The Benefits of Digital Payments for Small Businesses

Title: The Benefits of Digital Payments for Small Businesses.

How Social Media Rewrote the Africa News Cycle

Common Digital Scams and How to Avoid Them

How Mobile Phones Are Driving Economic Inclusion in Africa

Since ages, small business in Africa has been operated by cash. The notes and coins were gathered by the market traders. Wooden boxes were used to make change by shopkeepers. Transaction was easy, instantaneous and terminal. Cash worked. It did not need infrastructure, no fees and no technology. But cash also had limits. It could be stolen. It could not travel easily. It left no record. Cash was a floor and ceiling to the small business that is attempting to grow. That is being transformed by digital payments. Small businesses all over the continent are finding out that allowing payment via phone, card, or transfer does not provide just the solution to quickening transactions. It changes the nature of the way they are working, their access to capital and their future plans.

The shift is well underway. Secondly, mobile money is an East African innovation that has been extended to the rest of the continent. The digital payment has been enabled by the fintech platforms which have reached merchants that had no opening bank accounts previously. Governments are computerizing transactions with vendors and suppliers. The pandemic quickened the process of adoption as business that failed to take online payments were losing customers who stopped carrying cash. The companies that performed the transition found they got benefits that they had not expected.

Security and Peace of Mind

Cash creates risk. A target is a shop that contains a lot of cash. A traveling trader has to carry money to go to get restocked. An entrepreneur who is unable to store his daily existence with the worry that someone may rob him. Most of this risk is mitigated by the digital payments. The money passes on to business account. There is nothing to steal. On the way to the bank, there is nothing to lose.

The theft is not the only form of benefit gained by security. Disputes can be caused on cash transactions. This creates conflict between a customer who insists he or she paid and a business that has failed to record a sale. Computerized payments made a clear record. Both parties have proof. Arguements that previously took hours to be resolved in storekeepers are sorted within a few keepsies.

The security advantages are even higher when a company is in an area that lacks adequate banking systems. It is not safe to carry huge sums of money. The digital payments imply that the money passes through the electronic sphere. The entrepreneur is a safe traveller.

Record Keeping Routine and Financial Visibility.

Cash leaves no trail. A company that is operated completely on a cash basis is the one that only counts notes at the end of a day in order to know its revenue. It estimates its profit only it knows. It can only know its cash flow by what is in the drawer. This invisibility inhibits growth. A company that fails to measure its performance is unable to control it.

Electronic payments generate documents. Every transaction is logged. The owner of the business is able to look at it and know easily what was sold in which time, and at what price. Patterns emerge. Trends of seasons are evident. The better selling products can be identified during specific days. The kind of business it used to run with intuition is now run with information.

Better decision making is made possible by this visibility. A business that is aware of the products that sell in the shortest time can stock accordingly. A firm with awareness of its cash flow will be able to budget the lean times. A company that monitors its development will be able to establish achievable goals. This record-keeping which was once a burden is now a management tool.

Access to Credit and Capital

Access to credit may be the most radical advantage of digital payments. The old fashioned bankers assess the loan application in terms of collateral, personal guarantees as well as official financial documentation. All these are missing in small businesses that run on cash. To the financial system, they are nonexistent.

This is transformed by the use of digital payments. A company that takes on-line payments develops a transactional record. Revenue, seasonality and growth can be observed by lenders. They get to evaluate the repayment capacity on the basis of the actual data and not on estimation. Fintech lenders especially, have developed credit models that are based on the digital transaction records. The company that used to be unable to borrow has a choice.

The impact is significant. A small retaller can take a loan to be able to stock during peak season. When prices are low, a market trader is able to finance inventory. A service provider is able to facilitate cash flow among projects. Formal businesses that could only get access to credit are now open to informal ones. The distinction between informal and formal is becoming gray.

Expanding Customer Base

Online payments help companies to reach clients that carry no money. Municipalities with mobile money everywhere mean that customers should be able to pay in digital form. Companies that lack the digital options fail to make a sale. In the countryside, the customers who travel to the markets might not be able to bring huge sums of cash. Digital payment will enable them to make purchases without losing or stealing.

It is the growth of the customer base geographically. A company that used to only receive walk-ins has the opportunity to receive anyone who is capable of transferring money. Through a phone, a market trader is able to accept orders and dispatch. A small producer is able to distribute the goods to other urban areas. The digital money which facilitates a transaction in the physical world facilitates a transaction over space.

In case of businesses that deal with corporate clients, it is important to have digital payments. Firms that are outsourcing to small firms must compensate them. They will not pay in cash. A company that cannot qualify as a digital payee cannot be incorporated into corporate supply chains. Larger markets are through digital payments.

Operational Efficiency

Digital payments save time. The time of change making, counting notes and balancing cash accumulates. The time used in commuting to deposit cash, people in a queue and handling float is time wasted in doing nothing but not helping customers and developing the business. These processes are automatized with digital payments. Money moves instantly. Records are automatically updated. The owner of the business is concentrated on the business.

The savings are carried over to the banking costs. Fixed interest rates usually charge deposits. There is a cost of transport to points of deposit. The loss and theft are those costs that are hard to measure real. These costs are minimized or avoided through the use of digital payment. Interactions with the payment processors have visible and predictable fees. The concealed expenses of money are not.

In the case of businesses that are cross-border the benefits are even higher. Eliminating currency exchange, cash transportation (across borders) and risk of conducting business in more than one currency is introduced through the elimination of digitalization. The company that struggled to get down the tricky financial agreements is now in a position to concentrate on what it is doing.