Payments refer to the transfer of money, goods, or services to purchase a product or service. They are usually acceptable and pre-decided values between the seller and buyer, available in the invoice or contract.
Usually, an invoice or bill precedes a payment. However, the term also includes such business payments that an entity receives or sends before the delivery of products or services or before the issue of invoices such as advance receipts or advance payments.
There are two parties involved in business payments. A payer is the one who makes the payment, and a payee refers to the person receiving the payment. Payments can be of different modes: services, cash, cheque, bank transfers, debit card, credit cards, mobile payments, UPI, etc. Certain modes also involve a transaction fee charged by the payment intermediary or facilitator, such as the bank, payment gateway, or merchant.
Importance of setting up a payment system in a business.
Digital Payment systems are essential to the effective functioning of financial systems worldwide. They provide the channels through which funds are transferred among banks and other institutions to discharge payment obligations arising from economic and financial transactions across the entire economy.
A payment system refers to suitable channels and tools to manage the smooth flow of business payments and processing, whether or not integrated with the accounts receivable or payable of the entity.
The following points help business owners know why they should have business payments set up in the entity.
1. Having a system in place promotes faster payment processing for your business
2. A payment system will also enable you to accept multiple payment options with ease
3. Setting up a payment system ensures that fraud management is in place
Ideal payment systems also have communication channels set up between the sellers and their buyers
4. It ensures optimal management of cash and bank balances throughout the year
5. It allows smooth management of accounts receivables and accounts payables
How does Payment Processing work?
Payment processing includes a payment gateway, bank/credit card company, merchant, merchant account, or business account. In one transaction a payment is processed, verified, accepted, declined, or the money gets transferred, this complete process takes place in less than a minute.
Advantages of Digital Payment Systems in Business
Reaching global audiences:
Possibly the biggest appeal to accepting online payments is that a business can open its shop to the whole world. As a merchant selling online, your offering is available to much more than just your own nationals; in fact, about 56% of online shoppers favor shopping cross-border, and therefore one of the main advantages of digital payments is being able to expand your sales reach to these eager audiences of global users.
Reduced costs for transactions:
In comparison to classic payment setups, where the shopper leaves the comfort of their home to visit a store and pay there, or place an order and mail a check, online payments take place in a much more automated environment. This translates into reduced costs for your business.
Accepting online payments comes with lower financial risks for the merchant, by comparison to traditional methods, where the seller may have to verify the integrity of the cash payment or deal with the fees associated with a bounced check.
Given the speed with which transactions conclude online, one of the advantages of online payment processing is that the shopper’s money is instantly deposited in the acquiring account. It can take as little as two or three days for online payments to be cleared, which gives merchants better control over their finances. What’s more, online payments tend to be more tightly regulated, offering extra peace of mind to those selling online.
Payment method acceptance:
payment from a customer is usually made via cash (in the country’s currency) or card, but in an online setup, the possibilities of payment are almost endless. Depending on the type of payment partner you decide to work with, your consumers will have access to numerous payment alternatives.
Top-range payment providers include options for payments for eWallets, cryptocurrency, prepaid cards and so many more. What’s more, some payment providers even facilitate entry into new markets through the acceptance of local payment methods. In Turkey or Brazil, for example, users are accustomed to paying online with their local installment cards, so being able to accept payment through these means will positively impact your bottom line.
We hope our rundown of the advantages and disadvantages of online payments has provided enough clear evidence that the benefits of accepting online payments greatly outweigh the downsides.
Finding the right online payment provider can guarantee access to extra business capabilities and more operational efficiency, whether we’re talking about small micro companies or enterprises.
When you are making a decision of choosing a payment system for your business, you should see to it that the system is ideal for your industry. Your business can save money and time with online transactions done through an online payment system. For those transactions made online, you can have a bigger reach and market from any part of the world.