Small businesses are the backbone of any economy. They are the risk-takers, the job-creators, and the engine of innovation and growth.
But running a small business is not easy. There are a million things to worry about, from keeping the lights on and paying the rent, to finding and keeping customers.
However, one thing that should not be a worry about is how you get paid. But for too many small businesses, that is a very real concern.
According to Forbes, over 60% of small businesses in the United States have had trouble getting paid on time by their customers. This problem is even worse for startups and early-stage businesses, which often have even less cash on hand and are more dependent on timely payments to keep the lights on.
Much of this can be credited to problems with traditional finance and accounting methods. Outdated invoicing methods, for example, can lead to payments getting lost in the shuffle or taking weeks or even months to process. Paper cheques can get lost in the mail, and bank transfers can be delayed by bank holidays or weekends.
Digital payments, on the other hand, are much more efficient. They not only have the ability to speed up the payment process, but can also play a pivotal role in the business growth today.
The Problems With The Traditional Finance Practices
Traditional finance and accounting practices can often be quite inefficient, especially for small businesses and startups. They:
- Are prone to human error: With so many different aspects to keep track of, it’s easy for things to fall through the cracks. This can lead to missed payments, miscalculations, and other issues down the road.
- Are time-consuming: Small businesses often don’t have the luxury of extra time to dedicate to their finances. From invoicing to bookkeeping, many time-consuming tasks are involved in traditional finance.
- Are expensive: In addition to the time commitment, traditional finance can also be quite costly. Hiring an accountant or bookkeeper can add up, and there are often other associated costs as well (e.g., software, bank fees, etc.).
- Hinder growth opportunities: Traditional finance and accounting practices may not work overseas or in other countries with different regulations. This can limit a small business’s ability to expand into new markets.
- Give a competitive disadvantage: Not adopting new technologies can put a small business at a competitive disadvantage. For example, if all of the business’s competitors are using digital payments and it is still relying on cash or check, it may lose out on business.
The Benefits Of Digital Payment Adoption
Digital payments refer to the use of digital means to make or receive payments. This can include the use of credit or debit cards, mobile devices, and cryptocurrency. There are many benefits of digital payments for small businesses, which include:
- Reduced costs: Digital payments can help reduce the costs associated with traditional methods such as cash and check. For example, no fees are associated with credit or debit card transactions, and mobile payments typically have lower transaction fees than traditional methods.
- Increased efficiency: Digital payments can help increase the efficiency of transactions. For example, mobile payments can be made quickly and easily, and they can be made remotely without needing to physically visit a business.
- Improved security: Digital payments can help improve the security of transactions. For example, they can be made using encryption, which can help protect against fraud.
- Greater convenience: Digital payments can provide greater convenience for both businesses and customers. For example, customers can make payments using their mobile phones, and businesses can accept payments without the need to handle cash.
- Better Taxation: The self-employed and small businesses can make use of digital currencies for better taxation. All the transactions will be recorded in an immutable ledger, thus providing better clarity for tax purposes.
- Access to new markets: Startups and small businesses can use digital payments to access new markets. For example, they can sell their products and services online, or to customers in other countries.
Digital payments and cryptoassets offer numerous benefits for small businesses and startups. They can help increase efficiency, improve security, and provide greater convenience. These advantages can help small businesses compete in the marketplace and better serve their customers.
Types Of Digital Payments
There are many different types of digital payments, but they all have one thing in common: they use electronic means to complete a transaction. Here are some of the most common types of digital payments:
- Credit cards: Credit cards are financial instruments issued by banks and other financial institutions, that allow customers to borrow money from the issuer to make purchases. Credit cards are typically used for online shopping and can be used to make payments at physical stores as well.
- Debit cards: Debit cards are financial instruments that let the cardholder spend money by drawing on funds they have already deposited in a financial institution. Debit cards are typically used for online shopping and can be used to make payments at physical stores as well.
- Prepaid cards: Prepaid cards are financial instruments that let the cardholder spend money by loading funds onto the card in advance. Prepaid cards can be used for online shopping and can be used to make payments at physical stores as well.
- Virtual Payments cards: Virtual payments cards are financial instruments that let the cardholder spend money by creating a unique card number for each transaction. Besides random card numbers, easily deciding the currency and spending limits are some of the benefits of virtual payment cards.
- UPI: Unified Payments Interface (UPI) is an instant real-time payment system developed by the National Payments Corporation of India to facilitate inter-bank transactions. It’s just like an email address for money.
- Cryptocurrencies: Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralised, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Today, there are thousands of different cryptocurrencies with different use cases including payments, smart contracts, and more.
Why Should Small Businesses & Startups Switch To Digital Payments?
A few decades ago, imagining a world where one could send and receive payments instantly, without having to go through a bank or other financial institution was nothing but a figment of someone’s imagination. Today, that world is a reality, and digital payments are becoming more and more popular, especially among small businesses and startups.
Not even that, there is a steep rise of decentralised finance protocols built on Ethereum that offers an expansive ecosystem of products and services, which are mostly trustless, permissionless and borderless.
In simple terms, digital payments and decentralisation of finance give small businesses and startups the power to take control of their finances without having to rely on intermediaries. This not only saves them time and money but also allows them to be more agile and adaptable.
Today, small businesses can:
- Take payments without a bank account
- Receive payments in any currency
- Make global payments at low costs
- Access crypto-based or P2P financing products
With all of these benefits, it’s no wonder that more and more small businesses and startups are turning to digital payments and cryptoassets.
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A startup consultant, digital marketer, traveller, and philomath. Aashish has worked with over 20 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.