Hungarian SME Cash Usage: Payment Habits Analysis

The study's primary focus is on the continued high rate of cash usage among Hungarian micro, small, and medium-sized enterprises (SMEs), despite credit transfer being the most prominent payment method. This unexpected finding is based on a survey of 1000 corporate managers and reveals a persistent reliance on cash, especially within the microenterprise sector. The research aims to understand the reasons behind this persistent cash usage, examining payment habits, relationships with financial institutions, and the level of distrust within the Hungarian corporate sector. A key objective is to identify potential strategies to reduce cash transactions. The study's findings will be compared with previous Hungarian and international research on similar topics, allowing for a broader understanding of the phenomenon. This initial observation contrasts with expectations, highlighting a need for further investigation into the underlying causes of persistent cash use, despite the availability of alternative payment systems.

The research employed a mixed-methods approach, combining quantitative and qualitative data collection. The quantitative phase involved a questionnaire-based survey of 1000 corporate managers, partially replicating a 2013 survey (summarized in Bódi-Schubert, 2014). The 2017 survey, unlike its predecessor, didn't heavily emphasize the impact of trust due to the improved economic environment since the 2013 study. The quantitative data were weighted to correct deviations from the actual proportions of Hungarian enterprises based on HCSO data. The qualitative phase consisted of ten semi-structured interviews with decision-makers at Hungarian SMEs to gain further insight into payment practices and to refine the questionnaire. The qualitative results generally confirmed the quantitative findings. The researchers utilized data from the Ipsos MORI Social Research Institute (Tu-Salmon 2016) for international comparison and data from the European Payment Report 2017 (Intrum Justitia) to inform the analysis of payment discipline. The study's sample size limited the complexity of statistical analysis, with the primary focus on supplier relationships to minimize the influence of customer preferences on payment method choices.

A key aspect of the research involved comparing the findings with a similar survey conducted in the United Kingdom by the Ipsos MORI Social Research Institute (Tu-Salmon 2016). The comparison highlights the disparity in card payment adoption between Hungarian and British businesses, with significantly lower card usage among Hungarian SMEs and microenterprises. While credit transfer prevalence is higher among Hungarian microenterprises compared to their British counterparts, cash usage shows a different pattern. Hungarian microenterprises rely less on cash in customer relationships than their UK counterparts, but the situation is less clear-cut for supplier relationships. Despite the difference in card usage, both countries show significant presence of cash usage, even within the SME sector. The study underscores that while credit transfers are dominant, cash remains a significant payment method in both countries, with Hungary showing a greater persistence of cash in microenterprises. This comparative analysis provides valuable context for understanding the unique characteristics of the Hungarian SME payment landscape.

The research identifies patterns in cash usage across different aspects of business transactions, revealing that while cash transactions are frequently justified by low-value transactions, the increase in the share of high-value cash transactions contradicts this statement. The study suggests that cash usage may be more deeply rooted in business practices and habits. The study also analyzed cash usage in employee wages, finding that a significant portion (36%) of microenterprises reported paying employees entirely in cash, compared to a much smaller percentage (5%) of SMEs not utilizing credit transfer for wages. The finding that approximately 50% of microenterprises pay at least half of their employees' wages in cash, compared to only 23% of SMEs, highlights a key difference in cash management practices between the two enterprise sizes. This suggests that cash inflows from customers may be used not only for supplier payments but also significantly for employee wages, further perpetuating the cycle of cash transactions. The prevalent use of cash for employee payments likely influences household spending habits.

The study examined the effect of the financial transaction levy on the payment practices of Hungarian SMEs. While the 2013 survey indicated no significant impact, the 2017 survey showed a slight increase in the percentage of enterprises reporting no effect (73% in 2017 vs. 68% in 2013). Among those who reported a change, the most common response was consolidating electronic payments to stay below the levy's upper limit (70%). A smaller percentage (15-16%) reported increased cash payments (both incoming and outgoing), representing only 4% of the total sample. This suggests that the levy, while not a primary driver of cash usage, has influenced some SMEs to adjust their electronic payment strategies to minimize the levy's impact. The findings highlight the complexities of using the levy to directly reduce cash transactions.

The research also investigated the influence of intraday transactions on SME payment practices. The 2017 survey found that, on average, the percentage of cash transactions was 6.41% lower among respondents who reported that the introduction of intraday transactions had affected their operations. This suggests a potential, albeit limited, positive impact of intraday transactions on reducing cash dependence. However, the study acknowledges the limitations of definitively concluding a causal link between these two factors, stressing the need for more robust analysis to fully understand the impact. The results indicate a possible correlation but do not confirm a clear direct impact on overall cash transactions. More comprehensive research is needed to fully assess the true influence of intraday transactions on reducing reliance on cash payments.

Beyond regulatory measures, the study explored other reasons behind cash usage. Customer preference emerged as a significant factor, with many respondents citing customers' preference for cash payments as the primary reason. This highlights the importance of considering customer behavior when attempting to reduce cash usage. Other reasons included the simplicity and convenience of cash, especially for ad-hoc purchases. The study observes a noticeable decrease in the use of cash due to habit since 2013, indicating that behavioral changes are possible. However, the possibility of underreporting regarding the use of cash to maintain anonymity (avoiding invoicing) remains, suggesting the actual extent of cash usage for this reason may be higher than reported. The survey demonstrates a complex interplay of factors shaping cash usage among Hungarian SMEs, with customer behavior and deeply embedded business practices playing major roles alongside the impact of regulatory measures.

The research explored incentives for reducing cash usage among Hungarian SMEs. The results show that lowering the cost of electronic payment solutions and improving the flexibility and convenience of electronic banking services would be the strongest incentives to reduce cash usage. A significant portion of respondents (62% of SMEs and 55% of microenterprises) stated that a reduction in the costs associated with electronic payment solutions would lead them to reduce their cash usage, far exceeding the number who felt increasing the cost of cash transactions would have a similar effect. This suggests that a proactive approach of incentivizing the transition towards electronic payments is more effective than punitive measures. The study emphasizes that the current range of electronic banking services offered by credit institutions is insufficient to meet the demand and that closing this gap could significantly increase the adoption of cashless transactions within a short period.

The study reveals a significant improvement in payment discipline within the Hungarian SME sector compared to 2013. This positive trend is evidenced by a decrease in overdue receivables and bad debts. While SMEs still experience higher rates of overdue receivables (60%) and bad debt losses (48%) than microenterprises (28% and 31% respectively) over the past three years, the overall reduction indicates a healthier business environment. The Intrum Justitia's European Payment Report 2017 supports this finding, showing that Hungary's payment discipline is good by international standards. The report highlights that average payment terms for B2B transactions are 26-27 days, and 11-14 days for B2C transactions. The common cause of late payments is the debtor's financial difficulties. This improved payment discipline suggests a reduction in the level of distrust observed among enterprises following the economic crisis and contributes to the overall operability and growth potential of the SME sector.

The research analyzes payment terms, highlighting their economic importance for SMEs. The study notes that SMEs often utilize longer payment deadlines to manage liquidity, especially when alternative financing options are limited. This is supported by the findings of Burkart and Ellingsen (2004) and Havran et al. (2017), who demonstrated a complementary effect between short-term bank loans and accounts payable. McGuiness et al. (2017) also showed that SMEs with access to trade credit were less prone to financial distress during the economic crisis. While the survey found no significant change in payment terms since 2013 (with most enterprises expecting payment within 8-30 days), the potential for improvement remains. The study suggests that relaxing payment terms could benefit the Hungarian SME sector, potentially aiding distressed firms with improved liquidity. The prevailing payment terms, although showing slight increases in leeway, remain relatively tight, particularly for SMEs, and present an opportunity for future improvement and support.

The research demonstrates significant bank loyalty among Hungarian SMEs and microenterprises. Excluding forced switches due to bank closures or bankruptcies, only slightly over 10% of respondents changed their primary financial institution in the past three years. While cost-efficiency was a frequently cited primary reason for switching, the study suggests that Hungarian enterprises also prioritize the quality of banking services. Microenterprises, more so than SMEs, emphasized branch proximity as a crucial factor in bank selection (45% vs. 35% respectively choosing a bank with a nearby branch). For microenterprises, branch closures were a significant factor driving bank changes (11%). While cost is a consideration, the desire for personalized service and favorable service packages (including account management conditions and borrowing options) are also very important. This reveals that bank selection isn't solely driven by cost, indicating a complex decision-making process incorporating both service quality and convenience.

The study explores the role of bank branches in the payment practices of Hungarian SMEs and microenterprises. While the importance of branch access is declining among SMEs (around 40% emphasizing easy access), it remains a critical factor for over half of microenterprises. The most common reasons for visiting a branch are cash deposits and withdrawals (70% of both SMEs and microenterprises). SMEs also frequently use branches for credit administration and other account operations (almost 40%), while microenterprises use branches more frequently for paper-based credit transfers (over 20%). This highlights the need for continued branch access, particularly for microenterprises reliant on physical banking for certain transactions. The contrasting reliance on branches between SMEs and microenterprises emphasizes the need for tailored financial service options for both segments. The importance of physical branch access remains substantial for microenterprises indicating a significant need for continued investment in physical banking infrastructure.

The study used regression analysis to identify factors influencing cash usage among SMEs and microenterprises, focusing primarily on supplier relationships to minimize the impact of customer preferences. The analysis revealed several key correlations. For microenterprises, cash inflows from customer relationships significantly influenced cash outflows to suppliers. Higher revenue was associated with a reduced likelihood of using cash for supplier payments, for both SMEs and microenterprises. The introduction of intraday transactions correlated with a 6.41% reduction in cash transactions. Microenterprises that switched banks in the past three years showed a higher percentage of cash transactions with suppliers, potentially indicating that high costs associated with electronic payment solutions contributed to cash reliance. Other factors analyzed, such as employee count, core business activity, and payment terms, showed no significant correlations with cash usage.

A separate regression analysis explored factors affecting the likelihood of cashless operations. The results showed a strong correlation between cashless operations in customer relationships and cashless operations with suppliers. Higher revenue was also associated with a greater probability of cashless operations. Interestingly, the study found a significant correlation between industry sector and cashless operations. Enterprises in the construction industry were less likely to be entirely cashless, while SMEs in the trade sector were more likely to use only electronic payments. These findings highlight the diverse factors influencing the adoption of cashless systems, including business type, revenue, and the existing payment habits of the business's customers and suppliers. The importance of established industry practices and business structures was highlighted as a major component in influencing payment choice.

The study further investigated the role of cash payments in employee wages. The regression analysis, using the percentage of cash-based wage payments as the dependent variable, found a significant relationship between cash payments to suppliers and the percentage of cash-based wages paid to employees. Higher sales revenues and certain core business activities were also correlated with the level of cash wage payments. The analysis revealed that a significant portion of microenterprises (36%) reported paying employees entirely in cash, compared to a much smaller percentage of SMEs (5%). Around 50% of microenterprises paid at least half of their employee wages in cash, contrasting with the 23% of SMEs employing this approach. This highlights the substantial influence of cash-based wage payments on household spending habits and the broader circulation of cash within the economy, highlighting the need to consider indirect economic impacts when addressing the overall use of cash within the Hungarian economy.

The study concludes that credit transfer is the most common payment method among Hungarian micro, small, and medium-sized enterprises (SMEs), but cash usage remains surprisingly high and has not significantly decreased since 2013. The persistence of cash usage is linked to customer preferences, habits, and the simplicity of cash transactions, especially for smaller-value payments, even though some businesses used cash for large-value transactions. The study indicates improved payment discipline and reduced distrust among enterprises, but suggests a significant proportion of businesses are willing to utilize electronic solutions should cost and convenience improve. The study highlights the significant loyalty of Hungarian SMEs to their banks, with few switching unless forced by external factors, but expresses that a reduction of costs associated with electronic payments would incentivize wider adoption of cashless systems within a short period. Future research should explore further the relationship between cash usage and the presence of a shadow economy.