B2B payments automation is key to unlocking the economic potential of Indian SMEs

Since the introduction of NEFT in 2005 after RTGS (Real Time Gross Settlement) as EFT (Electronic Funds Transfer) rails, digital payments have gained prominence in India with technological advancements, and entrepreneurial spirit, aided by regulatory and government policies and initiatives fueling an extraordinary transformation propelling India as the global leader in digital payments. Integrated digital payment solutions are empowering businesses, and consumers, uplifting the overall economy.  

UPI's introduction in 2016 has further accelerated digital payments adoption leading India to record a whopping 91 billion transactions in 2023, exceeding the combined total of the next four countries, including China.

Of the total payments being made digitally, B2B payments reported a majority market share of $7.6-8 trillion in the same year while (B2C) payments had a market share of $1.5 trillion. By fiscal 2026, the market share for B2B payments is expected to reach $10-11 trillion and take centre stage.  

Since the pandemic, business owners of all sizes have recognised the benefits of going digital, however, the adoption rate remains tilted towards large corporates with SMEs and MSMEs gradually catching up. As India’s over 63 million MSMEs are the key growth drivers that could propel the country towards achieving developed economy status by 2047, here are some payment processes that can be adopted by them: 

Digitisation of B2B payables and receivables 

Automation and digitisation of B2B payments can be a game changer as this has been proven to help the sector to successfully overcome long-standing pain points associated with traditional payment methods. For example: 

• Replacing paper invoices with digital (GST compliant) invoices sent over email which can be tracked for delivery, opening and processing
• Enabling digital payments methods–Cards, EFT etc., with scheduled and recurring payments
• Automation of all business payments be it Vendor payments, supply-chain collections, utility payments, statutory payments taxes, etc., processed with corporate/business credit cards
• Self-service portals can provide a centralised view of all outstanding payments, collection requests and payment history 
• Straight through reconciliation of payments against invoices to the ERP reduces the effort to manually track, follow-up,  update and maintain accurate, auditable payment records and reduces reconciliation costs
• Automated text and email reminders for all overdue payments 
• Enabling Early-payment discounts to customers for faster collections.

The digitisation and automation of payment processes help increase revenue, reduce reconciliation costs, increase productivity and efficiency, provide an enriched payment experience for customers, and save time and costs to a great extent. Additionally, the use of a centralised platform enables users to track cashflows more effectively.

Unlocking new payment methods 

There are 87 million credit cards in circulation in India, with the number estimated to cross 100 million by the end of 2023. Additionally, outstanding credit card debt also crossed Rs 2,00,000 crore for the first time, amounting to 30% yearly growth.

These include millions of business cards issued to SMEs used for business payments. In addition, many SME owners use their personal cards for business expenses as a working capital tool.

There are more than 10 million SMEs and MSMEs registered with Udyam as of August 2022 and these formalised enterprises are usually the target group to whom corporate/business credit cards are issued. 

The use of corporate or business credit cards also helps in reducing or eliminating the need to procure working capital from traditional sources, which are difficult to obtain aside from the higher costs when you compare it to all the added benefits with card-based working capital. In this context, the crucial element is to provide a platform that facilitates B2B payments of all types to enhance the value proposition and potential usage of the card.

Empowering SMEs and MSMEs with an inclusive payments platform

Forrester predicts a shift in payments innovation in the upcoming decade with large corporates and small businesses investing in integrations towards AI-based tools, application programming interface (APIs), and robotic process automation (RPA) to enhance interoperability across the B2B payment value chain.

Further, digital tools used for other processes such as invoicing, payments, and procurement, among others will continue to improve overall operational efficiency and reduce fraud, thereby positively impacting the overall credit score of businesses. 

The adoption of these B2B payment processes will certainly help small businesses to scale in a secure and seamless manner, eliminating the need to allocate additional resources and procure funds at high borrowing costs, and time to match the pace. This will ultimately result in dipping into untapped working capital on cards and increase efficiency and profitability for businesses. 

Ajay Adiseshan is the Founder and CEO of PayMate