Digital payments, also called electronic payments, are payments in which the person paying and the person being paid exchange funds digitally. That means no handing over a credit card, writing a check, or exchanging cash for change.
Instead, payments are made electronically and transferred directly from the buyer’s bank account or credit card to the seller. Depending on how the seller receives funds, the money might go straight to the bank or be held until transferred.
Before the coronavirus, 73% of payments were made in-person, and the majority of those were digital, according to a 2019 study. Since Americans began sheltering in place, though, online sales have skyrocketed. E-commerce, in general, is up 49%, with online grocery leading the charge and growing 110% between March and April.
“We know small businesses are facing a great deal of uncertainty. But we are seeing the resilience we expect from them and are inspired by their creativity,” notes Catherine Crevels, U.S. Director of Marketing for QuickBooks Payments and Capital. “Shifting how they get paid and even to new business models demonstrates their commitment to their craft and growth, and we are proud to back them.”
Buying behaviors have changed. And they may have changed for good. While we may yet see a majority of in-person sales once more, people are adapting to a world of paying at a distance. And that means businesses need to adapt and broaden their options for digital payments.
The good news is that accepting electronic payments may result in some unexpected benefits. For those who haven’t made the transition to taking online payments in one form or another, there may be opportunities to consider.
Whether you reopen physical doors or put your energy online, here’s what you need to know about electronic payments and how to go digital.
Benefits of accepting digital payments
- Digital payments help business owners get paid faster.
- Digital payments are often more convenient for the customer and improve the buying experience.
- Digital payments may be tied to increased sales and profits.
- Digital payments are part of a digital process that may assist with tracking inventory and gaining business insights.
Nearly two-thirds of small businesses wait more than 15 days to get paid, on average, according to data collected by QuickBooks before COVID-19. At least 25% of small businesses said it takes more than 30 days.
But getting paid faster is one potential benefit of accepting digital payments. And that increased speed may trickle down to affect every part of the business positively.
With digital payments, buyers can pay easily and immediately. For instance, if they’re shopping online and have added a card to their mobile device, all their payment information may be auto-filled. That reduces the hassle of purchasing, which, in turn, creates a better shopping experience. The buyer may reward the business by shopping there more in the future, boosting profits over time.
For business owners, digital payments are deposited faster, reducing the time it takes for money to arrive in the business’s account. Compare a digital payment with a check. One could be in your account in hours. The other might be in the mail for days … once the person paying finds a stamp.
Plus, quicker payments mean more ready cash, which may improve business cash flow. During this challenging time, many business owners still have expenses like payroll, inventory, rent, and utilities. But it’s difficult to pay for those big expenses when money comes in slowly. Digital payments can speed up the process and put money back in business owners’ hands immediately.
Then there’s the impact of digital payments on everything else. For example, when you connect your online payments system to your inventory, you can track in-stock items in real time. Connect it to your invoicing tool, and you may be able to set up automated reminders for clients or customers who need to make payments.
How to accept digital payments
Business owners can accept digital payments through two main methods: debit or credit cards and eChecks.
Debit and credit cards
If you’ve ever purchased something online, chances are good you did it with a credit or debit card. So you know your clients or customers are going to expect the same option when they buy from you. But what are the pros and cons of accepting credit or debit cards?
eChecks using ACH Processing
An electronic check or eCheck is another form of digital payment. Money is withdrawn from the buyer’s checking account, transferred over the ACH network, and deposited into the business’s account. This is different from taking a picture of a physical check and depositing it using your mobile device. With an eCheck, payments must be authorized by the buyer via a contract, accepting a website’s “Terms and Conditions,” or another way.
Small businesses that could benefit from taking eChecks include those that accept recurring payments. Think landlords or daycare providers who receive payments monthly. All the customer has to do is authorize recurring eCheck payments, and those fees can be taken out automatically each time.
Here are a few other benefits to accepting eChecks:
- Payments process faster than physical checks. The customer doesn’t have to wait long to get their new balance, and the business owner gets paid quicker.
- They’re secure. Not only does the check go through a secure bank connection, but the customer has to verify the payment, reducing the risk of fraud.
- They’re sometimes cheaper. Unlike credit or debit cards, eChecks incur minimal fees.
4 ways to facilitate digital payments
1. Mobile apps and digital wallets
Mobile payment apps facilitate payment for goods and services. Over 4 in 5 people—especially those between the ages of 24 and 39—now use a mobile payment app, one NerdWallet survey found. If that’s a group well within your business’s target demographic, you should consider accepting payments through a mobile app.
There are several reasons why people who use mobile payment apps love them.
- They’re easy to use. Once an app is set up, the user won’t have to enter their payment information again. Using the app requires little more than the touch of a button.
- They’re versatile. 53% of respondents in the NerdWallet survey say they’ve used their app to pay for an online purchase through a retailer. 43% have used an app to pay back a friend or family member. And 40% have used an app to pay bills.
- They go where you go. The nice thing about making and accepting payments through an app is that you can do it anywhere. While many are still sheltering in place, some essential businesses still need to accept payments on-site or remotely. For example, an electrician making a house call or a restaurant offering curbside service. You’ll appreciate being able to pay and get paid on the go in the future.
2. Pay-enabled invoices
If yours is a service-based business that already sends customer invoices, consider accepting payments online. Like other digital payment options, pay-enabled invoices offer convenience and speed.
- They feature easy payment options. On the customer side, it’s a lot easier to submit a payment digitally than write out a check, find a stamp, and mail a payment. Pay-enabled email invoices cut out all of that. Instead, customers pay by card or by entering their bank information. Who knows? The ease of it may tempt them to pay early.
- They can send reminders and notifications. Some email invoicing tools go beyond sending a simple invoice. They may track when or if a customer has viewed the invoice. Some can also send automatic reminders to the customer until they pay the invoice. For business owners who hate having to follow up with clients to collect a payment, such tools can save time and stress. Plus, daily payment reminders can help your business get paid faster.
Another benefit of pay-enabled email invoices is that some tools allow businesses to customize each invoice. That may include logos, fonts, and more. And sending invoices online saves businesses the cost of paper and postage.
3. Manually keyed-in card information
If you haven’t yet optimized your business to accept payments through an online portal, that’s ok. You can still jump on the digital payments bandwagon by taking debit or credit card information over the phone.
The caveat to this option is that taking cards over the phone can put you and your business at risk of fraud. Should you choose to accept digital payments this way, be sure to do your research.
One tip is to get both the customer’s billing and shipping addresses. If the ZIP codes don’t match, ask them why. And if you are shipping something to the customer, consider requiring their signature upon delivery. Establishing a paper trail may help discourage potential fraudsters.
4. Card readers and mobile card readers
Card readers don’t just sit by the register anymore. These days, mobile card readers can go anywhere the business goes. Simply plug the device into your smartphone to start swiping (preferably wearing gloves or after applying hand sanitizer).
If your card reader is still beside the register, you may still be able to wow your customers by offering contactless payments. Rather than swiping a card, customers can pay by tapping their phone or card to the card reader or hovering it just above. The nice part about this option is the customer can skip the burdensome step of digging a card out of their wallet.
Plus, these devices, called Near Field Communication (NFC) readers, may be a more hygienic option. The customer never has to touch the device, unlike traditional card readers that ask customers to verify their payment or enter a PIN. The only downside is the customer must have a mobile payment solution set up on their phone to use an NFC reader.
Frequently asked questions about digital payments
Are digital payments safe?
In a word, yes, but it’s always good to stay cautious. Customers will want to be sure the payment method they’re using is legitimate, especially in the case of mobile payment apps. For businesses, accepting digital payments is quite safe, though you’ll want to keep an eye out for fraudulent behavior. Business owners are sometimes held accountable for paying credit card companies back after fraudulent purchases are detected.
Why are digital payments better than cash?
When it comes to physical businesses, accepting cash is important for accessibility, among other things. In some places, the law requires it. But digital payment methods have their place at the checkout counter, and they’re king in online spaces.
The reason for this is ultimately two-fold: Digital payments are quick and convenient. Customers often prefer digital payments because they take little effort to use. Save a card to your device, and payment fields may even auto-fill, so the purchase takes mere seconds to complete.
And that speed is essential for both the customer and the business. When customers have a better experience, they’re more likely to come back. Plus, digital payments process quickly, so business owners get money faster, which can impact cash flow positively.
When will I receive my money after accepting digital payments?
Depending on the payment method or how it was received, digital payments can take one to three days to process and deposit. Some mobile apps will make money available sooner if they hold the amount you’ve been paid inside the app. You should be able to use the money in the app as soon as it shows up to pay for other things.
With QuickBooks Payments, credit card deposits typically land in your account the next business day. If you signed up for the next-day deposit plan for bank transfer (ACH) payments, your bank transfer deposits will, too, so long as deposits are made by 3 PM PT.
How do pay-enabled invoices work?
Pay-enabled invoices are another tool that’s becoming more common. Business owners can create and fill out their invoice then select when and how they want the customer to pay. When the customer receives the invoice via email, they can input their payment information to pay online. The invoice might have a “pay now” option where the receiver can input their credit card, debit card, or bank transfer information.
That’s certainly the case for QuickBooks users who can send pay-enabled invoices by email to their customers. Upon opening their online invoice, the customer can select “Pay now” and choose to pay by credit, debit, Apple Pay, or ACH bank transfer. It will depend on which payment option the business owner selected. After the payment has been initiated, the business’s books will be reconciled automatically, and your money will be auto-deposited into your bank account.
There are a lot of upsides to using pay-enabled invoices, particularly compared to sending invoices by mail. It depends on the system you’re using, but to start, online invoices are often trackable. Your system may be able to tell you if the invoice has been delivered and if the recipient has viewed it. Mailed invoices can be lost along the way or accidentally shuffled into a pile of junk mail.
In QuickBooks, users can see when a customer has viewed their invoice. It’s also possible to send automated reminders, letting the customer know they have an invoice to pay.
How to use QuickBooks Payments to accept digital payments
If you’re looking to accept digital payments, QuickBooks Payments can help. QuickBooks allows users to accept credit cards, debit cards, and ACH bank transfers and facilitate payments online, over the phone, and via app. For businesses with a physical location, use the free mobile card reader to take debit or credit cards.
Sales appear automatically in QuickBooks, which handles reconciliation to match payments with open invoices.