What is Outsourced Payment Processing?

What is Outsourced Payment Processing?

As a business owner, you're constantly looking for ways to sustain cash flow and improve your business operations. Outsourcing your payment processing is a great way to save costs and save time, and resources for core business operations. It also helps you enhance your security and reduce fraud and errors in payment processing.

In this article, we will explain what outsourced payment processing is and what it means for your business.

What Does Outsourced Payment Processing Mean?

Outsourced payment processing allows your company to contract with a third-party payment solutions provider that will process payments on behalf of your company. It means hiring experienced third-party services to speed up card transactions and securely transfer customers' data with a payment gateway to the processor to approve the transaction so the customer's bank can transfer the money to the company's account. The purpose is to cut down on the financial workload and free time for core business operations.

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Outsourced payment processing is needed where companies do not have the time, resources, or automation software and tools to carry out their payments as their business demands.

What is Payment Processing?

Payment processing is how businesses complete their customers' purchase transactions with their debit or credit card. It also includes paying vendor invoices and accounts payable on debts owed to vendors on goods purchased on credit and other payments.  Payment processing ranges from communicating customers’ payment information on credit or debit cards to their banks to confirm that payments are successful. It ensures all transactions are successful and vendors and suppliers are paid timely.

Payment processing is a part of business process outsourcing (BPO) which is one of the most popular functions being outsourced. It is an important but time-consuming part of any business. The good news is that there is so much to benefit from choosing to outsource your payment processing.

When Should You Outsource Your Payment Processing?

There may not be a specific moment or occurrence that will drive your company to outsource. Instead, choosing to outsource is a result of several events over time. If managing your payment processing costs your business a lot in time, workforce, and sales, you should consider outsourcing.

By outsourcing to online ACH payment services, businesses can take advantage of the benefits of ACH payments in a convenient and streamlined manner. Online ACH payment services provide a web-based platform for businesses to initiate and manage their ACH payments. This can help to further reduce processing times and costs, while also providing businesses with real-time access to their payment data.

Whether outsourced payment processing makes sense for your business depends on the capacity of your organization to manage payment processing. You need to figure out how much time is spent on payments and if that time would be valuable elsewhere. If you can identify how to convert that time to a revenue-generating task or something to promote business growth and continuity, you can make better outsourcing decisions.

Benefits Of Outsourced Payment Processing

Outsourced payment processing is beneficial to your business in so many ways. Let's take a closer look!

Reduced Costs of Payment Processing

Most businesses outsource payment processing to save costs. Switching from printing checks and receipts using an electronic system saves you money. Because the system is automated, your staff employees do not need to print and mail checks. As a result, the cost of printing, mailing, buying paper, and processing is cut down.

Faster and Accountable Cash Flow

Cash flow is the life source of your business. Learning your existing cash flow is necessary for making crucial business decisions. Outsourcing not only guarantees that you always have reliable information about your cash flow, but a payment solutions provider may also significantly speed up this process.

You can pay vendors and receive payments faster while maintaining the desired level of liquidity and earning early payment discounts. Achieving that liquidity is not a constant worry because incoming payments are completed more rapidly. Your company can make important decisions quickly with this strategy. Also, having a company that will recover account receivables will save you from uncomfortable conversations.

Maintenance and Customer Support

Outsourcing takes the cost of maintenance and updates out of your hands. The outsourcing company will handle security updates and all maintenance and operational fees. They will perform regular updates with the latest software at no extra cost.

Access to Advanced Software and Tools

Outsourced firms use their expertise and experience to develop and deploy advanced software solutions to speed up your processes and increase visibility into important business data. These technologies give you real-time insight into your company's health. Financial consultants can use this data to make accurate business predictions and advise you on how to increase your cash flow.

Flexible Payment Solutions

As your business grows, your payment processing functions may or may not increase. Solving this problem may require more effort, and you may be behind on some payments. Outsourcing ensures that your payment processes go smoothly even when handling complexities in your business. You can scale your outsourcing needs to match your business needs. If you need less assistance, you can downscale to reflect this and vice versa. It also allows business owners to monitor their payment status.

Reduce Errors and Fraud

Outsourced solutions providers are professionals who use automation software and tools to spot invoice duplication. These duplicates can lead to double payments and increased expenses. This error will decrease profit and cash flow, negatively affecting management. They also use these tools to reduce payment errors like lost or neglected vendor invoices and delayed payments. Outsourcing payment processing to professionals will help you detect and prevent payment fraud.

Enhanced Security

Outsourcing your payment processing may seem like a huge security risk. However, it can actually increase your security and data protection features. Trying to protect financial data internally necessitates strict security procedures and puts your financial department under pressure and fear of a breach. Therefore you should allow a business that prioritizes electronic security to establish the procedures required to safeguard you and your customer's financial information from cyber theft.

Complying with Federal and State Regulations and Policies

Apart from securing your data and systems from hackers and intruders, your security has to meet requirements laid down by the law. Processing payments involves handling personal and confidential information about your customers and vendors. These can be a home address, bank details, name, and others. There are federal and state laws that state how a company must protect clients’ data.

Outsourcing your payment processing to professional organizations will help you stay in line with complex regulatory requirements. Assigning these functions to a third party takes the worry and pressure off your company and allows you to focus on other pressing business needs.

Disadvantages Of Outsourced Payment Processing

  • Reduced payment processing control
  • Reporting errors that go unnoticed may be difficult
  • Outsourcing your payment processing gives a third party access to sensitive financial information
  • Using an external team can create gaps in communication
  • Communication gaps may lead to errors in processing or communication with vendors

Final Thoughts

Outsourcing your payment processing can greatly serve your business, especially if you want to reduce costs and cut down on staff. It can facilitate business growth by increasing your profit margin and cash flow, enhancing efficiency, and granting access to advanced tools, experts, and seasoned professionals. If you're considering outsourcing your payment processing, you must know the possible risks and benefits.

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