Running a business takes enormous investment, time, effort, capital and dedication. To run a successful business, you need to have good risk management and an element of luck.
As an entrepreneur, you're taking on operational risk, regulatory risk, legal risk and, of course, financial risk; all these possible scenarios need to be accounted for and consistently monitored.
Of course, some scenarios are more likely than others and need to be treated according to their likelihood and ability to disrupt operations.
Xero’s 2024 State of Small Business Report shows that between 11 and 28% of small businesses had cash flow problems in the past year.
Cash flow risk means your business may lose money or not meet financial expectations. Carrying this risk for too long or having to live with a certain percentage of failed transactions will likely affect your business’s operations and financial stability.
If you're a cash-only business, your primary risk is moving the cash over to a secure location like the bank after each operating day, but today, with digital payments becoming the norm, businesses are subject to a whole new risk profile.
Businesses that process payments, like e-commerce stores, can experience more financial risk because of payment reversals, but this doesn't mean your average in-store purchase is immune either.
What Financial Risks Will I Face As A Business?
Financial risk can stop your business from achieving its financial-related goals, be that reaching profitability, growing your business or paying yourself a livable wage. While you certainly can’t control financial risk, you can restrict your exposure to it. There are different types of financial risk to consider:- Market risk: Market changes can affect businesses in a positive or negative way. For instance, interest rate hikes can affect businesses. When it comes to businesses, market risk can relate to altering conditions in the marketplace where your business competes. For example, traditional retail businesses have been affected by customers who prefer to shop online. As traditional retail businesses aren’t able to compete with retailers who offer online shopping, they can fall behind.
- Credit risk: If your business extends credit to your customers, you need to take into consideration that the credit might not be repaid. When you extend credit, cash flow can be impacted.
- Operational risk: You may experience the consequences of operational failures like fraud or mismanagement in your business.
- Liquidity risk: Market liquidity risk and cash flow liquidity risk can affect your business.
- Reputational risk: Your business’s reputation can be affected badly by safety or security issues.
How Does Your Business Process Payments?
Processing payments is vital for any business; if you can't transact, you're effectively not a business, you're dead on arrival. Whether you have an e-commerce store or a physical shop, you need to process payments securely.- Do you have an online store? Running an e-commerce business necessitates you having an online payment gateway.
- If you have a physical brick-and-mortar shop, you need to make sure that you have POS (Point of Sale) software in place. If you have a POS system in your business, you should select a payment processor that is able to integrate into your existing hardware.
Payment Reversals Have an Impact on Businesses.
One of the biggest risks stores face is the threat of a reversible payment; nothing will leave a lump in your throat faster than realising you've handed over stock or provided a service and the payment fails to arrive or is deemed fraudulent. It's a horrible experience, but sadly, it happens to more businesses than you think. How do returns affect businesses? According to the 2023 Consumer Returns in the Retail Industry report, total returns for the retail industry came to $743 billion in merchandise in 2023. That’s a concerning number of returns! A payment reversal entails cancelling a transaction that has been completed. In a payment reversal, the funds are then returned to the customer. Whether you have an e-commerce or a physical store, it is important to note that you may have elevated financial risk if you experience many payment reversals.Why do payment reversals occur?
Payment reversals can happen for many reasons: customers are dissatisfied, there are product or service issues, mistakes are made in the transaction process, customers change their minds, and there are fraudulent activities. We've also seen the rise of social media-fueled returns where customers purchase items only to take pictures and acquire social proof only to return products or try to cancel the payment at a later stage. Most reversals come in the form of either a:- Chargeback - The credit provider forces the return of funds
- Refund - Merchant processes a return of funds
Any business can be negatively affected by a payment reversal.
Payment reversals can have a bad effect on businesses. As a result of payment reversals, your business can experience lost income, added expenses and ruined customer relationships.- When your business reverses a payment, you lose the sale and the fees associated with it. If your business does many payment reversals, then this can start to add up and affect your business financially.
- Resolving payment reversals is time-consuming. To resolve payment reversals, your business needs even more resources. These expenses start to add up over time, and those expenses are passed on to the customer, making your service or product more expensive.
- Customer relationships may become strained after a payment reversal. Customer relationships are at the forefront of any business. Customers can be upset if they need to reverse a payment and may say bad things about your business. As a business owner, you need to deal with your customers in a professional way. The last thing you want is negative reviews about your business. Having good customer relationships is essential for any business.
How to Decrease Payment Reversals
Alternatively, if you don't want to deal with the headache of monitoring every transaction, taking out additional insurance, blocklisting customers or working through processes with your bank to return funds to you, you could opt for a payment network that provides real-time settlement in Bitcoin. When you choose to accept payment in Bitcoin, a 10-minute confirmation is all you need on-chain to get started or push it up to an hour if you really want to tread on the side of caution. As for the Lightning Network, once you issue an invoice, the payment is settled in near instantaneously. The funds are in your wallet, and you can turn around and spend those funds or issue a refund if you choose to do so, but the funds remain in your possession. This finality also discourages criminals and fraudsters from attempting to scam your business because there is no possibility of a chargeback. So you're already disqualifying time wasters out the gate, and you can be sure only serious customers will be willing to part with their Bitcoin for your product or service.Why should businesses accept Bitcoin payments?
There are many benefits of accepting Bitcoin payments for businesses.- Bitcoin transactions can’t be reversed or blocked. Once a Bitcoin transaction is done, there is no going back. This is a plus for your business because you won’t be experiencing any reversible payments with Bitcoin.
- Bitcoin is censorship-resistant. There is no counterparty risk with bitcoin.
- Bitcoin is seen as a solution for cross-border transactions. With Bitcoin, there is no need for currency conversions or high fees. Unlike traditional cross-border transfers which might be slow or costly, Bitcoin offers near-instant settlement between two people.
Successfully accept Bitcoin payments with Flash
Are you looking to accept payments in Bitcoin in your business?- Accepting Bitcoin payments is simplified and convenient with Flash. Flash offers the convenience of immediate, secure Bitcoin transactions.
- Flash allows the site owner to connect his/her site to a Bitcoin wallet or a Lightning wallet.
- At Flash, we minimise transaction fees and ensure instant payments via the Lightning Network. Sellers and merchants alike will love using Flash and enjoy an unparalleled experience. Transact in Bitcoin easily with our service.
- Our checkout feature can be used to sell directly to consumers and accept Bitcoin payments.
- Integrate our solution with your business platforms effortlessly.
- Flash Wallet is the easiest non-custodial Lightning wallet to accept and spend Bitcoin.
- One of our products we offer is Point of Sales. You can accept Bitcoin for your physical store, directly from your phone or tablet. Enjoy benefits like 24/7 customer support, automatic software updates, secure transaction processing, and instant Bitcoin payments.