Opinions expressed by Entrepreneur contributors are their own.
Legacy payment processes might be the silent drain on your profits you’ve never noticed. With over 70 countries supporting real-time payments and a staggering $195 billion in transaction volume in 2022, it’s alarming why many small businesses still cling to outdated legacy payment solutions.
Grappling with the burdens of outdated payment methods is normal for small businesses, even though they come with hidden costs and delays and impact the business’s bottom line, posing risks to future growth. 9 in 10 companies (94%) reported in a survey are investing in digital technologies in at least one area of payments and finance, and 87% are planning to invest in the future. The shift to instant payments isn’t merely an option for business leaders. It’s imperative.
Related: Federal Reserve’s New Program Will Make Sending Money Faster and Easier Than Ever Before
High fees and low rewards for checks, ACH and credit cards
Old-school payment methods aren’t just about dollars and cents — they carry a tale of hidden costs. The opportunity cost of delayed funds and poor cash flow management can directly impact a business’s growth and financial health. We’ve seen this time and time again, especially during the pandemic. Understanding the reality and the financial implications of sticking with traditional payment methods might cost you more than you think.
- Checks: They incur material and postage costs and demand manual processing and reconciliation. Processing a business check can cost $4 to $20 and can eat into your profit margins. They also pose a risk for errors and fraud, and maintaining proper documentation can be tedious and error-prone.
- Credit Cards: While convenient, credit cards carry processing fees (2-3.5%), and the risk of chargebacks can unpredictably hit a small business’s bottom line. Push payment may be immediate, but settlement could take days.
- ACH (Automated Clearing House): Common questions like “How long do ACH transfers take?” highlight one of businesses’ biggest pain points. ACH payment processing times can disrupt effective cash flow management, especially when businesses seek faster options like same-day ACH. With ACH, money is inaccessible after hours and on weekends.
Related: 6 Hidden Ways That Paying by Check Is Hurting Your Business
Unraveling the domino effect of payment delays
One potential nightmare scenario is familiar to most accountants and small businesses when accepting payments via check. First, it takes days for the check to be mailed or sent, processed and deposited. Once in the bank, clearing and manually reconciling the incoming payment with the books takes several more days. While waiting, the opportunity for bills to pile up and late fees to grow rises. And worst of all, if the check does bounce, it’s back to square one. You’ll be chasing the payer to repeat the process all over again and now with a widening cashflow gap. This domino effect highlights just how easily a single delayed payment can jeopardize a small business’s financial stability.
Cashflow is the small business lifeline
Shifting to modern payment solutions isn’t just about catching up with the times; it’s about better financial health transparency and improved cash flow management. 40% of small business assets are always stuck in account receivables; using instant payment options allows business owners to avoid payment headaches, optimize their cash flow, and focus on business growth. The ability to accept faster, instant payments is the game-changer businesses in the USA have been eagerly waiting for.
Related Blog: 4 Crucial Signs That Your Small Business Needs Funding
Instant payments are transforming modern businesses
The future is instant. We’ve moved beyond the blockbuster era, where we had to plan days in advance to rent movies. Today, you can start streaming movies within seconds with just a few clicks. Shouldn’t the payment experience for businesses be equally seamless? To maintain good financial health, Instant payment solutions aren’t a luxury but a necessity in the modern business landscape.
- Immediate Transaction Updates: Everything is real-time. No more waiting to know if a transaction was approved or canceled; you know within 20 to 22 seconds.
- Operational Seamlessness: Better payment experience, smoother operations, happier vendors and improved business relationships.
- Operational Efficiency: B2B Instant payment platforms offer auto-reconciliation capabilities with accounting systems, reducing manual effort and errors.
- Improved Cash Flow Management: With instant payments, businesses can better predict their financial standing, optimize their cash flow and make informed business decisions.
- Robust Security and Compliance: FedNow uses ISO 20022 (standard electronic data interchange), follows the latest security protocols, and offers significantly more information than the limited 94 characters with ACH transactions.
- Cost Savings: Streamlined processing of instant payment costs only a fraction compared to any other payment methods. When compared to international real-time payment networks, instant payments are estimated to be 60-80% cheaper than credit card fees and checks in the US.
Legacy payment processes aren’t just slow; they’re a financial drain for businesses that can’t afford the luxury of waiting around for payment settlement. Whether you’re an accountant advising small businesses or a business owner yourself, it’s time to weigh the true costs of outdated payment methods and embrace the future of instant.