Digital Payment Revolutionizing Process of Business Payments in India

Digital financial services have been revolutionizing the financial services sector. The most visible changes are seen in the payments industry with major innovative solutions in corporates’ and consumer’s ability to seamlessly send and receive money through different channels. At a time when the economy is moving from the brick and mortar set-ups towards digitization, it is imperative that corporates and vendors also realise the advantages of doing business digitally.

Delayed payments continue to plague the efficacy of businesses in India. Studies have shown that majority of vendors face difficulty in getting their dues cleared, resulting in payments being delayed by 2 weeks to 2 months on average. The hassle of getting approvals on payment orders, cheques and other long processed formalities, increases the bureaucratic stress on business functions. This directly creates an adverse effect on business, which results in a vicious cycle of delayed payments to small vendors in the overall trade cycle.

Digitization isn’t just a faster way for a company to make and receive payments, it can also help businesses reduce processing costs, and provide a more efficient way to track and control expenditures. Digitizing payments has several major benefits, such as increased efficiencies, traceability, speed and most importantly lower costs per transaction, which can be reduced by up to 90% compared to paying with cash.

Recently, many large IT companies have also raised concerns of having huge outstanding payments by more than two years on certain projects. There has been a strong impetus from the Government to enhance ease-of-doing-business in India and establish an easy trade environment. However, the challenge of getting over-pending dues has been a longstanding, unaddressed problem for most vendors, merchants, and small businesses, thus stifling entrepreneurship in India.

Moving from cash-based to digital payments has the potential benefits of making payments more efficient by lowering the cost of disbursing and receiving payments; increasing corporates’ or individuals’ risk management capacity; increasing the privacy of payments; increasing control over the funds received; increasing the security of payments and reducing the incidence of crimes associated with them; increasing the transparency of payments, and thus making it less likely for there to be leakage between the sender and receiver; increasing the speed of payments; and providing a first entry point into the formal financial system.

With innovative business payment solutions like American Express’ Buyer Initiated Payments, companies can manage their expenses efficiently, helping them increase the Days Payable Outstanding (DPO) and saving time and effort of both parties.

Banks should also be encouraged to provide loans to companies for enabling them to pay their dues on time. This will benefit both parties; vendors will get their dues on time, and corporates will get extended payment terms from the bank. Many banks have already started offering corporate card-linked online payment options for corporates and vendors, offering customized invoicing and settlement cycles to both parties. This also ensures the security of payment, with a tailor-made payment timeline that suits the business needs of both parties.

In contrast to a cash payment that travels at the speed of its carrier, digital payments can be virtually instantaneous, regardless of whether the sender and receiver are in the same town, district, or country. Recipients of cash payments not only often have to travel considerable distances to receive their payments, but also are particularly vulnerable to street crime once they carry the cash, due to the liquidity and transactional anonymity of cash. Digital payments can be held more securely than manual cash payments.

Ultimately, while digital payments can be more cost effective in the long term, building an adequate physical infrastructure for reliable payments will require significant up-front investments. The benefits of digitalization are only realized if they are as or more ubiquitous, affordable, easy, proximate, and secure as cash. Technology-enabled products should be designed from an ease-of-transaction perspective.

Hence, with India’s changing economic landscape, it is time that businesses start adopting digital payment solutions and take the lead towards digitisation. Corporates, vendors, banks and non-bank financial corporations should come together and promote the benefits of digital payment options, stimulating electronic invoicing, purchase and sales order reporting to both parties, and the choice of multiple payment options. The benefits of digital payments go well beyond convenience; if provided efficiently and effectively, they can transform the financial lives of those who use this technology.