The business-to-business (B2B) market can offer countless opportunities for traditionally business-to-consumer (B2C) merchants to expand their businesses and boost their bottom lines. It is no wonder that businesses as diverse as Best Buy, Timberland, Dell and beyond have begun expanding into the space. Explore the ultimate guide to B2B payments solutions.
What Different Types of B2B Payments are There?
There are many options when it comes to B2B payment reconciliation. However, it’s important to keep in mind that your suppliers may only accept a certain method of payment for invoices. Below, we outline the most common ways to settle your outstanding bills:
The majority of organizations still accept cash payments. However, making payments in cash is more difficult in the B2B world—your suppliers are unlikely to be conveniently located to make a physical cash exchange. Further, it’s unsafe and not secure to send cash through the mail, and therefore cash payments are becoming a passe option for B2B payments.
Checks are another traditional form of payment that is generally accepted on a large scale. Paying by check requires a manual process that is time-consuming, costly, and prone to error. Further, paper checks can be difficult to track, easy to misplace, and subject to high fraud risk.
According to a report by PYMTS.com and MasterCard, 35 percent of businesses expect their check usage to decrease in the future, with more than 40 percent saying check payments are too slow and require too much manual paperwork. However, 64 percent of B2B payments are still made with checks, so there is still an opportunity for businesses to transition to more efficient payment methods.
3. Credit Cards
Though slightly more modern than cash and paper checks, one of the primary methods for B2B payments is via credit card. Credit cards are a convenient and inexpensive way to allow vendors to receive payments quickly, while also allowing the buyer to defer payment for a number of billing cycles. These transactions can also be easily tracked through electronic or paper statements.
Although credit cards do incur interest rates, when organizations pay off their balances in a timely manner, it allows for access to extra funds and potential rebates. However, just like personal credit cards, business cards are also prone to fraud from time to time. Making a large number of credit card payments can also create additional reconciliation hassle, as your finance team needs to reconcile monthly credit card statements in addition to bank statements, where check, ACH, and even virtual card payments appear.
4. ACH Payments
Automated clearing house (ACH) payments transfer funds from a business checking account to the account of a third-party. This method requires paperwork to be completed by both the purchasing organization and the vendor. One-off payments are less likely to be made using this method because of the amount of paperwork involved; however, ACH can make recurring or repeated payments much easier. With ACH, payments are sent and received relatively quickly—usually within three business days— and fees are reasonable in comparison to wire transfers. NACHA, the body that resides over ACH payments, currently processes $43 trillion in transactions per year.
Like other payment methods, ACH has some drawbacks. These payments require organizations to share their personal bank account information, making privacy and fraud a growing concern. ACH transfers can also be difficult to reverse; organizations must report errors within a 60-day period for potential remedy. Additionally, ACH is only supported in the US, so making international payments using this method is not an option.
5. Wire Transfers
When organizations are looking to make a business transaction in real-time, they often use wire transfers. Once funds land in the receiving account, often within 24 hours of facilitating the transaction, they become available immediately. When compared to ACH, wire transfers have a faster turnaround time. However, some wire transfers still have a daily cut-off time and can be costly to complete.
There are two different types of wire transfers: cash and digital. Cash-based wire transfers wire funds to a cash office, where a recipient can collect them. Digital wire transfers send funds electronically from one bank account to another. This payment method is also ideal for sending international payments.
6. Electronic Payment Methods and Virtual Cards
Electronic payments, or e-payments, offer a way for organizations to pay bills online or through an electronic medium, without the use of physical checks or cash. The most popular electronic payment methods include credit cards, debit cards, virtual cards, and ACH (direct deposit, direct debit, and electronic checks).
Virtual cards, in particular, offer a number of benefits: payers incur zero costs, enjoy speedy processing time, and payments remain secure through a process called payment tokenization. Organizations can also receive cash-back rebates on purchases. These benefits have made virtual cards the fastest-growing form of B2B payments, quickly replacing the tedious processes behind checks and wires.
Electronic payments remove the hard costs and fees associated with traditional B2B payments — including paper, postage, and manual labor expenses. Beyond cost reduction, benefits include strengthened supplier relationships and increased payment security.
How to solve the pain points of B2B payments
To understand how to automate B2B payments, we must first identify the issues that businesses have with the current system. Delays, fraud, manual processing, and visibility are some of the most common problems with B2B payments. As a result, new B2B solutions must address and seek to resolve these difficulties. The following are some of the most important B2B payment trends for 2021.
1. Transition from manual processing to automation
A large number of companies still process payments manually. Manual processing is bound to have errors and may prove to be insecure as well. Moreover, it would take longer to manage all the payments manually. Instead of continuing to process payments inefficiently when done manually, it is better to invest time and resources in more efficient automated processing solutions.
B2B payment automation solves practically all the problems that come with manual processing. It provides more control and visibility over the transactions and, at the same time, saves operating costs and time. Adopting AR automation software, for example, allows a company’s accounts receivables team to automate repetitive and time-consuming processes while increasing their cash flow and collection efficiency. Instead, they can devote their time and energy toward more productive or strategic projects. Similarly, integrating a payment API (Application Programming Interface) with an ERP (Enterprise Resource Planning) software would help the company in managing the payments and sharing banking data in a safe manner. More than anywhere else, electronic transactions are surely a game-changer in B2B payments as they make them more efficient, secure, convenient, fast, and instant. Digital payments give buyers and suppliers various growth prospects by allowing firms to focus their time and resources on more profitable areas.
2. Managing risk through multi-factor authentication
As e-commerce and online transactions are growing, businesses are also increasingly complaining of cyberattacks and payment frauds. One of the ways to solve this problem and provide a platform for more secure payments is Strong Customer Authentication (SCA). It is a requirement of the European Union that was enforced in 2019 and has already been implemented by most member countries. Two-factor and multi-factor authentication are formed on the basis of the use of multiple ways of authentication.