Having a good electronic payment system ensures that your activities remain current and accessible, giving you a strategic advantage over your competitors in today’s wide internet marketplace. Discover how electronic payments operate and the best practises to apply immediately to ensure your business’s success as it expands.
The ability to contact customers, visitors, clients, and attendees—anywhere, at any time—underpins why internet payments have grown in popularity. Businesses may now buy office supplies from the comfort of their couches, authorise vendor payments while riding the bus, and complete procurement orders late at night from their dining room table. Indeed, the percentage of customers that utilise several types of digital payment increased from 45% to 58% between 2019 and 2020, a startling leap from the 2% growth between 2018 and 2019.
For companies embracing the future of commerce, having a successful electronic payment system ensures that their operation remains relevant and accessible, giving them a strategic advantage in a large e-commerce field.
What is an electronic payment system (e-payment system)?
A payment system is a network that enables the sending and receiving of digital payments for online transactions. Also referred to as an electronic payment system or an online payment system, the electronic payment system encompasses both the purchaser’s interface—payment methods, online shopping carts, and identity verification—and the supplier’s accounts payable, remittance, and vendor management.
What is the mechanism of electronic payments?
Electronic payments may also be done by digitally transferring monies from one bank account to another over the national Automated Clearing House network. On the surface, the procedure seems to be straightforward, but there are several phases that a payment must complete before it is legally completed.
To demonstrate, consider an online marketplace that curates traders that sell locally made goods. The marketplace, or merchant, generates traffic to their website by attracting consumers, or cardholders. When a cardholder makes a purchase, such as a one-of-a-kind ceramic vase for their mother’s birthday, they input the credit debit or credit card information supplied by their issuer, which is often their bank.
This information is then utilised by the merchant’s merchant account provider, or acquirer, to determine whether the payment should be approved or denied.
A payment processor transfers payments between accounts, while a payment gateway encrypts the transaction using Payment Card Industry Data Security Standards (PCI DSS) secure socket layer (SSL) technology. Once a payment is approved, it is put straight into the merchant’s account, often within 3-5 business days. The retailer may then make payments to its suppliers using an efficient electronic payment system, immediately depositing monies through ACH transactions.
Payments made on a one-time basis and on a recurrent basis
Electronic payments’ adaptability satisfies the different e-commerce environment’s requirements. Consumers may input electronic payment information at the moment of purchase in a secure data capture process for instances such as the online marketplace.
Additionally, one-time payment information may be securely kept for future transactions, allowing consumers to return, login, and use the same payment information. This safe collection and storage of payment information is especially critical for organisations that provide recurring subscriptions or services that are similar to subscriptions. By providing an automatic payment plan, consumers may be confident that critical utility bills or automobile payments will never go delinquent.
Electronic payments come in a variety of forms
- Credit or debit cards, virtual cards, and chip technology that allows for “tap” payments
- Direct Deposit
- Contactless payments
- ACH Wire Transfers
Electronic payments have many benefits
Here are a few ways that electronic payments help to maintain long-term vendor relationships while also making customer interaction more accessible.
- Payments made more quickly and monitoring made simpler
Electronic payments reduce the need for a middleman in financial transactions, which means that although payments still go through several approval and security levels, the path from buyer to supplier is more direct. Due to the fact that these payments are performed digitally, the data collection is more extensive and complicated than with manual payment processing. Suppliers and purchasers can monitor the payment’s progress, eliminating the need for guessing or long email exchanges.
- Reduced fees
Electronic payments have much lower expenses as compared to conventional payment options. Physical check transactions may cost up to $20 per check, depending on the paper used, the banking institutions processing the payment, and the location of the checks.
Payments made by ACH, on the other hand, vary between $.20 and $1.50, with an average of $.50 per transaction. And, although payment processing software may need a one-time setup charge or even flat monthly fees, these expenses remain far cheaper than those connected with manual processing and physical checks.
- Securer and more convenient
Consumers and suppliers are exposed to fraud when sensitive financial information is shared. By using electronic payment solutions, you can ensure that your data is protected and secured in accordance with federal rules. Buyers may make payments on invoices or make purchases in real time, without incurring needless delays.
- Enhancements to data access and reporting
Capturing information digitally ensures that sales, customer service, procurement, and finance departments have access to a database of consumer and vendor information.
Access to payment history information enables firms to make educated choices about product lines, expansion, and even fraud protection.
Why are electronic payments gaining popularity?
You’ll note that brick-and-mortar establishments are increasingly displaying alerts for tap-to-pay choices while restaurants are using QR codes to order from the menu and pay your bill. These alternatives to the traditional credit card payment or pile of cash on the table are altering the way we conduct trade.
- E-commerce is exploding in popularity
According to the Digital Payments Market Report for 2021, electronic payments are expected to surpass $11 trillion in value by 2026, almost doubling from $5.44 trillion in 2020. While part of this trend began before to COVID-19—the Federal Reserve stated in 2018 that electronic payments had surpassed paper checks for the first time—the epidemic had an exponential effect on user uptake and company deployment.
- Fewer individuals and companies are willing to make cash payments
While many people still have cash on hand for little transactions or emergencies, the popularity of utilising cash for regular payments is dwindling. Cash payments were used by 19% of US customers in 2020, down seven percentage points from 2019. While many businesses that undertake in-person transactions continue to decline cash payments because to safety concerns connected to COVID-19, there is an advantage to providing their customers a variety of payment options: Convenience and Accessibility.
- Payments made electronically are simpler to trace and audit
In any case, cash and paper check payments need human labour to handle, and fast-paced work conditions promote inaccurate data collection and fraud. Businesses benefit from digital payments because they know that the electronic payment system has recorded the data associated with transactions. This information may be used to identify the status of a payment and to conduct audits.
Electronic payment best practices
Adopting an electronic payment system is not without its challenges. Consider the following recommended practices to achieve consistent and effective outcomes.
- Negotiate specific payment conditions in writing and adhere to them.
When onboarding new suppliers, ensure that they are aware of and agree to specified payment processing parameters, such as remittance terms (net30 vs. COD) and invoicing schedules. Including this information in a formal contract is an excellent choice.
- Accept a variety of payment methods
Not every seller accepts all payment methods. By accepting a variety of payment methods, a firm expands its pool of possible suppliers, ensuring that vendor selections are strategic rather than arbitrary.
- Utilize automated invoicing
Effective—and efficient—invoicing is the quickest path to profit growth. Automation of accounts payable is quick and precise, resulting in the advantages of early and timely payments.
- Utilize a cloud-based invoicing application
Updates and synchronisation occur automatically with cloud-based applications. Having access to real-time data rather than relying on slower, local infrastructure procedures improves accounting cycle management.
- Maintain a consistent payment schedule
Vendors need predictability and consistency in payment periods. Electronic payments’ quick and easy usage lays the groundwork for long-term vendor involvement.
- Send payment reminders on a regular basis
Nobody wants to be a sucker for guesswork when it comes to payments. Effective electronic payment techniques enable sellers and purchasers to communicate in a flexible, automated manner, preventing payment cycles from becoming stopped.
- Assess penalties for late payments
It’s never enjoyable to be the “evil guy” while imposing payment penalties.
Having these principles in place and enforcing them, on the other hand, provides accounting staff power when it comes to collecting money. Penalties for late payments should be indicated explicitly in onboarding material, with reminders offered at every opportunity to avoid surprises.
- Denarii Pay simplifies B2B payments.
Create your electronic payment system now and learn about the strategic advantages of electronic payment automation with Denarii Pay.
- Automation of accounts receivable
Automate time-consuming manual AR operations with Denarii Pay.
Send invoices automatically and track their status with rapid, direct deposit directly into your company bank account.
- Integrations of accounting software
Denarii Pay connects seamlessly with Xero, QuickBooks, and Zoho to provide real-time two-way synchronisation and ensure the correctness of account balances.
With the use of digital transactions by more companies, they can reach a broader audience and pay suppliers more quickly with the click of a button or the touch of a card. With electronic payment use and value steadily increasing—even significantly—there has never been a better opportunity to develop an electronic payment system.