A lot of small business owners deal with late payment challenges. 

In 2023, over three-quarters of small business owners experienced at least one late invoice payment. As a result, about one in five had to incur credit card debt or miss a business payment. One in 10 missed a mortgage payment. 

Another study found that this issue is getting worse. From 2023 to 2024, 20% more companies reported long payment times (over 80 days). 

Even if you’re not currently losing sleep over late payments, they are definitely bad for your business. Late payments negatively impact cash flow. They also hinder business growth. 

One of the easiest and quickest ways to tackle this issue is with digital payments. Accepting digital payment methods simplifies payments for your clients, encouraging them to pay you faster. 

If you’re ready to end the frustrating cycle of late payments, cash flow issues, and stress, read on. This guide covers everything you need to know about how digital payments can help your small business say goodbye to late payments and thrive. 

What Is a Digital Payment? 

Digital payments encompass all transaction types that are processed electronically. These can occur online or in-person, such as when a store uses a point-of-sale system that accepts credit, debit cards, AHC bank transfers, or digital wallets. 

Where cash and checks are physical payment methods, digital payments are non-physical because there’s no exchange of physical currency. Instead, money is transferred electronically through a third-party payment processor. 

With digital payment methods, your clients have the flexibility to pay the way they prefer. They can pay: 

• On the go with their mobile phone 
• Any time of day, because digital payments can be made 24/7 online 
• Via the channel they prefer, whether it’s email, SMS, or a shareable link 

And, with the right payment software, you can enable your clients to pay your invoice in a couple of clicks. 

Ultimately, digital payments are simpler and more convenient—let alone more secure. That’s why your business is more likely to get paid on time. 

Why Reducing Late Payments Matters 

Late payments can be devastating for small business owners. 

The key problem is cash flow struggles. 

When invoices aren’t paid on time, your business is at risk of not having the money it needs to pay its bills. That can lead to the following problems: 

• Poor supplier relationships: If you’re paying them late, they may charge late fees, increasing your costs. They’re also less likely to allow you to buy on credit. 
• Debt: If you have to use financing to cover operational expenses, your business credit might decrease. You also might end up paying interest fees. 
• Stifled growth: If you’re constantly trying to keep up, you’re not looking ahead. There’s simply less money and time for upskilling, hiring, and innovation. 

If you’re not finding ways to reduce late payments, you might be spending time, money, and energy just to stay afloat. 

On the other hand, compelling clients to pay on time with better payment flexibility opens the door to a healthy cash flow and financial stability. 

That can help you: 

• Budget smarter 
• Avoid unnecessary debt 
• Invest in your business to drive growth 

The reality is that how your clients pay you can turn the negative cycle of late payments around. And here’s the good news: offering digital payment methods is easy. 

In fact, digital invoicing is faster, more secure, and more manageable than paper invoicing or manual payment tracking. As a result, you can count on more time and mental energy to devote to building your business—exactly what you need as a busy freelancer or entrepreneur. 

FROM ONE OF OUR PARTNERS: How Field Service Companies Can Improve Cashflow with Digital Payments

The Benefits of Using Digital Payments for Small Businesses 

There are several digital payment methods your small business can use. 

• Credit and debit cards account for over 60% of all payment transactions. Accepting card payments can be a make-or-break payment feature your clients accept. 
• Digital payment apps like PayPal and Venmo allow simple, safe mobile and online payments. 
• ACH payments are electronic bank-to-bank transfers. The advantage of accepting ACH transactions is that the transaction fees are lower. They also have a low payment failure rate. 
• Mobile wallets like Apple Pay and Google Pay allow consumers to pay with their phone instead of a card for in-person transactions. 

Which payment method is right for your business depends on what digital channels and payment methods your clients prefer. 

For example, if you have US clients who like to pay with a mobile device, make sure you accept payments through Venmo. 

If you offer services to other small businesses, consider offering ACH payments in addition to card payments to give them the most payment flexibility. 

If you serve customers in person, you might use a digital payment processor that accepts contactless card payments and digital wallets. 

Using these digital payment methods has advantages over being a cash-based business. 

Better Payment Security 

Most digital methods, including Venmo, PayPal, and online card processors, protect data with encryption, so there’s no worry about payment data being stolen during a transaction. 

Payment processes generally also have built-in fraud protection, minimizing the risk of payment fraud. 

Also, because you aren’t storing your client’s payment info in an online spreadsheet or a notebook when you invoice electronically, there’s less risk of their data being stolen. 

Higher Client Satisfaction 

Digital payment methods are more convenient than physical methods. 

And as people become more accustomed to the convenience digital payments offer, they’re not going to go back. 

According to a 2024 study by The Federal Reserve, the share of cash payments dropped from 2022 to 2023. Also, cash and checks were the only two payment methods with a year-over-year decline over that same period. 

The bottom line is that cash isn’t going to make a comeback. So, it’s important to offer your clients the payment options they prefer to keep satisfaction levels high.  

As Bank of America’s Jonathan Sepulveda points out, “Clients and consumers want convenience, security and ease, and if some merchants are not offering it to them, it could really hamper their business.” 

Faster Payments 

A 2024 survey of small business owners in the US found that late payments are one of their top concerns. 

With digital payments, you can send an invoice with one click through your phone or laptop. 

But your clients have the same ease of use. They can see the invoice online, choose their preferred payment method, and pay from any digital device. With the right software, your clients can pay you in a couple of minutes. 

This is much easier than waiting on a paper invoice, writing a check, or having to record accounts payable data in their books. With less hassle, they’re more likely to pay you right away. 

Easier Financial Tracking 

Another benefit for businesses is the wealth of data and insights you have access to. 

With small business payment software, you can: 

• View your transaction history 
• Identify your best clients 
• Better understand client payment preferences 
• Spot late payers 

All of this information can help you make smarter decisions surrounding customer care. You can also have a clearer idea of how to create opportunities for encouraging even faster payments, such as offering payment plans or charging late payment fees. 

RELATED ARTICLE: The Most Popular Mobile Payment Methods for Business Owners 

Choosing the Right Digital Payment Software 

The software you choose impacts your experience. It also determines the level of convenience and flexibility your clients experience, so choose wisely. 

Here are four things worth considering when choosing a solution: 

• Security: Does it use encryption and a secure SSL connection? 
• Payment flexibility: Does it accept the payment methods your clients prefer? 
• Customization features: Can you generate professional invoices and add customizations like late charges and instant payments? 
• Ease of implementation: Will your software integrate with your existing tools and processes? 

Invoice Simple, for instance, lets you send digital invoices with one click. You can also customize your invoice as much as you want. And with a ‘Pay Now’ button, you’re more likely to get paid on time. 

FROM ONE OF OUR PARTNERS: The Future of Online Payments: What You Need to Know 

3 Questions to Ask When Choosing a Digital Payment Method for Your Business 

So, what digital payment method should you choose? 

Here are three questions to ask to help you decide the best payment method for your small business: 

• What are the processing fees? And can you pass those costs on to your clients? 
• Is your payment method available to your clients? For instance, Venmo and ACH payments are only available to US clients. 
• Is your digital payment method future-proof? The reality is payment preferences keep changing. Make sure you’re offering a mix of popular payments, like major credit cards, and more convenient options like PayPal and other payment apps.