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How are Digital Payments Helping Transform the SME Industry?

In this new age of ecommerce and digital payments, we are walking towards transforming India into a major economic powerhouse. A number of government reforms and initiatives have been introduced with the aim to bring about a huge change in the country’s financial system. SMEs and MSMEs play an important role in improving the economy and are considered as the backbone of the Indian economy. Therefore, the development and progress of these small and medium firms are a top priority. However, issues like roadblocks in the company’s expansion, untimely credit scores and delayed payments from the bigger firms stand as obstacles in the growth of SMEs.


Studies have shown that while many small and medium enterprises found the procurement of credit mechanisms a big obstacle, others felt comparatively less impacted by it. This impact varied with cities. The other major issue faced by SMEs is delayed payment. As per a survey conducted in 2014, 35% of the MSMEs received payments after 90 days or sometimes even later. This posed a problem in managing their cash flows and in turn affected the firm’s liquidity. Delay in payments is a big challenge for business sectors that are involved in manufacturing and services, as they are required to make investments much before the payments come in. Payment delays even go up to 120 days at times, making it difficult for these companies to cope with the problem.


Innovation Through Digital Payments

SMEs in India have always followed conventional methods of doing business, whether it is in advertising, core operations or payments done in cash. The dependency on cash has been high, be it receiving payments from customers or making payments to suppliers/vendors. Cash transactions involve much time and labour and are more prone to errors. This dependency on cash transactions leads to lack of transparency, which can further lead to confusion and chaos within the business. However, with enhancements in technology, there have been vast changes in the payments landscape, and we have an array of cashless payment options available today. The implementation of e-payments can help small and medium businesses overcome their payment issues and explore new possibilities. So how can SMEs benefit from adopting digital payments and in turn contribute to the country’s economy. Let us find out:


  • Faster, Safer and Cost-Effective Payments – Manual processes and paper-based payments involve much time and effort. They increase administrative costs and other added expenses, while causing inconvenience to suppliers and customers. Digital payments on the other hand enhance the payment process by providing quick payments, reducing costs and cutting down manual effort. This helps boost the growth and profitability of SMEs by lowering their costs and offering competitive advantage.


  • Enhanced Operational Efficiency – Apart from offering faster payments, with digitisation, the efficiency of business operations can be significantly increased. There are a number of Enterprise Resource Planning (ERP) softwares available today, which are specially designed to help small businesses. They take your inputs and aid in maximising the ROI (without high costs), thus enhancing business efficiency.


  • Better Transparency – As far as cash payments are concerned, they are less transparent; and businesses need to maintain clean financial records at all times. If this is not done, business owners will be answerable to the tax department for owning any unaccounted money. Digital payments eliminate such risks and help keep a clean track record of all the payments, without utilising much of your time and effort.


  • Good Value-Added Services – E-payments create opportunities for sellers to offer customer rewards and loyalty programs in order to encourage prompt payments. At the same time, it lays down a foundation for speedy reconciliation, method automation and improved industry analytics with sellers as well as buyers.


  • Multichannel Integration – Digitisation has raised the level of expectation of consumers. They are looking for multichannel integration for ease of payments and transactions. Digital payments method allows multichannel integration. They help SMEs to start a transaction via one channel and end it in another, while ensuring minimal confusion and maximum convenience.


Major digital transformation is taking place in India, with around 64 crore internet users, 108 crore mobile phones and 111 crore Aadhar card holders. Small and medium businesses are being trained to adopt digital payment mechanisms that are similar to Unstructured Supplementary carrier information, Aadhaar card-enabled payment method and Unified Payments Interface. These changes are empowering SMEs to offer better services and stand in par with top companies. Digital payments, therefore, help in the development of SMEs and indirectly contribute to the growth of the economy.


– Swathi Bhat

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