The Ultimate Guide to Understanding & Managing B2B Payment Solutions
Paper checks have been almost completely replaced by electronic payments in the consumer arena, but business-to-business payment options have been slower to evolve. Nevertheless, there are many payment methods business owners have today to send and receive funds.
Automated Clearing House (ACH)
B2B digital payments can be sent through America’s Automated Clearing House (ACH) network. Although transactions don’t occur in real-time, they are typically faster than older hard-copy payment methods.
An ACH payment moves electronically from one bank account to another. To perform an ACH transfer, you have to connect accounts using routing and account numbers. Because of this small amount of red tape, ACH transfers are best for recurring transactions.
ACH payments are known for their tremendous cost savings. In fact, some financial institutions will charge nothing at all, while others may charge less than a dollar per transaction.
These are a few of the reasons why ACH transfers are one of the most popular B2B payment solutions today. They will most likely be more common than paper checks in B2B transactions within a few years.
ACH payments appear on a bank account’s statement at the end of the month so they are a good way to manage cash flow and settle accounts payable. They can also be integrated into a business’s enterprise resource planning (ERP) system.
Although the ACH network provides a very convenient digital payment option, it does have a few quirks that need to be properly managed. First is the fact that only US-based financial institutions can be used. Second, ACH transactions are conducted in multiple batches per business day. This means that there will be a daily cut-off time, after which a digital payment cannot be processed until the following business day.
For real-time payments, businesses often use wire transfers. Although a wire transfer is an older payment system, it can still be used for ecommerce and other digital transactions. In fact, it has several advantages over the ACH network.
For instance, international payments can be sent using a wire transfer. Once the funds land in the receiving account, they’re available immediately. Because the batch system is not used for wire transfers, there is a faster turnaround time.
Wire transmissions have the best payment terms and cost effectiveness for businesses that are looking for a one-day turnaround. There may still be a daily cut-off time, however.
There are two types of wire transfers: cash and digital. The former is the older method where cash is sent to a cash office for a recipient to collect. The latter is the type businesses will want to use to send funds electronically from one bank account to another.
Business Credit Cards
Instead of making immediate payments, a firm can instead make a B2B payment on credit. Credit card payments provide a convenient and inexpensive way for businesses to send funds to each other and meet invoicing demands. Card payments can be easily tracked at the end of the month with a statement that is sent from the issuer either electronically or through the postal system.
Although interest charges can be assessed against revolving balances, card issuers are required by law to give their cardholders adequate time to pay off their balances to avoid any interest. Because the annual percentage rates (APRs) charged by credit card companies can become a little excessive, it’s advisable to pay off your balance in full each month. Treat it like a debit card.
Due to the risk of cyber crime, several credit card issuers also offer one-time-use numbers. Because these can be used just a single time, if cyber thieves were to obtain the numbers, they wouldn’t be able to use them. Such single-use virtual cards are attached to a regular card, which means all transactions appear on a single statement at the end of the billing cycle.
Cryptocurrencies aren’t the most popular payment solution because cryptocurrencies have yet to be adopted by mainstream consumer and B2B businesses. Cryptocurrency is still a new concept and not well understood by many, which makes it a higher-risk B2B payment solution.
That being said, small or large businesses that are comfortable using it could see some hidden benefits and be at the forefront of tech adoption. Cryptocurrencies provide a fast and anonymous way to send and receive funds; thus, they must be considered by any firm hoping to conduct business in the 21st century.
To set up a payment system that accepts cryptocurrencies, a business will need to have a digital wallet. This stores two keys—public and private—which are necessary to perform transactions.
A wallet can be stored in the cloud, on a mobile app, or on a computer. It’s also possible to store one on a USB drive or even a sheet of paper that has the printed details of the keys.
When it comes to cryptos, they’re a novel and somewhat unchartered territory but they offer a digital and convenient way to transfer funds with certain advantages that no other forms of payment can offer.
Virtual Payment Platforms
Another B2B digital payment option is using an online payment platform from a fintech company. Organizations like PayPal offer multiple online resources that can be used to electronically transfer money from one account to another.
These transfers are typically performed between platform accounts for more real-time transfers–avoiding the use of traditional bank accounts. However , it’s possible in many cases to use traditional financial institutions or credit cards on a payment platform.
Some virtual payment platforms are exclusively available as mobile apps– for example, Venmo is only available as an app. Some are available as both–you can use PayPal on mobile or on your computer.
Using a virtual payment platform for digital B2B payments does have a few drawbacks. Fees may be assessed for sending and receiving funds. And these charges can be higher than those incurred using other forms of digital payments.
Managing Risk of B2B Payment Solutions
The increase in digital payments processing has unfortunately been accompanied by an upsurge in cyber crime. This fraud risk can be mitigated if appropriate steps are taken.
The digital payments process needs to be secured with technical safeguards as much as possible. For example, businesses that rely on digital payment processing should only use secure networks to send and receive funds. They should also track both incoming and outgoing transactions to verify all payments and not only rely on their provider to do the tracking.
Despite the risks, B2B digital payments are here to stay, providing a greater level of safety than cash and checks and helping businesses become more agile.