Why a payment strategy is vital for SMEs

6月 21, 2021

Does your company have a robust payment strategy? If not, now is the time to get down to developing one. Let us explain why.


As an SME, you would typically have a detailed strategy for sales, marketing, growth, and even expansion. But how about your business’ payment strategy? Accounts payable is good as it needs little or no planning. However, as technology connects the world, it has become essential for businesses to join. Unlike the past, when only big companies could serve customers far and wide, the Internet has opened several avenues for smaller firms to follow suit.

Here's the catch. One needs to have payment modes embedded in its business model to streamline cross-border payments. This helps a company earn returns and steer the path to achieve the goal.

Let's begin by understanding what it is.

What is a payment strategy?

How many payment methods do you want to offer to your customers? Are you able to predict your cash flow in a day or, say, a month? Are you losing business when the payments don't arrive on time? If you are not sure of the answers to the above, you are in urgent need of a payment strategy to spearhead that growth. It defines all the above and opens up a gamut of opportunities.

The last decade introduced us to several payment methods changing the online game drastically and is expected to continue its successful run. For instance, people rarely use cheques now. Also, using cash is becoming a less preferred option with the younger generation. Therefore, any business dealing primarily in cash hitherto should switch to digital options if it wants to stay viable.

The most popular payment methods include debit/credit cards and contactless payments. In the latter, people use a mobile app or wave a card to pay off services or products.

Why do you need it?

Why do SMEs need a payment strategy? By now, you would have had an idea why so. To elaborate further, we will explain the reasons for incorporating it as soon as possible.

Crucial for continued growth

Money is changing its form. From coin to paper and now digital, it has shown revolution as nothing else has in the history of civilization. This transformation has been more rapid in the last decade and is continuing its smooth run. It is vital for a business striving for growth to streamline its payment methods to the current trends in the market. Failing to do so may result in losing out on your precious customers forever. Most importantly, the process should involve different payment types, especially across national boundaries having many partners and institutions.

You may ask what the best payment method is. The answer to this is simple. Any process that can grow with your business and should be flexible.

Whether or not something is cost-efficient in the long run

All payment solutions come at a price. While it involves finance, it requires technical experts to develop, integrate and manage the method selected. Therefore, a merchant should consider these two aspects to decide whether or not something is cost-efficient for him in the long run. A practical payment method should have the ability to convert visitors into customers to boost profits by increasing the number of transactions.

While a payment method is a means for the customer to conveniently purchase and prevent cart abandonment, there are a few more considerable points. The primary one is minimalism and its ability to help and support the business. Hence, choosing the correct payment method is an essential part of the business strategy.

Weighing your options – pros and cons

As a business owner, you must figure out what can work for you and what won't. Only then would you be able to specify the payment method for your customers. Also, the payment strategy should complement as well as support your business strategy. Any technology that doesn't fit in should be ruled out, and it should enhance the core of your business.

 

What are the payment options SMEs have?

SMEs have several options when it comes to deciding the payment options. Let us break down some of them and see their advantages and disadvantages.

Paper cheque

Modern technology may have drifted many businesses from the traditional form towards electronic transfers. However, some are still using them. One can process it via ATMs and Mobile Banking, and there is no cost involved in accepting or lending a cheque. But a cheque does not guarantee payment; it may bounce. Not to forget, international cheques take longer for clearance.

Wire Transfer

 It is a popular domestic and international payment method. In these transfers, wire networks are used to act as messengers. While payment from the clients goes directly into your bank via wire transfer, the processing may take up to 5 days, and it may even deduct a receiving fee from the recipient. In Canada, a few banks charge $15 for a wire transfer.

Cash

Cash is a preferred choice in some industries but is largely ruled out due to electronic payment options. After all, who doesn't like having instant cash in hand with no transaction fee? But it has its downsides. Cash is not safe to carry due to theft risk. Besides, you are required to make frequent trips to the bank for withdrawal.

PayPal

PayPal is active in over 200 countries with more than 325 million users. Although it is easy to use and doesn't require a merchant account, a huge merchant fee is charged in chargebacks. There are certain limitations, and the account may get suspended, resulting in frozen funds for months. An added problem is that many people are not willing to use it.

Debit cards

Issued mainly by banks, debit cards offer a convenient means of payment for the customer. Debit cards offer a faster approval process, but they may charge a processing fee. The companies that accept debit cards may have to put in extra effort to reconcile bank accounts information.

Credit Cards

For a business to gain success, it should accept a credit card. Some SMEs feel overwhelmed with the use. Yes, it increases profits with merchant fees and may enhance sales due to impulsive buyouts, but the processing fee may bite into their profits and have a higher rate of fraudulent activities.

Understanding your business needs – right now or in the future

All SMEs must define their business needs to be able to understand their goals clearly. When you know what your business needs, you can plan how to convert customers into buyers. But many fail due to cash flow issues and a lack of good planning. To avert this, they need to develop a good payment plan.

A business must look to gear up for the future. An SME should decide and update the payment strategies regularly to stay neck-to-neck with the competition. As per a survey, the year 2021 will witness more alternate payments than cards for higher merchant fees.

Heightening protection for your business

Deciding the payment strategy is one part. Making it safe to use is another and equally important. But how to ensure this. Taking precautions is better than cure as online security and fraud are commonplace. So, incorporate safety measures in your payment strategy. An SME can apply one of the following for adding a security cover.

PCI DSS

Full form Payment Card Industry Data Security Standards is a regulation enforced by VISA and Mastercard. As a standard, there are 12 general data security requirements for merchants and four PCI compliance (this is dependent on the volume of online transactions).

End to End Encryption

It saves sensitive data. It makes the data non-readable to people who do not have a decryption key. Data encryption is the stepping stone to protecting the cardholder's data. This lays the foundation for tokenization methods. SMEs should look towards payment processing methods that provide E2E encryption.

Tokenization

It is an advanced payment security method to safeguard payment credentials. In this, the account number or the credit card is replaced with an OTP (one-time number) called 'token.' Tokenization saves bank account numbers and credit card numbers in a safe, virtual vault passed on all the wireless networks and adds no risk.

3D Secure

It is an added security for card-not-present transactions. The full name is 'third domain security.' It is nothing but a messaging protocol that includes three different domains: the bank, processing technology, and the issuer bank. To remove any chances of tokenization, it asks for biometrics or tokens for user authentication.

AVS or Address Verification System

It avoids fraud transactions on debit and credit cards. The system confirms the billing address by matching it with the one in its system provided previously. The confirmation is part of the merchant's request for user confirmation. However, it should be coupled with other security measures for complete security to get merchant fees.

Biometric authentication

It is an emerging trend that includes structural and biological characteristics of an individual, such as facial recognition, heartbeat analysis, fingerprinting scanner, iris recognition, and vein mapping. With frauds and identity theft on the rise, biometric authentication is a reliable and safe option.

 

How can AP-1 Business help

AP-1 Business is a dual-currency (SGD or USD) digital account and the first UnionPay commercial account issued outside China. It enables moving money directly into suppliers’ operating accounts in China within T+1. For remittances to UnionPay personal accounts, this can be performed within a noteworthy 60 seconds.

Apart from making payments, you can also collect sales proceeds through an AP-1 Business Account within T+1 (for SGD) and T+3 (for USD). With many payment acceptance methods available, you are spoilt for choice. Examples of payment options include UnionPay, WeChat Pay, PayNow, JCB, Discover and Diners Club.

Opening an AP-1 Business Account is also a hassle-free option, as it does not require the physical presence of stakeholders or directors. Everything is performed online, and the sign-up process is simple, quick, and efficient. Last but not least, it is PCI-DSS compliant and a safe and secured online payment option.

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