Electronic payments and e-payment systems have experienced steady advancements because of their unparalleled ease over the past several decades. With the COVID-19 epidemic, electronic payments’ need for and advantages have become even more apparent as consumer acceptance has soared. Paying suppliers promptly, reducing risk, increasing control, and increasing visibility benefits from moving to electronic payments. There’s a good reason why so many small and medium-sized firms are embracing electronic payments as a means of eliminating paper-based accounts payable processes.
What is it?
The term “e-payments” refers to the practice of performing financial transactions or paying bills electronically rather than with paper checks or cash.
- Credit cards, debit cards, virtual cards, and ACH payments (direct deposit, direct debit, and electronic checks) are the most common ways of electronic payment.
Paper, shipping, and labor costs associated with traditional B2B payments such as checks are all but eliminated when using electronic payment options.
Advantages of Electronic Payments
Many businesses and their suppliers benefit significantly from electronic payments or e-payments systems. The advantages of e-payments in accounts payable outweigh the disadvantages in terms of cost, improved relationships, increased visibility, and greater security.
- A reduction in the time and money spent on printing, signing, stuffing, and mailing checks can be achieved by electronically processing as many payments as possible. Implementing a comprehensive e-payments strategy may save as much as 80% of processing expenses.
- Businesses may strengthen vendor relations by supporting faster, more secure payments incorporating extensive remittance data for more straightforward reconciliation.
- Enhanced Payment Security: Electronic payments are naturally more secure than paper checks, and particular systems such as virtual cards give even more security against fraud. On the other hand, best-in-class electronic payment systems offer extra security measures and controls.
- E-payment solutions give your company more visibility into payment statuses, financial indicators, and audit trails. They also save money by reducing the likelihood of data entry errors.
Types of Electronic Payment Systems
Let’s look at the advantages and disadvantages of the electronic payment types.
1. Credit Card
With a credit card, you may borrow the money from card providers up to a predetermined limit, most typically used for retail transactions. You can use it in a better way.
- Pros: Because the business starts these transactions and is paid from the cardholder’s credit line, they are fast and personable.
- Cons: Vendors may refuse to take credit cards because of the processing fees. As a result, a plastic card with a single number that may be used for all transactions is vulnerable to fraud.
2. Debit Card
As with credit cards, most debit card transactions are initiated by the store where the customer is making the purchase. Instead of using the cardholder’s credit line, these transactions use the cardholder’s bank account.
- Pros: Positive aspects of accepting debit card payments include the security of knowing exactly when and how much money will be sent to the seller.
- Cons: A disadvantage of using a debit card is that it provides minimal security for buyers while still being as inexpensive as accepting a credit card.
3. Virtual Card
Firms may produce 16-digit numbers that can only be used once and are permitted to pay a specified amount using a virtual card.
- Pros: Virtual cards are entirely free to the customer, fast, and safe, thanks to a procedure called payment tokenization, which assures that the business’s account bank information cannot be accessed. Business owners can take advantage of rebates on purchases.
- Cons: Compared with other payment options, virtual cards are currently being accepted by a lesser percentage of companies and suppliers.
4. Direct Debit Pull from ACH
Payroll methods like direct transfer and online payments are the most famous examples. In the case of ACH debit pulls, the payer or vendor starts a “draw” of money from the payer’s account.
- Pros: For the most part, ACH debit draws are inexpensive, if not completely free.
- Cons: However, because sellers have accessibility to your account details, this payment method is more time consuming and risky than others.
5. Direct credit Pull from ACH
Vendor payments are the most prevalent usage for this type of payment. Pushing cash out of the payer’s account is a distinct feature of ACH credit push, which works in the same way as a digital batch payment system.
- Pros: ACH payments are substantially less expensive to execute than credit card payments and allow for one-time or regular payments, making them ideal for small businesses.
- Cons: A disadvantage of ACH credit pushes is that banks charge a fee for processing, unlike ACH debit pulls.
Furthermore, the use of accurate account information in ACH payments raises risk. In general, these services are only open to more prominent organizations with huge payment volumes. Transaction data is not automatically sent when using ACH debit pulls or ACH credit pushes, resulting in more excellent time reconciling bills.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.