Introduction to online payments
- What are online payments?
- Accounts payable
- The benefits of managing AR online
- How to get paid online
- What to look for in an online AR platform?
- Help your business by going digital
Ever since mobile payment apps came into our lives over a decade ago, we’ve all grown accustomed to making instant, safe, and reliable payments from the comfort of our phones. Many of us regularly use these apps to pay friends and family in just a few seconds.
But when it comes to business expenses, you still, most likely, write checks. While the use of business checks is in constant decline, it’s still one of the most common B2B payment methods. In the third quarter of 2022, 840 million commercial checks were collected through the Federal Reserve System, with a daily average value of $34.4 billion.
If you’re pondering whether your business should pay and get paid online, this guide has all the answers you could possibly need.
What are online payments?
Online payments are transactions that occur online, without the actual transfer of physical assets like cash or paper checks. These transactions can be done with a credit card or bank transfer and are generally managed by a digital third-party service like an app or a website.
How do online payments work?
To make an online transaction, you need four players:
- Customer/payor: The person who pays
- Payment processor: The customer’s card service or bank. They manage the communication between the payor and the payee’s bank.
- Merchant/payee: The business that receives payment
- Payment gateway: An online version of a POSPOSA point of sale (POS) terminal is a device that’s used to process transactions. In recent years, the cash register has largely been replaced by electronic POS terminals that can process credit or debit card transactions. device that connects your website and the payment processor. The payment gateway handles the technical side of the transaction.
To understand this better, let’s look at the journey the payment makes:
So, to make an online payment both the payee and payor need to be able to pay and accept payments online–through banks, POS services, or digital payment tools.
What types of payments can be processed online?
- Debit/Credit cards: In an online transaction using a card, the payor inputs card details which are then sent over to the payment processor.
- E-wallets: This method requires signing up for an account with an e-wallet company, where you have funds stored for future transactions. You can usually either connect your credit card or bank account.
- Bank transfers: More common in business-related transactions, some merchants allow for payments through online bank transfers. This gives the payees full control over the transaction as they are the ones authorizing it.
- Electronic checks: This payment method is not as widely used. The main drawback of e-checks is that they aren’t processed instantly like cards are.
Who can pay online?
Generally speaking, every person or business can pay online, as long as their merchant accepts online payments. But while most merchants sell their goods online or have a POS terminal to process card payments, it becomes trickier when it comes to business expenses and bills.
What’s the difference between P2P, B2C, and B2B payments?
- P2P payments = transactions made between two or more individuals.
- B2C payments = transactions between businesses and customers. For example, when a customer buys the commodity or service you sell.
- B2B payments = transactions made between business entities.
Businesses usually work in either a B2C or B2B model, meaning they sell goods to consumers or they sell products and services to other businesses.
The two models differ in their payment terms. B2C deals are paid for instantly, typically with cash or a credit card. But business customers are used to paying by check or bank transfer. Because of the high volume of transactions, they also often expect to be able to pay in installments, per stage, or with net terms.
Because B2B deals require negotiation and contracts and usually are of great value, payments are more complicated, involve more people, and require advanced tools to process.
Are online payments safe?
Yes. In fact, they are much safer than manual payment methods like cash or paper checks. Plus they make things easier to track—which comes in handy around tax season and for reconciliation purposes.
The benefits of managing AP online
There are many reasons to stick to old habits and payment methods but in this guide, we want to focus on the benefits of paying your business bills online. Two main benefits are important to highlight:
Unlike cash or paper checks, digital payments leave a clear trail and cannot get lost or stolen on the way. Both you and your vendors get payment confirmations as soon as the money leaves your account. And, you can always check the payment’s details or status and make changes if needed.
What’s more, online payment services use state-of-the-art security protocols and encryption tools a small business can’t afford to develop independently. These technologies ensure your information stays private and help minimize risk of fraud and abuse.
Credit card perks
Paying with a credit card can help your business by:
- Generating card rewards and perks: Paying with a credit card for large business expenses, such as rent or utilities, means you get to collect rewards, cashback, points, and other perks on payments you usually can’t cover by card.
- Improving your cash flowCash flowCash flow is the amount of cash (or cash equivalents) that goes in and out. When more cash is coming in than going out, it’s known as positive cash flow. When the outgoing cash exceeds the incoming cash, it’s called negative cash flow.: Just because you’re low on cash at the moment doesn’t mean your bills aren’t due. Paying with a card allows you to settle the bill now and defer the payment until your next billing cycle, giving you some extra float.
How to pay your bills online
Now let’s say you are ready to move your bill payBill payBill pay refers to the process of paying bills, such as rent, utilities, or credit card payments, through an online or mobile payment service. online. There are several ways to go about this.
Nowadays, almost all banks have some kind of online bill pay feature. Some banks offer this for free, but to access more advanced options customers might have to pay a fee.
Additionally, many online payments are done through digital payment platforms that can accept payments from credit cards, electronic wallets, or smart cards. Some of these platforms let businesses allow customers to store their credit cards in their system, making it easier for them to pay quickly.
Other online payment methods include digital payment apps, online banking transfers via automated clearing house (ACH), or wiring and banking bill pay services.
What to look for in an online payment tool
Flexibility for both parties
If your vendor is used to getting paid by check, you’d be hard-pressed to convince them to receive a bank transfer or credit card. Still, sometimes you need the extra flexibility and float of a credit card payment or the convenience of a digital bank transfer. Some online accounts payableAccounts payableAP (accounts payable) is an accounting term that refers to the outstanding bills or invoices for goods and services already provided to your business but that you haven’t yet paid for. tools let you choose how you want to pay without affecting how your vendor gets their money. This means that you can pay with a credit card even if your vendor doesn’t accept cards.
Visibility and trackability
When you use an online tool to manage your accounts payable, you get to see all your payments in one place. This makes it easier to stay in control, keep track of funds coming out, check the status of every single payment, and edit or cancel as needed.
When it comes to paying your business bills, it’s all about timing. While paying early and getting it out of the way may sound like the responsible thing to do, it puts you at risk of depleting your business’s cash reserves and hurting its cash flow. Putting off payments until the last minute, however, may also not be the best approach. Unexpected situations like illness or just a poor memory are likely to result in late payments. These, in turn, can damage the relationships with vendors you worked so hard to build, can result in fines, or, in some cases, even lead to legal action.
A digital accounts payable tool usually lets you schedule all your payments in advance. This way, each payment goes out at precisely the right time, not a minute too soon or too late, saving you money and preventing headaches. You’ll also be saving time as you can handle all your payments for the month or the week in a single sitting.
Scheduling helps in terms of cash flow planning as well, since you can see all payments—past, present, and future—in the same place and know when you’re good to go and when you need to stream in more funds.
Payment approval workflows
If you’re not the only one handling the bills for your business, a lack of communication or a simple misunderstanding could mean a bill is paid too early, draining your account.
A digital accounts payable tool can prevent such scenarios if you implement payment approval workflows. With such tools, you can assign roles to different people in your operation and set thresholds for payments requiring your authorization.
Data collected by enterprise information management company Iron Mountain suggests that the cost of the non-digital processing of each paper invoice could be anywhere between $5 and $25. This means that if your business has 30 bills to process a month, it could be spending as much as $750 a month (or $9,000 a year)—on paying the bills.
By using a digital tool to manage accounts payable, you’ll save on several seemingly minor and unrelated fronts that really add up, including:
- Physical goods: By eliminating the need to mail out physical checks and invoices, you will no longer have to purchase paper checks, envelopes, stamps, printing paper, printer ink, or toners for your bill pay needs.
- Transactional fees: If you use your bank to transfer funds to your vendors, you’re likely paying $10-$25 per transaction. All the while, some online accounts payable tools don’t charge monthly subscription or transaction fees. Credit card transactions also tend to be cheaper on digital AP tools, so you’ll be better off, regardless of how you choose to pay.
- Staff hours: Your team is getting paid to maximize your business’s growth and potential, not to partake in payment-related busywork. Digital accounts payable tools save you and your staff hours every month, so you can focus on what really matters for your business.
The benefits of managing AR online
We covered the benefits of paying your business bills and expenses online. But as discussed earlier, there are also many benefits to accepting payments online. Before we dive into how to do it, let’s see the benefits of managing your ARARAccounts receivable (AR) is an accounting term that refers to all the money customers owe your business for products or services billed for but not yet paid for. online.
Efficiency and speed
Manual invoice processing is prone to errors and requires a lot of human involvement with multiple touchpoints. This can lead to a slower transaction cycle where processing a payment can take a few weeks–when, in reality, it shouldn’t take more than a few days.
If there are any payment discrepancies, or late or failed payments, there’s typically a back-and-forth that can make processing even longer. This means more late payments, high processing costs, and less cash on hand.
Instant payments, from everywhere
An online payment system can take funds from anywhere in the world instantly, and you can make that sale even if your customer lives on the other side of the globe. That means you get paid quickly, regardless of any physical borders.
Digital payment solutions offer multiple security checkpoints, making them incredibly safe and thereby reducing fraud. Tokenization, encryption and SSL are just a few ways the payment gateway ensures your electronic payment data stays safe throughout the entire transaction.
Security is one of the most important advantages of digital payment systems, and one of the reasons an increasing number of companies and consumers are embracing this payment method.
Generate more sales
If your company only accepts traditional payment methods, you’re severely limiting your client base. Online payments open businesses to anywhere consumers have access to the internet.
Cash payments may not always be available. What happens if, say, there’s a global event that causes people to remain in their homes for long periods of time? Online payments offer an alternative way to pay, allowing your company to remain flexible regardless of what might be happening in the world.
Flexibility is key for both long and short-term growth, and accepting electronic, contactless payment options is one of the easiest ways to achieve this.
How to get paid online
Credit and debit cards
To accept card payments, you’ll need a POS terminal. If you accept payments from consumers, you probably already have a POS terminal in place. If you don’t, it’s extremely easy to set up. All you need is a computer.
How does it work? It first reads the magnetic strip to check for sufficient funds to transfer to the merchant, then makes the transfer. The sale transaction is recorded and a receipt is printed or sent to the buyer via email or text.
If you have a bank account connected to your business, you can accept bank transfers. The downside is you have to give the customers your private bank information, which includes routing and account number.
Online bill pay platforms
There are several reasons to choose an online service to accept payments. It allows you to accept both card payments and bank transfers. There are other payment methods available through such platforms, like virtual cards.
What to look for in an online AR platform?
If you are considering accepting payments through an online payment platform, here’s what you should keep an eye out for:
Whether you are sending out multiple or single invoices, online payment platforms make it easy to upload a list of customers and invoices and send out payment requests. This makes it simpler to track in the long run, plus you guarantee your customers pay you the way you want
More payment options
Choose a payment platform that gives you the option to choose how you wish to get paid. Giving your customers the option to pay either by credit card or bank transfer can also be great for business. More options = happy customers.
With the convenience of automatic billing, you don’t have to send reminders or mail a bill. Your customer never has to wonder if they remembered to make the payment to you because they know it’s already done.
Digital payment solutions can offer automated processes such as automatic renewal and automatic billing. These give consumers the opportunity to subscribe to products or services they love without worrying about one more bill to regularly manage. They also eliminate the need to spend valuable time entering payments or matching invoices and checks.
Customers can pay from anywhere
Some electronic payment systems allow your customers to pay from their phone or laptop, meaning they can do it from home, work, or even on vacation. You can also check your account at all times and from any device. Accepting payments whenever you want can make your life much easier.
Certainty of payment
One of the biggest advantages of electronic payments for business owners is the certainty that the payment will be approved. As soon as the transaction gets through the payment gateway and the credit card company approves it, you know the funds are there.
Help your business by going digital
Whether you’re looking to save money or improve your efficiency, paying and getting paid online can do a lot of good for your business. Not only that, but it’s also extremely secure and can help you avoid fraud. There are plenty of systems in place that help you pay or receive payments online, and your next step should be finding the right one for you.
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