How do payment systems impact your business's cash flow?

The migration from paper based payment system to e-based payment Systems is the paradigm shift for businesses. The other benefit is tracking the payment on real time basis.

Payment system has a great impact on maintaining the cash flow of an organisation. Depending on payment cycle, what should be the working capital is required has to be determined. Credit policies also taken care off depending on the payment system. It is an integral part of working capital management so it is very important for any kind of and/or any size of business.

In my experience while implementing the real time payments platform (IMPS) in India, the ability to transfer funds in real time and 24/7 significantly improved not only cash flow management for small businesses, where a retailer was paying to it's distributor or whole seller. This reinforced further when UPI QR and request to pay capabilities came into play. The realtime, 24/7 availability helps significantly in improving the velocity of funds in the system and helps better management of credit and payments. Additionally use of pre paid cards or corporate credit cards help in better management of corporate/SME expenses because of better reconciliation and budget management

There is an increasing range of payment methods in the form of digital payments as the older methods, generally paper base remain in place. Older methods include: ? Cash ? Cheques ? Credit cards, (card present) ? Direct debits ? Bank transfer, over the counter Credit cards have been around for decades although the card acceptance and supporting platforms have significantly been upgraded over the decades. The digital methods include: ? Credit cards – ecommerce ? Debit card – migration from ATMs only, eftpos and ecommerce. ? NRT or Instant payments supporting direct credits. ? Request Pay - emerging to replace direct debits. ? Mobile money ? Store value Digital is being driven by the development Internet and Mobile payment platforms

Modern payment systems, such as digital wallets and online banking, can facilitate faster transactions. This can lead to quicker inflow of cash, improving liquidity. Different payment systems come with different transaction fees. High fees can eat into a business's profits, while systems with lower fees can enhance net income Recurring payment systems, like subscriptions, can provide businesses with a predictable cash flow, making it easier to manage expenses and investments. Some payment systems might hold funds for a certain period before releasing them to the business, affecting liquidity. For instance, certain credit card processors might have a delay before transferring funds.

The sales channel well determine method to use. Retail shops it is cards including mobile NFC. Ecommerce is also cards, not present. NRT/Instant is an option. Low value but frequent usage such as transit is a store value card. Billers prefer direct debits, but their customers probably prefer direct credits using mobile and internet banking. Direct credits are suitable for one off payment using NRT/Instant in the not present situation. Need to remember debit cards have or are beginning the most used payment instrument.

Payment systems that involve delays in transaction processing or settlement times can create a cash flow gap between the time when a sale is made and when the funds are received. This delay, known as "float," can affect the business's working capital and may require the implementation of effective cash flow management strategies to bridge the gap and maintain financial stability.

Seamless integration of payment systems with accounting software facilitates efficient cash flow management by providing real-time insights into the business's financial position, including receivables, payables, and overall cash reserves. This integration enables businesses to make informed decisions regarding cash flow planning, forecasting, and budgeting.

The efficiency and speed of payment processing can directly impact the inflow of cash into the business. Faster payment systems enable quicker access to funds, improving the liquidity position of the business and enhancing its ability to meet immediate financial obligations and operational expenses.

For businesses, especially small businesses cash flow is critical. NRT/Instant offer the quickest option for receiving fast payment. Also, they will drive the velocity of funds through an economy potentially increasing GDP. For retailers’ friction is a critical issue and cards/NFC delivers on this need.

For businesses operating internationally, payment systems that handle multiple currencies can influence cash flow due to conversion rates and fees. A secure payment system can increase customer trust, leading to more sales. Conversely, a system with security issues can result in chargebacks and disputes, negatively impacting cash flow. User-friendly payment systems can enhance the customer experience, potentially leading to increased sales and positive cash flow. Payment systems that easily integrate with accounting software can streamline financial management, making it easier to monitor and manage cash flow.

? Peer-to-Peer Model: Typically facilitated by a third-party network where payment service providers, representing sender and receiver, can be a bank or non-bank. ? Bank Interlinking Model (e.g., TARGET2 today, CBDC interoperability in the future): Includes central bank facilitated settlement of cross-border transfers. Today this occurs within the Eurozone, enabled by TARGET2. CBDC interoperability frameworks and pilots are being championed by Swift and BIS to examine the viability of using CBDCs to move between distributed ledger technology (DLT)-based and fiat-based systems using existing bank-centric financial infrastructure.

The payment system is at the point where rationalization is needed and will happen. Cheques and cash must go. Direct debits are probably on life support. Digital cash in its many forms will find a niche market but is unlikely to replace private (or bank) money.