One of the biggest issues faced by growing companies is that of cash flow. The business might be doing well in terms of sales and may even have good pipelines for orders, but will fail in making timely payments to its suppliers, employees, and other operating costs, due to late payments from its clients.
Using digital payments helps the businesses in collecting their receivables in a more efficient manner. The Ministry of MSME in India has always been keen on promoting the use of digital payment systems like UPI and Bharat QR.
However, digital payments offer much more value to the B2B companies than just being an alternative to cash and cheque payments.
Make it Easy for the Buyer to Pay
Firstly, businesses should make available payment modes easy for buyers to pay.
The businesses can incorporate payment modes such as UPI, bank transfer, payment link, QR code, cards, and many other modes in their invoices. The more convenient it is for the buyer to pay, the fewer obstacles that would be between the issuance of the invoice and getting paid.
Also, for regular customers, the businesses may consider setting up automatic payment systems when possible.
Decrease Payment Collection Time Lag
A manual payment process usually involves emails, phone calls, banking details, cheque collection, and following up. With digital payments, some of these procedures become simpler.
Businesses may send invoices via email along with clear instructions on how to pay. Once the buyer pays, businesses may get a confirmation.
Boost Visibility on Receivables
Transactions via the digital platform produce important documentation that companies can utilize to track payment coming in.
Rather than looking at separate receipts, using spreadsheets or other methods of confirmation, companies can tie together the payment data and link this to their accounting and invoicing systems. In this way, finance departments can be made aware of:
- Which invoices have been paid
- Which payments are late
- Which customers tend to be late payers
- What the company’s anticipated cash flow is in the coming weeks
- Which receivables need attention right away
Make Use of Digital Transactions to Facilitate Better Cash Flow Management
Cash flow management depends upon knowing when money is going to come in.
By keeping digital transaction records organized, it becomes possible for a business to make the comparison between estimated receipts against collections. This will make it easier to manage supplier payments, payroll, purchase of inventory, and other expenses.
Digital transaction records have been emphasized by the Ministry of MSME in terms of their importance in the overall financial landscape, which includes their application in credit scoring.
Link up Digital Payments with Invoicing and Accounting
Digital payments can be made more effective when they are linked to other steps of the finance process.
Digital payments can be integrated into the accounting software or enterprise software in order to match up invoices, receipts, and balance.
Automation can be used to cut down the amount of work and decrease errors. It can also facilitate the finance team in managing the receivables and cash flow without having to verify every single transaction.
Combining Digital Payments With Receivables Financing
Digital payments can also complement financing tools meant for resolving delayed B2B payments.
TReDS, for instance, enables MSMEs to discount their receivables and obtain payment immediately instead of waiting for the payment cycle of the buyer. According to the Ministry of MSME, TReDS is an electronic platform enabling MSMEs to enhance their cash flow with immediate payment against receivables.
It can help when a business has made a sale but still requires working capital prior to the due date of invoicing.
Creating Payment Policies
Technology may not be enough to resolve every cash flow issue. Companies should also create clear payment policies.
An invoice should contain the due date of the payment, accepted payment methods, late payment policy, and relevant contact information. The payment reminder process should also be uniform without having to wait until the invoice is due.
There are options for dealing with delayed payments in eligible micro and small businesses through the MSME Samadhaan framework.
Secure Digital Payments Process
More frequent use of digital payments also entails better security measures.
Employers must ensure that payments are authorized, limit access to the company’s bank account, employ multi-factor verification when possible, and educate employees about fraudulent e-mails and phishing.
Payments must be processed through secure channels, while transaction logs should be audited for any suspicious activities.
However, digital payments have the potential to do much more for B2B organizations than simply speeding up transactional processes. With integration into digital invoicing, accounting processes, tracking receivables, and even financing, visibility and predictability of cash flow management can be increased.
The strategy for MSMEs is to create an integrated payment system that is based on ease of paying invoices, automation of transactions, visibility of outstanding payments, and cash flow-driven financial decisions.
In today’s world of digital commerce, where B2B transactions continue to become digital, organizations that create efficient payment and collection processes are able to strengthen their working capital management.
FAQs
Digital payments can help businesses collect receivables more efficiently by making it easier for buyers to complete payments and by improving visibility into incoming transactions.
TReDS enables eligible MSMEs to discount their receivables and obtain payment before the buyer's payment cycle, helping businesses manage working capital requirements.
Digital transaction records help businesses track paid and overdue invoices, monitor receivables, and make better cash flow management decisions.
