Small businesses in the United States, which employ nearly half of all private sector workers, are facing significant challenges with payment systems. According to the Federal Reserve's latest Small Business Credit Survey, 80% of respondents reported issues related to how they send and receive payments. The survey highlighted that dealing with fees and delays in receiving payments were among the most common problems.

Brian Clarke, a senior business strategy manager at the Federal Reserve Bank of Boston and a payments analyst on the survey’s outreach team, discussed these findings. He emphasized the importance of understanding small businesses' experiences with credit access and payment systems. "The voices of these smaller firms, which have anywhere from 1 – 500 employees, often aren’t represented in discussions about the key issues businesses are currently facing," Clarke stated.

The report revealed that credit card processing fees are a significant challenge for small businesses. Clarke explained: "When you use your card to buy a service or an item, the business itself does not receive the full value of your payment." He noted that while cash transactions provide full value to businesses, credit card transactions incur processing fees that can accumulate over time.

Interestingly, checks emerged as the most popular form of payment among small businesses surveyed, despite their declining use among consumers. Clarke remarked on this trend: "The popularity of checks being used and accepted might seem mind-boggling at first because people are using checks a lot less than they used to." However, he noted that checks remain prevalent in sectors like manufacturing and real estate where large transactions occur.

Another issue identified was the delay in accessing funds after payments are made. Clarke pointed out potential solutions through technological advancements: "Instant payments could be huge for small businesses for this exact reason." Systems like FedNow could significantly improve cash flow by enabling immediate bank-to-bank transfers.

Clarke acknowledged that while current payment systems function well overall, there is room for improvement by addressing existing pain points and expanding access to technologies like instant payments.

For more information on this topic and other innovations in payments technology, visit bostonfed.org.

Contact information for media inquiries is available through Amanda Blanco from the communications team at the Federal Reserve Bank of Boston.