Small business

Cutting the complexity out of accessing capital: PayFacs and transforming SME finance

September 2026

small business asian man working on violin

Payment facilitators (PayFacs) process trillions in global transactions and have reshaped how small and medium enterprises (SMEs) accept payments.^[1]

By lowering barriers to entry, they have opened up card acceptance and alternative payment methods to businesses that were previously underserved, helping smaller businesses unlock the potential of payments to grow and scale.

Yet while accepting payments has never been easier for SMEs, accessing working capital remains as challenging as ever. This is in part because traditional providers continue to favor larger, more established businesses with longer credit histories, leaving many SMEs struggling to access the working capital they need to grow.

“It’s often a question of risk and cost-to-service versus return” explains Hugh Thomas, Lead Analyst, Commercial & Enterprise Payments at Javelin Research. “Financial institutions tend to focus on larger, more mature companies, where the value of a given product sale is higher, funds flows are more predictable, and risks are lower.”

While this remains a challenge for SMEs, it also creates a natural next step for PayFacs. Now at the center of how SMEs get paid, PayFacs are increasingly well placed to expand into areas like embedded finance, helping solve one of SMEs’ most persistent challenges.

The cash flow cost

For many SMEs, timing rather than revenue is often the biggest pain point - slow and unpredictable payments continue to put pressure on day-to-day operations.

Recent research^[2] shows this is putting business stability at risk. Over half (56%) of small businesses in the U.S. say they are owed money from late payments, while four in ten (42%) U.K. SMEs^[3]say it has prevented them paying staff salaries on time.

“In times of economic uncertainty you tend to see slower flows of B2B payments, as firms with the wherewithal to dictate payment timing seek to keep cash reserves high,” says Thomas. “This can starve smaller supplier payees of working capital, so anything a PayFac can do to meet these needs will be welcome.”

From payments to working capital

The ability to shorten the time between paying and getting paid has become critical, and the same infrastructure that made PayFacs central to SME payments now positions them well to bring similar innovations in working capital.

The data generated by the payments processed by PayFacs provides deep insight into the SME’s business cycles and informs fast underwriting for credit.

“A merchant must get their goods on the shelves before they can sell them, often having to outlay for the cost well in advance of peak sales time,” adds Thomas. “Or thinking in a B2B context, many SMEs struggle with lengthy payment terms of large corporates they supply and need a viable solution. If a PayFac is smart, it can partner with a working capital provider and look at the data to identify and offer solutions to address those gaps.”

This ability to embed funding directly into the payment journey removes friction, speeds up access to capital, and helps SMEs navigate short-term pressures.

Adding value through virtual cards

Virtual cards are fast becoming a primary driver of B2B payments. For SMEs, they offer a practical way to improve cash flow – when an SME pays a supplier using a virtual card, the supplier receives quick confirmation of payment, while the buyer benefits from extended time to settle the balance. This allows SMEs to hold onto cash for longer and use it to cover operational costs or invest in growth.

PayFacs are well positioned to combine payment acceptance with card issuing, giving merchants more control over the flow of funds. This shift also reflects SMEs’ preparedness to look beyond traditional channels for these services, with half of them now sourcing them from their software provider rather than their bank^.[4]

Beyond cash flow, virtual cards also address a long-standing operational pain point. “Virtual cards integrate directly with ERP and accounting systems, enabling payments and invoice data to be matched automatically at the point of transaction,” adds Sumit Khurana, Senior Vice President for Small and Medium Enterprises Asia Pacific, Mastercard. “That removes the need for manual reconciliation, reduces errors and frees up time for finance teams to focus on more complex tasks.”

Unlocking the next phase of SME growth

By combining payments, data and embedded financial tools, PayFacs can expand beyond payments to help tackle other complexities that have defined SME finance.

Working with partners such as Mastercard, PayFacs are increasingly able to deliver integrated solutions that improve cash flow, reduce admin burden and give SMEs greater control over their finances.

In doing so, they can go further than simplifying payments for SMEs, helping to also unlock the capital they need to grow and scale.