Apr 21, 2022
B2B payments typically involve large sums of monies. As a UNCTAD report shows, B2B payments dwarf B2C transactions as they accounted for [$25 trillion worth of e-commerce sales], compared to the paltry $4.4 trillion recorded for B2C transactions.
Understandably, B2B players look for robust networks and methods to handle such hefty transfers without a glitch. That means abandoning old trusty methods such as cash and checks in favor of more flexible methods like real-time payments (RTP).
Although 86% of organizations in a survey released in 2022 said they are still using checks to receive payments, 73% said they are in the process of embracing electronic B2B payments. We examine all there is to know about B2B payment methods and networks and what makes them tick.
Most common business-to-business payment methods
In 2021, the global B2B payment market was worth a collective $903 billion, according to GlobeNewswire.
The pandemic saw a marked increase in digital payment methods. Nearly 93% of American businesses thatrecorded $25 million in revenue are currently integrating digital payments into their workflow. These market trends have a direct correlation to the most popular payment methods:
1. Cash payments
Cash transactions may be on their way down, but few B2B payment methods can match the straightforward llure of cash payments. Insider Intelligence’s figures show cash and check payments held a combined share of 45% of all B2B payments in 2020, down from 50% in 2019.
2. Paper checks
Check payments do not hold the same sway they once held thanks to the rise of eCommerce, but they still account for 25% of B2B payments, according to a PYMNTS survey. Some of the factors that make it a popular choice include:
- Ease of use
- Leaves a paper trail
- Difficult to forge
- Widely accepted
3. Digital payment platforms
The pandemic led to an upswing in B2B digital sales channels and increased usage of digital payment platforms. B2B eCommerce sites handled $9.9 trillion worth of business in 2020, up from $9 trillion in 2019, primarily through digital payment platforms.
The fintech providers will streamline your international payments. A company like PayPal allows setting-up recurring payments for accounts payable or cross-border trading.
4. Credit card payments
Like cash, business credit card payments nose-dived in 2020, wiping away 5% of its market share during the period. The 3-4% processing fees credit card providers charge for their use is partly to blame for their relative unpopularity.
However, business credit cards such as Visa and MasterCard are accepted worldwide; that’s why they still account for about 6% of all B2B payments.
5. Wire transfers
The popular payment form, also known as wire payment, scooped about 10% of the B2B payment preference market in 2020. Users love wire transfers because this type of electronic funds transfer (EFT) allows for huge transactions at reasonable rates. The payment service enables the direct deposit of funds between bank accounts.
6. ACH payments
According to the same data provided by Insider Intelligence, Automated Clearing House payments (ACH) were the second most popular B2B payment avenue in 2020. It held a share of slightly 39% of all transactions, with a transaction value of over $10 trillion.
And it is gaining a more significant following as 68% of CFOs in the PYMNTS survey said they are increasingly supporting ACH payments. The National Automated Clearing House Association (NACHA) provides the compliance requirements for bank transfers within the ACH network.
7. Virtual card/digital card
These are like physical cards; the only difference is that you can’t use them for physical payments like a credit or debit card. With the shift towards digital shopping, there are no prizes for guessing why there’s been widespread adoption of this form of payment recently.
How does electronic B2B payment processing work?
It refers to the processes that take place during the B2B payment cycle. Alternatively, it is the exchange of currency for goods traded between two businesses, say a wholesaler and a retailer.
The cycle starts when one company initiates a purchase request. On receipt, the seller will scrutinize the purchase order and process the order upon approval of the terms. The seller will generate an invoice and will typically stipulate credit terms.
When the invoice is due, the buyer will initiate the payment; otherwise, they will incur a late fee payment penalty. To facilitate electronic payment, most sellers have embraced electronic invoicing.
Your options for processing B2B payments
While the market is awash with apps and financial institutions that promise top-notch solutions to process payments. However, most won’t fit into your workflow, let alone resolve your unique payment needs. Generally speaking, there are three main types of payment processing options:
a) In-house receivable team: You hire personnel to handle your business needs relating to payment processing. Can distract from pursuing your core business.
b) Automated B2B payment cycle: You install a B2B payment solution that automates the entire payment process, creating a hands-off system that automatically generates invoices and sends them to clients. The system will also alert buyers when their payment is due and offer payment options. It is a great alternative but can lead to serious errors that might slip through the cracks.
c) Accounts receivable factoring: Involves selling your invoices to an invoice factoring company to hand you an advance on the invoices as they wait for the due date. They will even chase after the payments.
Differences between B2B payment solutions and B2C payments
Although similar in some aspects, the critical differences between B2B and B2C payments lie in payment size, payment terms, and payment frequency:
i) Payment size
Refers to the average size of transactions. Generally, B2B payments are larger than B2C ones thanks to the number of goods and variety sold. While B2C buyers will generally buy one or two products, B2B buyers will typically purchase various goods, often in bulk.
ii) Payment terms
The B2B and B2C industry differ in the structure and terms of how you complete the transaction. In short, businesses have to consult with each other before making some decisions in the B2B industry, an arrangement you won’t encounter in B2C.
For instance, when a coffee house wants to change the formula of a cup of coffee, they do so without consulting all customers. However, a coffee bean manufacturer cannot make such radical changes without engaging distributors.
iii) Payment frequency
The quantity of transactions is higher in the B2B industry as businesses generally buy goods in bulk to meet consumer demand.
Why companies use B2Bs payment gateway software
The benefits of these payment ecosystems include:
a. Secure transactions: The right gateway software provides high security and privacy that helps protect a customer’s details—this software uses industry-standard encryption to protect sellers and buyers from fraud.
b. Faster transaction processing: Payment gateways will optimize the process, leading to shorter processing times than manual transactions. Customers can purchase without worrying about waiting.
c. Expanded customer base: They help boost your business reach by facilitating cross-border payments for shoppers worldwide.
d. Integrated with shopping carts: The remittance gateway software often works in partnership with shopping cart software to allow customers a seamless shopping experience.
Once a customer is through shopping, they can complete the shopping process at checkout. The software calculates the items’ prices, taxes, and shipping charges, without the need for you to complete the sale.
e. Convenience: With payment gateway software, your store remains open 24/7, giving shoppers the convenience to shop at any hour of the day.
f. Payment information storage: The remittance software also stores customer data, so they won’t need to re-enter their financial details. The software securely holds that information, making future payments quick and hassle-free.
Trends in the B2B payments landscape
The B2B payment market continues to proliferate, spewing new trends and burying old ones in its wake. Some of the most prevalent trends in the industry include:
1. Post-Covid B2B payment effects
In the wake of the Covid-19 pandemic, businesses adapted and operated differently due to pandemic mandates such as face mask-wearing, social distancing, and remote working. As for B2B payments, users opt for digital payments instead of cash and paper checks because of their flexibility and faster processing times.
2. Real-time processing
Your most treasured feature is real-time payment processing, whether making supplier payments or receiving remittances. Payment solutions like automated clearing house (ACH), although fast, still take longer than digital payment systems.
B2B companies require convenience, ease of use, functionality, and security from B2B payment methods. That is disrupting B2B transactions, causing the push for more innovative payment types.
3. Mobility
Using mobile phones is not uncommon in the B2C space. However, B2B businesses are slowly catching onto the convenience that mobile phones payments offer. Companies will begin pushing for more payment portals with integrated mobile capabilities, capitalizing on flexibility and automation. The person in charge of accounts can release funds wherever they are, even if it’s a global payment.
4. Increased financial crime
As a result of the harsh economic times faced during the pandemic, crime rates increased, especially financial fraud. Several enforced lockdowns forced businesses to take their dealings online to stay afloat.
Increased use of digital payments without prior preparation left many susceptible to online payments fraud and identity theft. That trend will likely continue as more companies opt to use online payments to pay for goods or services.
Choosing the best B2B payment solution
Finding the right B2B payment solution seems daunting from the numerous options to choose from. As you try to sift through the various payment options available, here’s what to look out for:
i) Flexibility
Settle for one that offers customers the flexibility to choose from several payment providers. You could provide many payment options, such as credit cards, wire transfers, digital wallets, ACH payments, checks, and cryptocurrency. Choose a payment solution that integrates the major payment methods to ensure your customers have enough options.
ii) Offer payment terms
One way to improve cash flow, boost sales, and increase average order value is to provide payment terms. Flexible net terms ensure enough cash flow to run a business, even for small business owners. That’s because customers can acquire goods on credit and pay at their convenience
One such company that offers flexibility and payment terms and prioritizes privacy and security is ResolvePay. They provide a dedicated net terms management team to conduct credit checks to determine which customers deserve net terms. Further, they will advise you to offer 30, 60, or 90 days net terms, depending on the company’s creditworthiness. The best bit is they avail up to 90% of the invoice amount after approval of the credit terms, so your cash flow won’t take a hit.
What’s more, Resolve provides a platform that allows customers to make payments through credit and debit cards, ACH, checks, and wire transfers while absorbing all the risks associated with late payments.
iii) Payment float
Ensure the payment solution has a short payment float. Sometimes, as you initiate funds transfer between one bank to another, there is a delay. The right payment solution will factor in this delay and offer real-time processing to ensure the business runs smoothly and delay-free.
Payment float reduces the waiting time between transfers that may take as long as a couple of weeks. Faster processing time is a factor customers consider when choosing a payment processor.
iv) Look out for fees, costs, and hidden charges
In eCommerce, B2B payment systems often have hidden transaction fees. If you’re not keen, the wrong payment system will cost the business money. Before committing, ensure you know how much the processing fees are. Go over the terms and conditions of each payment solution provider and analyze the fine print to determine whether there are fees you may need to pay during each transaction.
Also, note that not all payment methods face the same fees. For instance, processing a credit card payment will cost more because of the higher risks of fraud associated with cards.
Final Word – Why B2B payment networks are crucial
B2B payments continued their impressive growth progression in the past two years despite the ravaging effects of the pandemic. That is buoyed by 93% of companies earning over $25 million say they are currently working on integrating electronic payment solutions.
It is vital to acquire the right B2B payment system as more businesses shift towards digital payments, partly accelerated by pandemic shutdown protocols. A sound B2B remittance system will ensure you conduct business-to-business transactions in real-time.
When choosing a B2B payment system, opt for one that integrates plenty of payment options and allows payment terms since B2B transactions involve hefty sums. In addition, it shouldn’t contain hidden costs or charges and has a payment float to cushion you from transaction delays.
