Direct Payment Solutions

Improving Small Business Cash Flow with Direct Payment Solutions

Profit and Cash Flow

It is a basic principle of business that to survive, a company must make a profit. However, any small business person will quickly tell you that profit isn’t enough. Having adequate cash flow is essential to day-to-day survival of any small business. Understanding the difference between profit and cash flow is critical to small business management. Many businesses don’t succeed because of the failure to learn this lesson.

 

Direct Payment Solutions

 

Profit is the difference between all the revenue a company generates and all the expenses it pays out. It is here where we note that profit is not cash. Assume a business sells $10,000 of product on terms of 60 days to a customer. And assume the company makes $5,000 on that sale. That sounds like a nice profit, and it is. The problem comes in timing when that profit is actually cash in the bank. The business selling the product has to pay its employees, the bills for the raw materials, and all its other expenses. Those have to be paid before the 60 days are up. When this is repeated for a number of customers, a real cash flow crunch can occur. If all the profits are sitting in the hands of customers who haven’t paid their bills, a company can fail.

The Advantage of Direct Payment Solutions.

Many small businesses today are rapidly turning to direct payment solutions. This is especially the case for companies that sell on the Internet. With direct payment solutions, a company receives cash from a sell immediately. There is sometimes a hold of a few days in the process. Even with a hold, the company knows the cash for the sale is on its way. This eliminates the days of waiting for weeks and months and then being told, “The check is in the mail.” Direct payments allow a much closer connection between profits and cash flow.

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Maximize the Customer Base with Direct Payment Solutions

Most businesses are familiar with the desire of their customers to make payments rather than provide the full purchase price up front. This is especially the case when an item has a large sticker price that would otherwise be impossible for a lot of people to handle. If the only options were to pay cash or to do without the item, many customers would do without, whether they wanted to or not. This leaves a lot of retailers struggling to find ways to finance their wares in order to maximize sales, yet ensure that they actually receive the balance of their money in the agreed-upon fashion.

 

Direct Payment Solutions

 

The preferred solution for sellers of these higher value items is to offer the customer terms in the form of several relatively affordable monthly payments. For those who have a credit card, this offers no problem at all. Yet this still leaves a large pool of potential customers who, for one reason or another, do not possess a credit card but still wish to purchase the product. Here is where direct payment solutions come into play.

In effect, direct payment solutions are electronic checks that are withdrawn from one bank account and immediately deposited in another account. The technical term is ACH, or Automatic Clearing House, transfer. For most retail usage, ACH transfers are agreed to by the buyer and these transfers are scheduled to automatically occur on certain specific dates. By removing the fallible human factors from the equation, payment becomes a much more certain thing. It is no longer necessary to depend on someone to fill out a check and mail it in with the requisite payment stub.

Direct Payment Solutions

Instead, these bank-to-bank movements reverse the process. Rather than payment being made provided a human acts to authorize the transaction, they go through unless a human acts to cancel them. The difference in effort means that payments are much more likely to be made. More importantly, these payments are likely to arrive in a timely fashion. Merchants who do not avail themselves of ACH payments are saying goodbye to a large slice of the buying public.

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