If you’re like most small business owners, you spend a lot of time trying to work out how much money has come into and gone out of your bank account.
Most company owners are poring over spreadsheets at night, wondering whether they have enough cash flow to meet next month’s supplier payments and wage bill.
The purpose of open banking was to take a lot of this hard work away so small business owners could spend more of their time focusing on acquiring customers and improving the quality of their products and services.
However, a lot of SMEs still aren’t using the technology to the fullest, and it’s taking time to percolate through the economy.
What is open banking?
You’re probably wondering right now what open banking actually is.
The Financial Conduct Authority in Britain describes it as a secure and regulated way for businesses to share data between trusted apps and services and their bank account.
You probably already have QuickBooks hooked up to your banking system, but it can take many other forms.
The extent to which open banking is customisable to your specific business is significant.
What’s nice about open banking is that you don’t need to hand over any banking passwords, and any sharing of data only occurs with your consent.
In other words, it goes via a backend route.
Why open banking matters for your cash flow
Once you have open banking set up, it can have a profound effect on your cash flow.
The reason is that it’s able to reconcile the actual figures in your account with what the rest of your systems say.
You can also use it to notify you if you have an issue with cash flow in the future, depending on projected spending plans.
Live bank data is usually the best source for telling you how much actual cash you have available.
Sometimes your systems can be out of date, especially if they’re disconnected or you only reconcile them once a week.
You could end up making purchasing decisions where you don’t actually have the money.
How the connections work behind the scenes
The nice thing about open banking is that you don’t actually have to understand how the technology works.
All you need to do is create the connection, and that’s where external parties can help you.
You don’t have to necessarily do it internally, although there are options to do this as well.
Usually, it connects through an open banking data API.
The purpose of this tool is to gather information from your bank securely and then forward it to whichever digital location you need it next.
You’ll get a secure key that prevents anybody else from accessing the data stream.
Controlling your data
Ultimately, when you use open banking, you have complete control over your data.
In fact, that’s one of the reasons why the system was first set up.
Before you connect to any app, you can check that the provider is authorized by the FCA and then read through what it’s allowed to access carefully.
You can prevent it from accessing sensitive information.
Hope you’ve found our article, Open Banking Explained: A Plain Guide for Small Business Owners useful.
Thank you for taking the time to read my post. If you’d like to add a comment or thought on this post, please use the comments section below. I can also be contacted via the online contact form. Keep up to date with the latest news on social media.