What are Payouts and why are they important for businesses?

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You may have come across the term “Payout” often, but do you know exactly what it means to a business? In this article, we’ll delve into what they are, how they work, and how they should be managed.

Simply put, “Payout” is an all-encompassing term for all outbound payment disbursals made by businesses; this can include pay-outs to their customers, suppliers, vendors, stakeholders or even employees. Simply put, payouts are just outbound payments- but not the kind that are made by individuals when purchasing goods or services. Payouts are made by businesses to other businesses or individuals in the form of partner payments, employee salaries, customer cashbacks and refunds, sales commissions, etc.

Examples of Payouts 

As you can imagine, all businesses will need to make payouts of some type or the other in the normal course of operations. But different companies may need to make different types of payouts, depending on the nature of their business. Let us understand this better through some of the more common types of payouts. 

Partner payments are an industry-agnostic type of payout, as any type of business may need to pay recurring or one-time fees to vendors, technology partners, marketing agencies, licensing authorities, brokers, consultants or other service providers. The frequency and cycle of payment may vary depending on the nature of services provided and the partnership agreement. 

E-commerce and online businesses are most likely to offer cashbacks and refunds to customers as part of their sales strategy, whereas manufacturers and wholesalers may have various commissions and incentives in place for their sales teams. At the same time -and this where it gets interesting- many big companies now have their own retail presence in addition to selling their products via aggregators or marketplaces. This means that they will need to simultaneously send and manage different types of payouts to customers, retailers and sales teams.      

Similarly, all types of businesses are likely to pay employee salaries and reimbursements, right? But if you dig a little deeper into types of employee remuneration, you will find that the very definition of employment has changed over the last decade or so. Companies today hire the services of gig workers, remote workers, freelancers, independent contractors and a whole variety of other personnel who may not be paid the same rates or at the end of the same cycle as their employees.

Many ride-hailing (taxi) and delivery companies, for example, pay their drivers and delivery staff on a fortnightly basis, while many freelancers get paid a small advance at the start of a project and the rest of the fees are paid after successful completion. Remote workers and contractors may be paid in 45-day or even 120-day cycles. Such a wide range of payouts puts a lot of pressure on finance teams, and increases the chances of costly errors.

You will observe even more types of payouts once you start looking more closely at specific industries. Insurance companies, for example, are now (justifiably) expected to make instant claim settlements. It is a revolutionary change in the way insurance settlements were handled even as recently as five years ago, and it makes a huge difference to the welfare of the customer. But most banking websites and apps are simply not engineered to enable insurance companies to make this kind of transaction.

Now consider the case of stock broking platforms. Have you ever wondered why it takes so many days for the money to reach your bank account after you sell your stock or mutual fund holdings? To understand this, let us first understand how a payout works. 

How it works

Here’s how the payout process works in the majority of businesses: 

1. Requesting the Payout: The business initiates the process by submitting a request to their finance team. This request includes important details like the payout amount, the recipient’s name and address, and the chosen payment method.

2. Approval: After ensuring everything is in order, the business’s finance department approves the payout request.

3. Processing: The business’s payment processor takes over, working behind the scenes to make sure the payout goes smoothly.

4. Getting Paid: Finally, the payout amount is deposited securely into the recipient’s account.

Now, carrying out the above mentioned steps can either be manual or automated. Many new or small businesses initially go the manual way and send payouts through their banking website or app, though it’s not the best use of their resources. It is especially important for growing businesses that processes like these carry out themselves and free up their valuable resources. Manually processing payouts can be costly, time-consuming and inefficient.

The problem with Manual Payouts

Below are some of the biggest drawbacks of manual payouts:

  1. Time-Consuming: When businesses handle payouts manually, it eats up a lot of time, especially for those dealing with a high number of payouts. This is valuable time that could be better spent on improving the product, customer service and marketing efforts.
  1. Prone to Mistakes: Manual processing comes with a higher risk of errors. Mistakes can easily slip in during data entry or calculations, leading to financial setbacks, unhappy customers, and potential fines from regulators.
  1. Inefficiency: The manual route often proves inefficient. Businesses need to juggle various systems like accounting software and customer management tools, leading to scattered data and an incomplete picture of the payout process.
  1. Ambiguity: One of the biggest pain points for businesses when making a payout through their banking website or app is not knowing if the payment has gone through successfully or not. Often, this results in unnecessary delays and expensive repeat transactions.  
  1. Hard to Scale: As a business grows, manual processing becomes even more unsustainable. Hiring more staff to handle payouts becomes expensive, and finding trained personnel proficient in accurate manual processing is more difficult than ever.

Payout service providers like Hatio offer a robust, API-based payment disbursal solution that businesses can easily integrate into their existing digital infrastructure to send bulk payouts securely, easily and instantly. Using Hatio Payouts streamlines the payment disbursal process for businesses- saving time, minimising errors, boosting efficiency and facilitating scalability. This strategic shift makes the overall process much smoother and convenient for everyone.

How a Payout solution can help

Using a reliable and technologically advanced payout provider empowers businesses to optimise their payments:

  1. A versatile payout provider like Hatio offers a wide range of payment disbursal options to businesses, such as bank transfers, UPI payouts, mobile wallets and prepaid cards, ensuring convenience and accessibility for recipients. A diverse range of payment options makes payouts hassle-free and user-friendly for both the business and the payees.
  1. It also enables businesses to process bulk payments efficiently, reducing manual efforts and saving time. Whether it’s payroll processing, vendor payments, affiliate commissions, or insurance claims, a versatile payout system enables businesses to disburse payments to multiple recipients simultaneously, reducing manual effort and saving time.
  1. An intelligent payout solution also gives businesses valuable insights into their payout activities and fund flows. Businesses can monitor transaction statuses and generate reports for better financial management and decision-making.
  1. All in all, a good payout solution offers a seamless and hassle-free payment experience to the recipients, fostering positive relationships and customer loyalty for the business.

In conclusion, payouts are an essential part of any business operation. By understanding the challenges associated with payouts and using the right solutions, entrepreneurs and companies can improve their payout process and ensure that they are not just meeting their financial obligations to their stakeholders efficiently, but also using payouts as a strategic tool to grow their business. .

Want to know more about optimizing payouts for your business? Speak to our experts today