Modern commerce is a customer-first experience. In order to meet the demands of the insatiable consumer, businesses must speed up paying each other. Thus, innovation breeds digitization and the financial arena is no different from any other industry.
The business-to-business payments landscape is forever transitioning into a virtual space. This leaves companies with the burden of understanding what B2B digital payments are, how to manage them, and the best tools at their disposal.
In this quick guide, we’ll look at the B2B digital payments ecosystem, the benefits of online payments, top trends in the B2B payments space, and solutions your business can use today.
B2B digital payments are the latest in fintech payments technology in which two companies exchange money for goods/services supplied, through a digital process. Depending on the terms set between the buyer and the seller, this can be a one-time transaction or a recurring process.
One of the major differences between B2B payments and B2C is the pricing and quoting. In the B2B space, there is always room for negotiation. Prices often depend on contracts, relationships, payment history, and purchase volume. This also means the decision-making process is more drawn out, going through several touchpoints before approval.
This is why so many B2B companies are moving the needle toward paperless transactions and digital payments. It simplifies the customer experience, improves cash flow, and speeds up issuing, receiving, and processing payments of all kinds.
Although people still pay with cash and paper checks, the instances are few and far between. Especially when it’s a business-to-business transaction. Methods a company uses for digital payment include:
The most common form of digital payment for B2B transactions is using a credit or debit card (Visa, Mastercard, AMEX, etc.) This is especially the case for cross-border payments where an added line of security is preferred. Card payments are a convenient and inexpensive way to facilitate transactions and increase cash flow. They can also be easily tracked at month-end with an electronic statement.
Although a credit card can incur interest rates (like an APR) when the revolving balance is paid quickly, it gives your business access to extra funds when needed.
As the world of digital partnerships continues to grow, more and more solutions pop up for every form of B2B payment opportunity you can think of. Some brands act as an intermediary financial service, while others can almost replace your bank completely. Platforms that are used to electronically transfer money include:
- Google and Apple Pay
There are also digital sites that can be used as a form of consumer financing that helps with working capital. Some of the popular brands for this type of service include:
- PayPal’s “Pay in 4”
Additionally, some payment services will even allow a business to transact with cryptocurrency (like Bitcoin) using a digital wallet.
One drawback to using digital platforms for B2B payment methods is that most of these options above will charge a fee to pay out business transactions. However, if you perform a lot of B2B transfers, the convenience and security may be worth the cost.
In the B2B digital payments ecosystem, a company can also send money using an electronic funds transfer (also known as an EFT). There are several types of EFTs depending on where you are located, and where the money is being sent. Cross-border payments tend to get more complicated.
An ACH payment is the most common form of B2B digital payment in the United States. This type of transaction moves electronically through the Automated Clearing House using a routing number and bank account numbers (sender and receiver). ACH payments work great for recurring payments because they are cost-effective, skip manual processes, and integrate well into ERP (enterprise resource planning) systems. They are often used for direct deposit on employee salaries, payments for utilities, and ongoing order management.
It should be noted, there is a daily cut-off time for all ACH payments. Transactions are conducted in multiple batches throughout the day. If a business misses the last remittance timeframe, it must wait until the next day to send the payment out.
Bank wire transfers are slightly more expensive than ACH transfers because they work on a singular basis. For real-time payments (like eCommerce), businesses use wire transfers. Once funds land in the receiving account, they become available immediately to the business. Because there is no batch system, wire transfers can be quicker than ACH.
Companies that do international business may also find that wire transfers are the way to go. Although most wire transfers are digital (funds sent from one account to another) others can be cash-based, where a recipient must collect their funds at a cash office (like Western Union).
Adopting a digital solution for B2B payments has a variety of benefits and is a fintech sector with significant market opportunity. Considering that only about one-third of B2B expenditures worldwide are processed electronically, there is a huge potential for growth. Not only does the adoption of digital payments promote workflow automation, it increases productivity, minimizes labor costs, and reduces human errors. Other benefits of businesses moving towards digital payments include:
A robust B2B payment solution is a good way to simplify AP and AR (accounts payable and receivable). Rather than rifling through a bunch of paper checks, the right software digitally scans, records, manages, and stores the transactions. There is no need for someone to open envelopes, make copies, scan documents, staple, paperclip, or file anything. This also leaves much less room for error.
The B2B digital payment system you choose should also integrate with your accounting software for easier data management and compliance.
The failure rate of a new business after five years is about 50% and one of the top reasons why a company fails is a lack of cash flow. Automating B2B payments (rather than relying on a paper check) enables a business to identify patterns in cash flow. This helps you make smarter decisions about when to spend, and when to save.
A payment software platform gives an organization the ability to generate better AR and AP reports. The top-down transparency allows you to identify who pays regularly, and who pays late.
Another digital solution that businesses use to increase working capital and quicken the flow of cash is a net terms and credit management platform like Resolve. GB Fabrication is an example of a company that implemented Resolve to streamline cash flow.
Resolve improves financial velocity through more predictable cash flow. Your business shouldn’t act like a bank, unless you’re actually a bank, and this is where Resolve comes in. Resolve helps businesses manage the nightmare of manual business credit checks, net terms risk, and cash flow woes. Resolve will approve net terms for business customers within hours (not days) through quick credit checks that take minutes since they remove the need for lengthy forms and manual reference checks.
Financial institutions find it harder to protect a business when mail fraud occurs. Sending and/or receiving paper checks opens up a company to all types of theft. Although digital environments are not perfect, there is a team of engineers behind every payment provider watching over your data at all times. Encryption, two-factor authentication, firewalls, and other digital solutions make the transmission of financial data much safer and more sound than putting a piece of paper in the mailbox.
Anytime you adopt smart technology, it will save a business time and money. There are less resources spent on employees, customers, and the business in general. No one needs to write a check or ensure it gets to a physical mailbox. On the flipside; no one needs to be opening and scanning checks either. It eliminates a lot of remedial legwork and streamlines accounting and accounts receivables workflows. For example, Trenchless Supply implemented Resolve’s accounts receivable solution to eliminate the headache around manually managing accounts receivables.
Processing a paper check will cost your business an average of $2, which can really add up. Your accounting team could be spending their time more efficiently on core products/services while a technology solutions takes care of the menial tasks.
While the market grows at exponential rates, a variety of trends are appearing that everyone from small businesses to large enterprises should have on their radar. Some of the common themes in the B2B digital payments space right now are:
The use of mobile devices for financial management has long been a trend in the B2C market, but the B2B world is catching up. Businesses of of all types can benefit from mobile payment systems and the ability to accept an order on the go. As the demand continues to rise, more organizations will be rolling out mobile payment portals with the option to charge anywhere, at any time.
Credit risk management has always been a tedious process for the B2B payments space. Formal business credit checks can be both costly and time-consuming. Thankfully, new trends in fintech give companies a way to easily absorb the risk of extending credit and setting payment terms. Systems like Resolve can automate the process of verifying a company‘s creditworthiness, setting a custom credit limit, and establishing the proper payment terms. Using digital net terms and quick business credit checks, a business can quickly collect reliable credit data about any potential customer in minutes, rather than hours or days.
Since B2B transactions are considerably larger than B2C purchases, there needs to be a multitude of flexible payment options to accommodate them. This drives customer loyalty, retention, encourages faster payments, and reduces processing costs. Most payment platforms offer some form of credit card, be it Mastercard or Visa, that also opens the doors for your business payment options.
Buy Now, Pay Later (BNPL) for merchants is the latest option popping up all over the fintech space. This enables a business to purchase the materials they need immediately and pay for the transaction at a later date. It’s a form of financing that removes the risk and burden from the seller, and offers the buyer a convenience they may not have had.
There are many BNPL platforms on the market to give your business a kick and while Resolve includes elements of BNPL through simpler deferred payment options, Resolve also offers much more. Resolve‘s platform also offers an end-to-end accounts receivable management and embedded ‘credit billing’ solution. The software automates and streamlines all of the tasks associated with offering net terms. Not only does this help to reduce risk, it allows businesses to offer more flexible payment options to all their B2B customers.
Digitizing the B2B payment process makes it easier to send, receive, and manage money. It enhances the accounts receivable workflow and facilitates the accounts payable system. The rise of contactless and digital payments means more business without the added manual work. As the money moves from one department to another, the data moves along with it. Documents are automatically applied to the proper invoices, closed out, and reconciled—all without human intervention.
Simple automation streamlines operations and encourages employees to focus more on creative and value-added tasks. Virtual cards promote B2B commerce with real-time payments and offer speed, convenience, and security that paper trails can’t keep up with. Cloud-based systems are continuously minimizing the need for on-premise equipment. Payment automation enables a business to focus on core activities, while transactions are taken care of in a timely manner.
Not only are B2B digital payments improving accounts receivable, they’re also increasing efficiency and data management between buyers and suppliers. Many banks and fintech companies are working together to solve common problems that revolve around cash management, data privacy, and customer satisfaction. Collaborative commerce is the concept of organizations working together through systems and it’s the latest trend in effective B2B eCommerce and the electronic payments space.
As long as people are doing business, the B2B digital payments ecosystem will continue to evolve. Opening up your finance to the virtual world comes with risks, so it’s critical a business takes the appropriate steps to protect itself. Only use secure networks to send and receive funds. Make sure any B2B payment solution you select is reputable and focused on acutely meeting your organizational goals. The entire process should be secure with technical safeguards along every step of the way.
Despite any risk, digital payments are here to stay. The longer a company holds out on adapting to the new technology, the more opportunities arise to lose business. People will simply choose the most convenient option. Not only does a technology solution provide a greater level of safety and convenience for customers, but digital payment systems help your business become more agile, flexible, and ready to meet modern business needs.
Interested in learning why Resolve is the industry leader when it comes to B2B payments? Learn more and book a demo.