue. For business owners, even a small number of late payments can have a meaningful impact on their ability to pay suppliers or employees, and impact cash flow. When these business owners make it easier for their customers to pay for services directly from a digital invoice, their customers are more likely to make payments quickly.
- Invoice volume and values are on the rise: Microbusinesses are sending more invoices – a trend that may be a result of service-based, transactional businesses spurred by the pandemic. They are also invoicing for higher amounts. Since 2019, invoice values have increased by 17.1%, from an average value of $1,360 in 2019 to $1,592 in 2021, greatly outpacing the inflation rate of 4.43% during the same period4. Business owners are charging more for their services which can lead to higher earning potential.
- Bank payments see increased adoption: While credit card payments remain the most popular way for customers to pay for small business services, with 91% of invoices paid by credit cards in 2021, bank payments — which involve sending money from one bank account to another — are on the rise, while credit card usage is slowly declining. Use of bank payments rose 23% from 2019 to 2021 (from 6.9% to 8.5%), and are a cost-efficient way to transfer money, offering security and speed without the higher fees that come with using credit card networks. This makes bank payments an appealing option for younger businesses who have not yet reached profitability.
- Digital wallets create a frictionless payment experience: A look at 12 weeks’ worth of Wave invoices5 revealed that when presented with the option to pay by credit card, bank payment or Apple Pay®6, just over one in four (27%) payers selected Apple Pay. Without the manual input required for credit card payment on an invoice, digital wallets create a frictionless payment experience for customers, which can speed up cash flow for business owners.
- Service-based industries show strong potential for would-be entrepreneurs: Across the country, five industries are seeing the highest levels of microbusiness invoice activity, which points to potential opportunity in these sectors for would-be entrepreneurs. The top five industries are: IT/Tech/Telecom, Advertising/Marketing/Media, Health/Beauty/Pet Care, Architecture/Interiors/Construction and Professional Business Services.
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“As movements like remote work, side hustles and the Great Resignation continue to reshape the job market, entrepreneurship is an appealing option. But while there are plenty of industry findings for small and medium-sized businesses, the smallest of these businesses often lack access to key insights that account for their unique challenges, and help them understand the factors that help or hinder their cash flow,” says Kirk Simpson, co-founder and CEO at Wave. “Turning to personal savings or taking out loans can be mitigated with a focus on improving cash flow. We believe the most important thing we can do to support the financial health of this large but underserved group is to help them get paid faster.”
Wave helps small businesses manage cash flow through intelligent bookkeeping and banking solutions that are integrated and easy to use. From customizable, professional invoicing software that can remind customers of payment due dates to powerful invoice management features that enable business owners to track customer activity in one place, Wave’s solutions are built to enable better cash flow.
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