How Digital Payments Can Save Your Business’s Cash Flow
See how digital payments help protect and improve your small business cash flow.
Key takeaways
- Adopt digital payments to move money faster and hold on to cash longer.
- Schedule and automate bill payments to avoid late fees and protect your cash flow.
- Track incoming and outgoing payments in one place to plan ahead with confidence.
- Choose the payment method and speed that fit your cash flow, from ACH to cards.
What are digital payments?
Digital payments are transactions where money moves electronically from one account to another, without cash or paper checks. When you pay a bill online or send money from a banking app, that is a digital payment.
Both the payer and the payee use a digital method, like a bank account, card, or app, connected through secure payment networks. The result is faster, more traceable payments than cash or checks.
Types of digital payments
Businesses can send and receive money through several common digital payment methods:
- ACH bank transfers move money directly between bank accounts and are a low-cost choice for regular vendor payments.
- Credit and debit cards let you pay quickly and, with cards, hold on to cash a little longer.
- Digital wallets store payment details for fast checkout on a phone or computer.
- Wire transfers move larger sums quickly when speed matters most.
What is cash flow?
As the name suggests, cash flow is the balance of money flowing in and out of your business at any given time. Cash flow can either be positive or negative. If more money came in than was spent, your cash flow will be positive. Positive cash flow is often also referred to as healthy. If you spent more than you brought in, however, your cash flow will be negative.
Unlike revenue or profit, cash flow counts any infusion of cash, including a loan or an investment. So you could have positive cash flow after taking out a loan. But without revenue, it will turn negative soon enough.
Why cash flow health matters for small businesses
A healthy cash flow means you have enough money to pay your vendors, suppliers, utility bills, rent, and employees, and are still left with some extra cash for unexpected expenses or for growing your business. Cash flow health means your business is more resilient in uncertain times as it has some reserves it can lean into if push comes to shove.
Depending on industry and size, many small businesses have only enough cash on hand to cover a few weeks of expenses without income. This means that in case of illness, a global or local crisis, or a downturn in the economy, many small businesses will have no choice but to shut down within a few weeks at best. In fact, according to SCORE, 82% of small businesses that shut down cite poor cash flow management as a key reason for closing their doors.
To help their cash flow without breaking the bank, many small businesses are embracing new technologies, and specifically transitioning to digital payments.
7 ways digital payments help with cash flow
Switching to digital payments is not just a matter of convenience (which is also a big deal for busy entrepreneurs like you). It helps businesses improve their cash flow management without requiring monetary investment, special equipment, or training. If you have an internet connection and can operate a computer or a mobile phone, you can start sending and receiving digital payments online.
Here are some of the top ways in which digital payments will help your small business manage its cash flow.
1. Scheduling
Schedule payments in advance with tools like Melio. This obviously saves time as you can handle all your payments in one sitting. It also improves your cash flow as it ensures you pay on time and never a minute too soon. So, you can hang on to cash longer without fear of forgetting a bill and incurring late fees and penalties.
Timely payments also preserve the good relationships you work so hard to build with your vendors. These, in turn, translate to discounts and better net terms, all of which improve your cash flow.
2. Efficiency
Save time on payment admin. Time is money, especially for small businesses. Using digital payment tools can save you hours every week on writing and sending out checks, reconciliation of incoming payments, and keeping track of money coming in and out of your accounts.
If you’re wasting less time on payments, you’re practically adding to your cash reserves by cutting staff hours and focusing on generating revenue instead of busy work. More cash means better cash flow. It’s that simple.
3. Getting paid faster
Get paid sooner. Providing your customers with an easy way to pay you online makes it more likely for them to pay on time and sometimes even sooner. Instead of constantly waiting for that check to arrive in the mail, you can already have the money in the bank, improving your cash flow.
If you need a quick infusion of available cash, by using Melio to get paid, you may even be eligible to cash in earlier without affecting your customers. If, for example, your customer sent you an ACH bank transfer, which typically settles within one to two business days, for a fee of just 1%, you can opt to get the payment directly to your debit card within minutes.
4. Safety
Keep your money safe. Checks and cash—still two of the most prevalent payment methods among businesses—can easily be lost or stolen. The time it takes you to get them back (if that’s even a possibility) can have a seriously negative impact on your cash flow. Digital payments, on the other hand, are monitored, so you know where your money is at all times, and it can’t end up in the wrong hands.
Online payment companies also have state-of-the-art security protocols protecting your information and funds from misconduct, and there’s always someone to turn to in the odd case something goes wrong.
5. Better choices
Choose the payment method that fits your cash flow. Flexibility and choices can make all the difference. When you use Melio for your payments, you can choose to pay with ACH to preserve cash by saving on fees. Melio’s free plan includes up to five free ACH bank transfers a month, with paid plans for higher volumes.
If you’re currently low on cash and need a little extra float until some money comes in, you can easily pay your bills with a credit card, even if your vendors don’t accept cards. This way, for a 2.9% fee, your vendor gets paid immediately, whichever way they prefer—check or ACH—while you get to hang on to your cash until your next credit card billing cycle, giving you extra float.
6. Tracking
Track money in and out in one place. Maintaining cash flow health requires constant monitoring of your accounts. By using digital payment tools—especially if you pay and get paid on the same platform—you can get a clear picture of your finances at any given time. You can also see all of your scheduled payments in order to better plan ahead.
Knowing exactly what’s coming in and out of your account and when will help you avoid payments accidentally depleting your cash flow. It will also allow you to know just how much cash you have to play around with at the moment.
7. Approval workflows
Stay in control as you delegate. As your business grows, you will likely delegate at least some of your bookkeeping, either to an external professional or to another member of your team. Online payment tools typically offer approval workflows that allow you to maintain control of finances coming out. This is crucial as you wouldn’t want a surprisingly high utility bill, for example, to diminish your cash before you have time to prepare for it.
With approval workflows, you can choose to review each payment or set thresholds for larger payments that require approval so you’re never caught off guard.
Better cash flow is just a few clicks away
Digital payment tools are a simple and cost-effective way for businesses, especially smaller ones, to improve their cash flow, without revolutionizing their entire workflow. All you have to do is sign up for Melio today—it’s free and only takes a few minutes to set up, and has some great features that competitors such as Bill, Plastiq, and Quickbooks Bill Pay don’t.
Digital payments FAQs
What is an example of a digital payment?
Paying a vendor by ACH bank transfer, tapping a card at checkout, or sending money through a digital wallet are all examples of digital payments.
Is Zelle a digital payment?
Yes. Zelle moves money electronically between bank accounts, so it is a digital payment. Businesses often use ACH, cards, or bill pay tools for vendor payments.
What is the most popular digital payment system?
Cards and ACH bank transfers are the most widely used digital payment methods in the U.S., alongside digital wallets for everyday purchases.
Are digital payments safe for small businesses?
Digital payments are monitored and protected by security measures like encryption, so you always know where your money is. That is often safer than mailing a paper check.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
What Is Incremental Cash Flow? Definition, Formula and Examples
Learn how incremental cash flow shows the true impact of a new project before you commit any money.
Shop Local: Benefits and Why It Matters for Your Town
See how shopping local strengthens your community, supports jobs, and helps small businesses thrive.
How using Melio helped me hack the recipe development process
Today’s technology lets recipe developers earn miles on business purchases. This means huge savings on traveling to the places that inspire their flavors.
