Digitising your payment systems speeds up your business payments and streamlines reporting and reconciliation. Learn how digital disbursements work.
Picture this. A supplier has to refund you for a defective piece of equipment they supplied. Would you rather receive your money instantly or the next day or the following week?
Instantly, of course.
Instead of driving across town to pick up an envelope with wads of hard cash or receiving a cheque in the mail, you would want the money disbursed directly into an account that you can manage digitally.
In short, digital disbursements are preferable to manual cash or cheque disbursements. This article will discuss what digital disbursements are and in what ways they are better.
What are digital disbursements?
Digital disbursements transfer funds electronically to recipients' bank accounts or digital wallets, ensuring speed and efficiency. They rely on digital tools, including software, applications, and programs and digital devices like computers, laptops, smartphones, and IoTs to process and move funds with minimal manual actions.
Unlike general business payments for goods and services, digital disbursements are cash outflows from a specially established fund. For instance, you use funds from a salaries account to pay wages.
The main advantage of digital disbursements is they deliver payments using methods that align with how consumers transact and communicate.
Today's consumer uses mobile wallets like M-Pesa to make most of their payments and relies on communication tools like SMS and instant messaging to receive payment notifications. They want to use the same to access their salary and loan disbursements, so your business must have the tools to meet this need.
Digital disbursement methods.
A disbursement method is a medium or particular procedure of distributing funds to their recipient. For digital disbursements, the methods you use must use electronic channels.
The most common digital disbursement methods in Kenya are:
- direct bank transfers,
- digital wallets,
- mobile wallets.
Your digital disbursement method must be secure, fast, and convenient for the recipient. It must also be accessible. For example, in Kenya, where most people have mobile phones, mobile wallets like M-Pesa are the most convenient digital disbursement for a microlender.
Advantages of digitising business disbursements.
There are many examples of disbursements in business. These include:
- reimbursements for business expenses covered by an employee,
- tax remittances to the Kenya Revenue Authority,
- cash refunds for returned goods,
- salary payments to employees.
- Digitising these disbursements ensures efficiency, boosts security, and streamlines tracking and reconciliation. It will minimise human intervention in the process, ensuring accuracy and speed. Let's expand on these benefits of digital disbursements:
1. Instant settlement.
Settlement is the actual transfer of funds from one account to another. You may expect a lag as the disbursement request must be communicated and cleared by checking for a sufficient balance to fund it. There isn't one with digital payments.
Cheque disbursements, on the contrary, are notorious for their settlement delays. Not only do they require time to move the clearing system, but you must also deposit them physically.
The resultant delay can be the difference between meeting or missing an important customer order. These delays are a fatal weakness for small businesses with weak cash flow.
Digital disbursements usually clear instantaneously. This means there is a very short time - usually seconds - between payment initiation, clearing, and settlement. As these disbursements are processed virtually, they can be made at any time of day or day of the week and from anywhere.
2. Delivers payments faster.
A co-study by PYMNTS and Fiserv found that 71 percent of customers prefer digital disbursements because they get their money faster.
In business, the sooner you get your money, the faster you can pay creditors, buy materials, and meet all the financial commitments you need to keep the operation running.
Digital disbursement methods like M-Pesa and other mobile money wallets deliver payments instantaneously. As long as you have good internet connectivity or strong mobile network reception, you can receive your salary or loan the moment it is sent.
3. Saves costs.
Paper cheques are costly to process. They also require time to write out, issue or mail and (for the recipient) clear. The clearing alone can take days, which is time a cash-strapped small business will not have.
The cost of paying through paper cheques includes the stationery involved and the manual work of writing and issuing the paper cheques and securing the chequebooks so they don't fall into the wrong hands, another administrative expense.
4. Enhances payment tracking and reconciliation.
Digital disbursements are more traceable than manual methods like hard cash and paper checks. Digital payment processing software automatically collects beneficial data that you can use to generate reconciliation reports.
The alternative to manual disbursement methods is searching through many files to find receipts and bank deposit slips. This process is time-consuming and physically demanding.
Instead of hours, you can use minutes to generate a report that tells you how much you disbursed, to whom, and when if you are using a digital disbursement platform.
5. Boosts security.
According to PYMNTS, paper cheque fraud doubled in 2022. For businesses that still rely on cheques for their disbursements, forgery, kiting, counterfeiting, washing, account takeover, and other forms of cheque fraud are an ever-present risk.
Electronic payments are more secure than hard cash and cheques. They don't require physical exchange between the disbursing entity and the recipient, which removes the risk of loss due to fraud or theft.
6. Promotes financial inclusion.
Financial inclusion is a persistent challenge in developing countries with a large unbanked population like Kenya. Banks have traditionally made it hard for people who cannot produce proof of formal employment to open bank accounts.
That is even though these people are engaged various forms informal economic activity. These economically active people struggle to save or access credit without a bank account.
Thanks to mobile phones and the innovation of mobile money wallets and digital payment technology, these people can easily open a savings account and now also pay, get paid, and access loans digitally. They are now bonafide economic players.
Transfer funds faster, accurately, and more securely with Intasend Disbursements.
The speed, efficiency, and accuracy with which you move funds out of your business determines the general health and profitability of your business. It directly affects your cash flow and how well you can meet your financial obligations to employees, customers, partners, and regulatory bodies.
At Intasend, we have developed products that help businesses move money faster and more securely. Our digital disbursements products allow you to disburse funds with extreme rapidity, ease, and accuracy, whether it's salaries, refunds, remittances, or regular business expenses.
Sign up for an Intasend business account today to get started with digital disbursements. You will enjoy faster settlement, instant notifications, bank-level security, and transaction report downloads on demand for easier reconciliation and auditing.
