Impact of Real-Time Settlements on Business-related Payments

The Impact of Real-Time Settlements for Business

If you go by the numbers made public by the Reserve Bank of India (RBI), the volume of digital transactions in the country grew at an astonishing rate of 58.8 percent in 2018-19. Move closer towards the current time and the numbers say that 40 billion digital transactions amounting to over quadrillion Indian rupees were recorded in our country in FY 2021.

The growing reach of digital payments reflects the importance it holds in the life of consumers and businesses. On the receiving end, a gradual shift from accepting cash to digital payments has been witnessed across businesses of all sizes.

The availability of a plethora of payment options and ease of making payments online has made the transition to digital payments quite popular amongst business owners. However, unlike cash, settlements of digital transactions may take longer than expected, sometimes more than three or four days.

From a business standpoint, the time gap that exists between accepting an order and the corresponding payment for the same does impact the cash flow. This is particularly true for SMBs in India that require constant cash flow to manage their operations. This is where the need for real-time settlements arises.

What is real-time settlement?

Real-time settlements, as the name suggests, refer to the instant transfer of payments from a customers’ accounts or cards to the merchant’s account at any time of the day.

If you run a business, you can transfer the amount received online from your customers to your bank account instantly using real-time settlements. This will help you reinvest it back into your business and handle the cash flow towards higher growth.

What makes real-time settlement different from a regular settlement cycle?

The entire concept of settlements for business emerges out of payment gateway integration into a business website or application. When you want to sell products or services online, you also need to integrate a reliable payment gateway to accept payments online.

Here’s how a payment cycle follows in general:

Once a customer buys from a website or app, he makes online payments and the corresponding amount gets debited from his account/card instantly. However, that amount (excluding the payment gateway charges) is settled into the merchant’s bank account after the pre-defined settlement cycle.

If ‘T’ represents the date of payment capture from the customer’s account, you (as a merchant) will get it after T+2 or T+3 days, depending on the chosen payment gateway. If yours is a small business in which you need to make immediate payments to workers and vendors, such a settlement regime can lead to a liquidity crunch.

You can think of real-time settlements as a solution to the payment delays related to online payments. It means that when a customer pays you an amount for his/her purchases, you can get the same settled to your bank account in real-time within seconds.

At every payment instance, the money gets deducted from the customer’s account while you receive a notification that the amount has been received. However, if you check your bank account, you won’t find it there.

You might be wondering – “Where does that money go?”

The truth is – after the customer pays an amount, that money sits in a virtual account created for the merchant by the chosen payment gateway provider. It sits there in the virtual account until the gateway and linked bank validate the payment.

The underlying payment system checks for several parameters, including discounts, taxes, etc. before crediting the amount into your bank account. Depending on the distinct settlement guidelines of the integrated payment gateway, you will get the amount in your bank account.

In this regard, real-time settlements simply mean quick access to the amount received for every order placed on your website/app.

How does real-time settlement benefit your business?

Opting for real-time settlements can be a game-changer for your business in many ways.

  • Better cash flows

Irrespective of the niche of your business, you cannot avoid competition in the market. Maintaining adequate liquidity at all times is crucial to maintain operations and survive amidst stiff competition. With real-time settlements, you can avoid the waiting period related to receiving payments from payment gateways. This can help you respond better to the cash flow requirements and financial challenges if any.

In other words, real-time settlements help ensure that your business won’t suffer because of non-availability of funds.

  • Improved efficiency at work

When you rely on other paper-based payment systems to manage daily operations, you need to follow several steps to get access to your money. Visiting banks for cash withdrawal or filling out forms for large payment collection wastes a lot of time, which can be avoided with real-time settlements.

With money by your side on time, you can improve the efficiency of business processes and plan for better growth.

  • Reduced reliance on short term loans

A liquidity crunch can force businesses to take short-term loans. The interest on these loans puts additional pressure on the bottom line. Having a payment gateway that provides real-time settlement options will take away the frequent need for short-term loans.

  • Smarter growth projections

While accepting payments online for your business, you must be keeping a check on the total earnings and expenses to make realistic growth projections. Lack of adequate funds in your bank balance on time can result in uncertainty while making such projections.

As a solution, there is real-time settlement with which you can have a better eye on the budget and make annual business projections with better accuracy.

  • Better management of chargebacks and refunds

When settlements are delayed, handling chargebacks and refunds becomes challenging. You may end up processing these payments from your own account even before receiving the amount via a payment gateway. In such scenarios, real-time settlements eliminate this risk.

How can Paytm Payment Gateway help your business with real-time settlements?

If you are looking for a way to break out from the default settlement cycle, switch to Paytm Payment Gateway’s real-time settlements. This feature allows merchants to transfer money into their bank account instantly without having to wait for it till a later date. This way, you get instant access to money and can deal with cash flow challenges easily without facing delays related to bank or public holidays.

Note: Real-time settlement feature of Paytm Payment Gateway is available at a small fee.

Who can benefit from Paytm Payment Gateway’s real-time settlements?

The simplest answer – every merchant using Paytm Payment Gateway.

If you want to become more cash-efficient and maintain your business-related cash flows, our real-time settlement option can be of great value to reduce daily cash crunch.

Besides this, we also have our regular T+1 settlement cycle with which payments get settled automatically the next day without holiday delays.

Recommended Read: Is Your Payment Gateway Promising T+2 Settlement? Here’s What They Don’t Tell You

Summing up

Real-time settlement is no less than the ideal option in the world of digital payments in India to ensure that your business always stays cash-flow positive. Using this settlement option, you can keep the business operations running without worrying about the working capital.

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