Tap, click, automate: How electronic payments work

Having an effective electronic payment system keeps business operations relevant and accessible, providing a strategic edge to competition in a vast online landscape. Learn more about how electronic payments work and best practices to implement now so you can successfully scale your business.

Being able to reach consumers, guests, clients, attendees—anywhere, at any time—is the foundation for why online payments have become very high-demand. Today, businesses can order office supplies from the couch, approve vendor payments while on the bus, or finalize procurement purchases late at night from their dining room table. Indeed, the number of consumers who use more than one type of digital payment has grown from 45% to 58% between 2019 and 2020; a staggering difference from only 2% increase between 2018 and 2019. For businesses embracing the future of commerce, having an effective electronic payment system keeps their operation relevant and accessible, providing a strategic edge to competition in a vast e-commerce landscape.

What is an electronic payment system?

An electronic payment system is the network of sending and receiving digital payments for online transactions. Also known as an e-payment system or an online payment system, the electronic payment system includes both the purchaser’s interface—payment options, online shopping carts, and identity verification—as well as the supplier’s AP processing, remittance, and vendor management.

How do electronic payments work?

One way electronic payments are made is by using the national Automated Clearing House network to digitally transfer funds from one bank account into another. On the surface, the process is designed to feel effortless, but there are a lot of steps along the way that a payment encounters before a payment is formally complete.

To illustrate, let’s use the example of an online marketplace that curates vendors who produce local, handcrafted items. The marketplace, or merchant, attracts customers, or cardholders, to their website. When a cardholder purchases a one-of-a-kind ceramic vase for their mother’s birthday, they enter the credit debit or credit card information provided to them by their issuer, usually their bank. This information is then used by a merchant’s merchant account provider, or acquirer, who will either approve or deny the payment. A payment processor is used to move the funds from one account to another and a payment gateway is used to ensure the transaction is encrypted, utilizing the Payment Card Industry Data Security Standards with (PCI DSS)  secure socket layer (SSL) technology. Once a payment has been finalized it is directly deposited into the merchant’s account, usually within 3-5 business days. With an effective electronic payment system, the merchant can then make payments to their vendors, directly depositing funds with ACH transactions.

One-time & recurring payments

The versatility of electronic payments meets the demand of the diverse e-commerce environment. For examples like the online marketplace, consumers can provide electronic payment information at the time of purchase in a secure data capture. One-time payment information can also be safely stored for repeat purchases, making it easier for customers to return, login, and use the same payment information. This secure capture and storing of payment information is also vital to businesses that use recurring subscription or subscription-like services. By offering an automated payment plan option, users can rest assured that important utility bills or car payments never lapse.

Types of electronic payments include:

Are electronic checks safe?

As a type of electronic fund transfer (EFT), the umbrella term used for digital payments, electronic checks (eChecks) are much safer than a physical check. Whereas paper checks can be lost, destroyed, and are far more susceptible to identity theft, eChecks function just like a regular check but with added security layers and encryption with the ability to deposit directly into a checking account without having to go to a bank.

The advantages of electronic payments

Here are a few ways that electronic payments support long-term vendor relationships as well as accessible consumer engagement.

Faster payments and easier tracking

Electronic payments eliminate a middle-person from financial transactions meaning that while the payments still go through layers of approval and security, there is a more direct channel from buyer to supplier. Since these payments are made in a digital context, the data capture for them is more detailed and intricate than with manual payment processing. Suppliers and buyers are able to check in on the progress of the payment so there isn’t any guesswork or lengthy email exchanges.

Lower fees

In comparison to other payment methods, the costs associated with electronic payments are significantly less. Physical check transactions can run upwards of $20 per check depending on the type of paper used, the financial institutions processing the payment, and where the checks are being processed. Payments made using the ACH, however, range from $.20-$1.50 with a tendency to average out at $.50 per transaction. And while software associated with payment processing include one-time set up fees or even flat monthly rates, these costs remain lower than those associated with manual processing and physical checks.

More secure and convenient

Sharing sensitive financial information opens consumers and vendors up to fraud. Using electronic payments systems means that the data capture is secure and encrypted according to federal regulations. Buyers can make invoice payments or purchases in real-time without unnecessary delays.

Improved data access and reporting

Capturing information digitally means there is a database of consumer and vendor information available to sales, customer service, procurement, and financial teams alike. Being able to access these payment history details help businesses make informed decisions on product lines, growth, and even fraud prevention.

Why are electronic payments becoming more common?

More and more you will notice that brick-and-mortar stores have notifications for tap-to-pay options or restaurants using QR codes to order off of the menu and pay your tab. These alternative options to the usual credit card payment or pile of cash on the table are changing how we engage with commerce.

Rapid growth of e-commerce

According to the Digital Payments Market Report for 2021, the projected worth of electronic payments will exceed $11 trillion by 2026, nearly doubling from the $5.44 trillion recorded in 2020. While some of this trend was already happening prior to COVID-19—the Federal Reserve reported electronic payments outpacing physical checks for the first time as early as 2018—the pandemic definitely had an exponential impact on user adoption and business implementation.

Fewer people and businesses are willing to pay with cash

Cash is still kept on hand by many for small purchases or emergencies, but the popularity for using cash to make daily payments is declining. In 2020, use of cash payments dropped to 19% of US consumers, down seven percentage points from 2019. Granted, while many shops who conduct in-person business still chose to forgo cash payments for safety concerns related to COVID-19, there is an appeal to offering myriad payment options to their buyers: Convenience and Accessibility.

Digital payments are easier to track and audit

No matter what way you look at it, cash and paper check payments require manual labor to process, and fast-paced work environments give rise to incomplete information capture and fraud. With digital payments, businesses know that the data related to purchases has been documented by the electronic payment system. This information can be drawn upon to determine progress of a payment as well as applied to audits.

Best practices for electronic payments

Adopting an electronic payment system doesn’t come without a learning curve. Here are best practices to consider to ensure consistent and successful results.

Negotiate clear payment terms upfront in writing & don’t waver

When onboarding new vendors, make sure they understand and agree to predefined payment processing terms including remittance terms (net30 v. COD) and invoicing timelines. Providing this information as part of a written contract is a great option.

Accept multiple payment types

Not every vendor has access to every payment type. By accommodating myriad payment options, a business increases their pool of potential suppliers, meaning that their vendor choices are based on strategy rather than by default.

Leverage invoice automation

Effective—and efficient—invoicing is the most direct route to increasing profit. AP automation is fast and accurate, resulting in benefits of early and timely payments.

Use cloud-based invoicing software

With cloud-based software, updates and syncing happen automatically. Having access to real-time information rather than relying on slower, local infrastructure processes is advantageous, providing better control to accounting cycles.

Stick to a regular payment schedule

Vendors want consistency and predictability for payment cycles. The fast, simple use of electronic payments provides a foundation to long-term vendor engagement.

Send payment reminders at regular intervals

No one wants to play guessing games when it comes to payments. Good electronic payment methods provide customizable, automatic communications for vendors and buyers to prevent stalled payment cycles.

Penalize late payments

It never feels good to be the “bad guy” when it comes to enforcing payment penalties. However, having these guidelines and enforcing them gives accounting teams leverage for collecting payments. Late payment penalties should be clearly stated in onboarding documentation with reminders provided at each opportunity so there are no surprises.

Make easier B2B payments with Routable

Establish an electronic payments system today and discover the strategic advantage of electronic payment automations with Routable.

Accounts receivable automation

Reduce arduous manual AR processes with automation through Routable. Automatically send invoices and know when they have been processed with fast, direct deposit right into your business checking account.

Accounting software integrations

Routable integrates directly with Xero, QuickBooks, and NetSuite for real-time two-way syncing, ensuring account balance accuracy.

API to automate payments & reduce manual work by 80%

You no longer have to rely on building in-house payment solutions. Routable’s API-first approach means users can implement scalable solutions within minutes.


As more businesses adopt digital transactions, they reach larger demographics and pay vendors faster with the click of a button or the tap of a card. With the usage and value of electronic payments on steady—even significant—incline, there has never been a better time to establish an electronic payment system.


Recommended Reading


What to expect at Sage Transform 2024

The Routable team is proud to be a Platinum sponsor and exhibit at the conference from February 26-29 in Las Vegas. Stop by booth 6 to meet the team, see our AP Automation platform in action with Sage Intacct, and enter for a chance to win an Apple iMac or AirPods Max.


Tax management essentials: What you need for year-end filing

In this blog post, we’ll go over common tax forms and deadlines related to gig and contract workers and look at how Routable can help you successfully file for your non-employee workers and entities.