The financial universe of a lot of businesses revolves around various immediate obligations such as payments to suppliers, incurring revenue expenditures or paying loans on time. These obligations eat out a major portion of a business’s working capital. On top of that, the time gap in receiving payments from customers and making payments to vendors affects a business’s cash reserves significantly.
Effective cash flow is the key to survival for small and medium businesses. Whether your business is growing or just starting, smooth cash flow is the only mantra to sustain among the competition. Even a large enterprise making huge profits can collapse due to non-availability of cash or liquid funds.
With the default settlement cycle, once customers make online payments, they will only be credited to the business’s bank account after the settlement cycle. This engages more money in the business’s working capital and causes cash-crunch.
Is the current settlement cycle feasible for all businesses?
Now, imagine a scenario. You have sold a product and made a profit out of it, but does that mean cash has been credited to your bank account? No, Right! The money takes time to reach your account due to our banking settlement system. Depending upon your business, it can be T+2 or T+3 settlement cycle. This can create unfavourable situations for some businesses while making payroll payments, ordering inventory and paying bills.
Let’s understand the industry-wise pain point through the following examples:
- E-commerce: Online sellers and service providers, making high-value transactions, might struggle with the default settlement cycle. These businesses need funds to start working on their orders, especially during infrequent sales period such as this lockdown. With delayed cash flow, the orders might get delayed, which in turn can negatively impact businesses in a competitive market.
- Lending: The lender has to pay additional interest in the settlement period to their financiers, even if the money has already been sent to them. When the end-customer makes online payments, the settlement period adds a delay and interest is accrued by the lender accordingly. The business loses a good amount of cash through interest payments for the settlement cycle, and also hampers its goodwill among the financers in the market.
- Utility providers: Most users pay their utility bills on the last date and the default settlement cycle is an issue due to the upward trend of online payments. If the amount is paid online, it is credited to utility company’s bank account after 2-3 days from the date of payment made by users. With ever-increasing online payments and declining cash collections before the due date, the provider might fail to meet some of its financial commitments.
- Online education: Education providers offer courses to students in exchange for a certain amount of fees. The students pay their fee electronically, which is credited to the provider’s bank account after the settlement cycle. Meanwhile, the provider has to manage its day-to-day payouts such as teachers’ compensation, recording studio charges and so on. The time gap between these payouts and receiving fees from students affects the business’s cash flow.
But, is it possible for a business to be cash-efficient and also fulfil various financial obligations on a daily basis? Yes!
How is Razorpay helping businesses with liquidity issues?
Wondering, how? With Instant settlements, Razorpay settles business payments immediately at a nominal fee instead of default settlement cycles. This feature allows businesses to get early access to their money, avoid daily cash flow challenges for any kind of payouts 24×7 even during bank holidays and non-banking hours.
Words of appreciation from our happy customers of Instant Settlements
Here’s how the instant settlement feature helped MoneyView:
“Same-day settlements help capture EMI payments made by customers on last dates of payment and still deposit with our financing partners within the requisite period, thereby leading to better money flow management and customer experience” – By Saurav Goyal, CFO, MoneyView
Here’s what the owner of TeleAstro has to say about Instant Settlements:
“Instant settlements option helped us to manage our business with even low working capital. It’s almost like getting paid in cash instantly by our customers. We are anyway competing with bigger corporates to run our operations. So Early Settlements helps us a lot!” – By Animesh Pratap, Owner, TeleAstro
Suggested Read: 24x7x365 Settlements Even on Holidays – Never Run Out of Cash
The instant settlement feature is available to all Razorpay customers subject to a routine risk check and can easily be enabled from the dashboard. You can go to settlements tab on the dashboard and click on ‘Enable now’ or ‘Settle now’ to use Instant Settlements. Also, you can check the nominal fee applicable to such transaction before confirming.
So, what are you waiting for?
‘Supercharge your payments and get ready cash with Razorpay – Login now’