Need for digital payment modes in SMEs

Indian SMEs have been using cash as a mode of payment for decades. Recently people have achieved a certain comfort level with different digital payment modes. Here are the pros of the same.
  • BY Shrishti Rai

    Feature Writer, BusinessEx

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  • Aug 31,2017
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  • 14 Mins Read

 Indian SMEs- Need for digital payment options.

After the great Indian demonetisation move by the government, the cash-based society was shaken without any cash in hand. People were forced to move towards digital payment options to make their day-to-day payments. Within a week, every small business provided customers with an option of making payment through e-wallets like Paytm, Mobikwik etc. including the mom & pop stores at every corner, street food vendors, milk parlours, and auto drivers. These including various other SME’s have been using cash as a mode of payment for decades. Moreover, this hasn't stopped since people developed a certain comfort level with digital payment modes even in smaller cities and towns. Many businesses like food delivery platforms invested in card swipe machine for the ease of the customers.

Difficulty with cash payment options

For a long-time Indian business, holders have been transacting in cash for every business needs, which certainly has its drawbacks including difficulty in maintaining books, no or little transparency. This makes it difficult to derive clear outflows and inflows as accounting standards may not be used. Manual maintenance of accounting books may lead to error, which becomes unavoidable. This also makes it nearly impossible to maintain records as the registers just keep piling on and locating a particular record becomes just too difficult for the shop owner. Another difficult situation arises at the time of legal obligations when the tax authorities can question about unaccounted cash. The reconciliation of cash also takes time, which is another trouble with cash payment system.

Benefits of cashless payments

Ease of accounts management- This process becomes easy as each transaction is recorded and thus an error free accounting records can be maintained.

Legal Obligations- When there is a full-fledged record of all the sales and expenditures and thus there is no unaccounted cash that could cause legal troubles to businessmen.

Faster payment cycles- Delay in the process of payment in business may lead to delayed operations and production. This may also take too much time in the completion of cycles, which will, in turn, hamper productivity. If a supplier is paid on time through digital payment methods, where payment can be made without having to send it physically the process quickens.

Convenience to the customers- This is of great importance that customers enjoy a certain comfort level with your business rather than your competition. They no doubt will if they have a choice. They should be able to pay through E-modes, which is speedily catching popularity amongst Indians.

Safety and convenience- It is of great convenience that the company is directly added to one’s account and is safe. This saves the trouble of depositing excess cash to the bank.

Digital payment options

Debit & credit cards- Plastic money is of great convenience to card holders, as all they need to do is swipe their cards and done. These cards are usually provided by banks and are linked to the holder’s account, which is debited or credited according to the type of card they are holding. Other cards are prepaid cards are also provided by entities where regular purchases are made by users e.g. Delhi Metro.

Account Transfer/ Net banking- In this way, the money can be transferred to any desired account by using their details. There are three different types of transfers that can be made, namely, National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS) and Real-time Gross Settlement (RTGS). There is a transaction fee applies to these transfers between 5-55 rupees.

UPI’s (Unified payment interface) - In this payment option the money can be sent or received using a mobile app linked to a bank account. These applications are launched by banks; there are different apps for different banks. Customers download images by their own bank.

Mobile wallets- Paytm are considered the most used mobile wallet used in our country. There are various e-wallets available to users, where money can be transferred from bank accounts and payment can be made from anywhere, through mobile phones or other devices using an ID & password. This password is created by the users and can be changed. Wallet option of payment is very easy and convenient.

Aadhaar Payment Mobile Application- To use this method SME’s need to have an account linked with their Aadhaar, a smartphone and an internet connection to run the process. Through this payment procedure, the money is added to the bank account linked instantly.

POS Machines- The business owners can use POS Machine- These machines and customers can use their debit/credit cards and PIN codes. These machines can be integrated with bank accounts to which money is transferred.

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