Modern business is changing the way B2B payments are made. Today, automation is the driving force behind how we get paid. Paper checks have been almost completely replaced by electronic transfers in the consumer arena, but business-to-business payment options have been slower to evolve.
Disruptive payment technology has made it easier for people to network and connect from all over the world. However, the market has become flooded with options. When looking for a B2B platform to satisfy your business, do you know where to start?
We’ve compiled this detailed guide to walk you through everything about the B2B payment process and the popular solutions today.
What are B2B Payments?
Business-to-business (B2B) payments are the exchange of goods or services supplied for a determined value that is denominated in currency. B2B payments can be recurring or single transactions, depending on the terms set between the buyer and seller.
Paper checks still take up a large part of the payments space but digital B2B payment solutions are a more effective form of financial services. This B2B method speeds up issuing, receiving, and processing payments and helps to greatly improve positive cash flow.
Most Popular Types of B2B Payments
What are the Most Popular Types of B2B Payments?
1. Credit Cards
One of the primary vehicles for B2B payments is through a credit card. They provide a convenient and inexpensive way to facilitate transactions and float cash. In addition, card payments can be easily tracked at month-end with an electronic or paper statement.
Although credit cards incur interest rates (like an annual percentage rate (APR)) when the revolving balance is paid fast, it gives a business access to extra funds. If the credit card is treated more like a debit card and paid off each month, it’s a highly beneficial form of payment.
To avoid cybercrime, credit card issuers offer numbers with a one-time-use. This helps to avoid fraud as, after the first transaction, the number becomes null and void. These virtual credit cards are typically attached to a regular credit card number in your account, which means all transactions appear on a single statement at the end of the billing cycle.
2. ACH Payments (Automated Clearing House)
ACH, which stands for Automated Clearing House, is another form of B2B digital payments that is faster and more efficient than hard-copy methods. This type of transaction moves electronically from one entity to another using a routing number and bank accounts. Because they are so simple, ACH payments work great for B2B recurring payments.
Many organizations use ACH because it’s cost-effective. In fact, some financial institutions charge nothing at all and push this form of transaction over paper checks.
ACH payments are a good way to manage cash flow and settle accounts. That’s because these payments are easier to track and appear on the month-end statement. ACH payments can also integrate into a company’s enterprise resource planning (ERP) system and other applications.
It should be noted, however, that Automated Clearing House is a U.S. institution that can only be used within America. Additionally, there is a daily cut-off time for ACH payments. This is because transactions are conducted in multiple batches throughout the day. If you miss this time frame, a business must wait until the next day to send it out.
3. Wire Transfers
Much like an ACH, wire transfers are a digital form of payment that facilitates B2B transactions. For real-time payments, companies often use wire transfers for ecommerce and other digital transactions.
If a business needs to send an international payment, wire transfers are the way to go. Once the funds land in the receiving account, they become available immediately. Unlike ACH, the batch system is not used for wire transfers and has a faster turnaround time.
Companies that are looking for a quick transfer find wire payments to have the best terms and timing. However, some wire transfers still have a daily cut-off time.
There are two types of wire transfers: cash and digital. In a cash-based wire transfer, funds are sent to a cash office for a recipient to collect. In a digital wire transfer, funds are sent electronically from one bank account to another.
4. PayPal and Other Digital Payment Platforms
Another form of a B2B digital payment option is using an online platform from a popular fintech brand. You may have heard of companies like:
- Google Pay
These platforms can be used to electronically transfer money from one account to another. This is typically done between two entities and usually avoids dipping into any bank accounts (although they are connected).
Some payment platforms, like Venmo and Google Pay, are only available through mobile apps while others, like Paypal, are used through a PC and/or mobile device.
One drawback to this method is the fees that are incurred with these transactions. In many cases, these can be a lot higher than other types of digital payments.
5. Paper Checks
Even though there has been a significant decline in the past decade, companies are still using paper checks to pay other businesses. Although convenience-hungry consumers may be more interested in speed over security, such is not the case when paying another organization. Typically, speed is of lesser concern when serving other vendors.
Paper checks are still used because B2B transactions require more security and data exchange than normal B2C payments. A check also helps a brand better track cash flow and inventory because there is always a definitive audit trail. This can’t always be done with digital payments. Paper checks still represent a level of trust and offer benefits like:
- Security and fraud protection
- Checks are always traceable
- A bank account is not required to cash a check
- It makes budgeting a tad easier
- Checks don’t need to be deposited immediately
Cash is always king and in some cases, it facilitates B2B transactions better than other payment types. The biggest advantage of a business paying cash is that you never have to pay any annual fees like a line of credit. Also, if the money is not there, it does not get spent and interest is never incurred.
Paying with cash is the quickest way to process and keep your transaction expenses at a minimum. In some cases, vendors only accept cash. Any other type can lead to late fees and inconvenience.
One downfall, however, is that paying with cash all the time can produce a negative cash flow balance. Credit cards and electronic payments are delayed. Thus, this is a form of “floating” cash and leaving more money in the bank. Paying with direct cash eliminates that amount from your cash flow balance immediately. What you see is what you get.
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Market Growth and Landscape of the B2B Payments Market
Twenty years ago, there were only a few ways to make a B2B payment and digital transactions were still a pipe dream. But now, new B2B payment methods have exploded and the market has been on a path of exponential growth – that is, until COVID-19 swept the nation.
According to Mckinsey’s 2020 Global Payments Report, global payments revenues were predicted to be down by 7% in 2020 compared to 2019, due to the pandemic.
That being said, COVID-19 will have long-term effects on the B2B payments market that will continue to catapult its growth. For example, a worldwide decrease in cash usage is predicted to stick. In the US alone, we’ve seen a 23% decrease in cash usage in total transactions between 2010 and 2020.
According to a recent Juniper Research study, the value of B2B cross-border payments hit a COVID-low of $27 trillion in 2020. Despite that low, value is still forecasted to skyrocket up to $35 trillion by 2022.
COVID-19 may have thrown a temporary wrench into current B2B payments market growth, but long term projections show no signs of slowing down and, in fact, some extra growth due to the pandemic.
Trends in the B2B Payments Space
While the market continues to grow at extreme rates, specific trends are appearing that any business, big or small, should pay close attention to. This will help to gain a competitive edge in future transactions. Some of the more common movements in the B2B payments industry include:
Using mobile devices has long been a trend in the B2C world and the convenience is starting to catch on for B2B transactions.
Some examples of a business that can benefit from mobile payments include transportation and food supply. This is where a driver might be in a position to accept an order and payment outside of a consumer’s usual standing order. In this case, they would benefit from the autonomy that a mobile platform can provide and accept the order and payment immediately.
Companies will start rolling out more mobile capabilities and payment portals as the demand continues to rise. This, in turn, gives a business more flexibility and automation in the process.
Another trend gathering momentum is real-time payments. Unlike same-day ACH, immediate (or real-time) payment systems and infrastructures are being developed and planned in more countries.
Companies increasingly require speed, ease, convenience, security, and always-on processing for their payments. This is driving more innovation and disruption in the payments industry.
As far as digitization goes, the biggest trend in B2B payments is following the path of peer-to-peer payments. All of this starts with speed and reliability. After all, companies need to be paid on time to keep running and whatever solution you use has to deliver as quickly as possible.
Why Companies Use B2B Payment Gateway Software
There are many upsides to billing and invoicing software—especially for B2B payment processing. In addition to streamlining operations, other key advantages to adopting a digital solution include:
Improve Cash Flow
Starting a small business can be risky. Especially considering the failure rate sits at about 50% after five years. One of the top reasons a company doesn’t make it is because they have cash flow issues.
Automating B2B processes (rather than relying on paper checks to make/receive payments) allows you to easily identify patterns in the cash flow. This helps to make smarter decisions about where you spend/save and when.
Using a payment software platform enables a business to generate reports that give you an overview of the AP and AR processes. This top-down transparency means you identify merchants that pay regularly and those that pay late, then handle those relationships accordingly.
B2B accounting software also makes it easier for customers to pay you. For example, invoicing apps allow merchants to pay with the simple click of a button, rather than writing a check and mailing it. This gets the money in your account sooner and vastly improves cash flow.
A robust B2B payment solution is also a good way to simplify accounts payable and receivable. Rather than managing a bunch of checks coming and going, the software automatically scans, records, and stores them.
There is no human labor required and thus, much less room for error.
The system may even integrate with bookkeeping software for shared data management. This also makes filing taxes a lot easier.
Sticking a check in the mail opens a business up to all types of fraud. Mail theft is still a very real threat. Although digital solutions aren’t immune to security breaches, most payment providers have a team of engineers and experts watching over your data at all times. There is also a clearer “paper trail” when every transaction is done electronically.
Save Time and Labor
Adopting B2B payment solutions means saving resources like time and money for the business, employees, and customers. The merchant doesn’t need to write a check and you don’t need to deposit and reconcile one.
Processing a hard copy check costs an average of $2—which can add up if there is a large volume. Your team could be spending time more efficiently on core products and services while A.I. does the menial tasks.
How to Accept B2B Payments
Solutions for B2B payments tend to lag behind. A recent survey by the Association for Financial Professionals showed that more than half of all B2B payments (51%) are still made by a paper check. However, this is not always the most secure way. Many organizations are planning to universally switch to digital payment options.
Today, a business can accept B2B payments in five different ways.
This includes traditional paper checks and electronic checks. When deposited, one bank will request payment from the other (seller to buyer).
Wire transfers are secure payments that are routed through a financial network (like SWIFT). Delivered within hours, these are funds transferred between two banks.
Electronic Bank Transfers
Payments between two banks that are routed through the Automated Clearing House (ACH) are considered electronic bank transfers. This is one of the safest and most reliable systems but can take a lot longer than wire transfers (a few days).
Credit cards (including one-time virtual cards) allow a seller to receive payment quickly. A business that is buying can defer payment for one or more billing cycles. Credit card payments are the standard way to collect money online. It’s a popular method for SaaS and ecommerce companies.
This is an online payment platform that allows a buyer to pay for goods/services during the checkout process. It represents different options at the end of the shopping experience (like Paypal or Venmo).
Each option will differ in use for the sender and recipient, security, and cost. That being said, most businesses are shifting away from paper checks and moving toward digital payments.
How to Process International and Cross-Border B2B Payments
The internet has opened the world to cross-border business opportunities. Many companies require a way to process transactions from another country. This typically means sending and/or receiving international money transfers.
When making global ACH payments, the Automated Clearing House or Federal Reserve will act as the mediator. It requires a global payments platform that can serve as a second mediator and automate payments for a business. This eliminates the hassle of processing transactions in-house. You can also use the platform for tasks like:
- Keep track of invoices
- Collect payee tax information
- Store pertinent data
- Meet regulatory compliance
Whether you’re making an international wire transfer or global ACH payment, there are several factors to consider.
How to Send a Cross-Border Payment
There are several steps to take when a business wants to start making payments across the border :
1. Supply unique data according to the country you are dealing with
Not all cross-border payment options are available in every country. That means, even if you pay all entities within your supply chain using global ACH payments, new ones may not accept your payment option.
The first step is to supply unique data according to the country you are dealing with. For example, in China, to make a global ACH transaction you must have the payee’s telephone number.
A global payments platform provides onboarding for payees which takes care of the data collection you need from vendors. Payees can upload bank account information and payment preferences in minutes. This saves a business both time and money. It simplifies accounts payable and provides a centralized location for all payee data.
2. Decide whether it’s a one-time or recurring transaction
The next step is to decide whether it’s a one-time or recurring transaction. If you are going to make payments to a business on a regular basis, setting up a recurring payment is an easy way to get future discounts. It also means vendors are paid on time and the relationship remains solid.
When setting up cross-border payments, you should immediately ask about early payment discounts. They typically range from 1%-10% depending on how much and how early you pay. If you acquire this type of discount, the global payment platform you choose should allow for payee prioritization rules. That ensures those entities always get paid first out of the lot.
3. Verify if the funds being sent abide by all applicable payment rules
Verify if the funds being sent abide by all applicable payment rules. There are over 26,000 rules in the world, so using a payments program makes the most sense. The staff does not have time to check thousands of rules for each international transfer. That’s what computers are for.
4. Use invoice automation tools
Sending global funds means you need complete oversight of each payment. This can be a time-consuming process. A single platform to view the status of every payment simplifies operations and reduces human error.
Instead of checking and reconciling each payment individually, the system can filter according to which are past due or need to be reconciled. A business can then use invoice automation tools to see who is responsible for approving the payment and why they have failed to do so.
Choosing a Global Payments Platform
To get the most out of international payments, you need to employ a tool with business intelligence. Choosing a global payments platform will improve efficiency, reduce labor costs, and speed up the AP process. Here are some main features to look for when choosing a system:
Mass Payment Processing
To get the most out of cross-border payments, you need a program that supports mass payment processing. Schedule thousands of payments according to multiple methods, in a single dashboard.
Tipalti is a brand that supports payments to 196 countries in 120 unique currencies. They enable a business to easily partner with suppliers overseas and quickly pay them in their own currency. This type of model is at the heart of enterprise scalability.
No more data entry across multiple bank ports or extra fees. Tipalti allows you to schedule payments in different methods, currencies, and countries from a single application. The system automatically remits to all suppliers with no human interaction required. There is no need to hire more payables staff as you grow.
Payments are triggered from invoices, a file upload, or the API. All payment status and data from each method is reconciled, normalized, and can be sent to ERP.
The platform you choose must integrate with the 26,000+ banking rules required when sending international payments. This ensures they are processed quickly and without error.
A successful global payments platform will guarantee OFAC (Office of Foreign Assets Control) compliance. Regulatory screening is always a headache but it must be done when suppliers provide you with banking details. The right software allows a business to skip a manual query on SDN and OFAC databases.
Instead, the platform can automatically screen all payees against a blacklist. Not only does this reduce the risk of fraud, it prevents losses caused by payment errors. It also keeps you from criminal liability. You never want to do business with a supplier on the OFAC blacklist.
Whether paying vendors, freelancers, suppliers, or contractors, your global payments platform should provide a self-service portal. It will guide these entities through entering banking details and choosing a preferred payment method. Tipalti is a program that provides six international payment methods. These are:
- US ACH
- Global ACH (e-check)
- Wire transfer
- Paper check
- Prepaid debit card
The system should automatically validate supplier data in real-time using the 26,000 global banking rules to eliminate staff error.
Advanced Payment Configuration
The right global payments platform should feature a variety of advanced payment configuration options. This enables a business to split transaction fees with the payee or set payment thresholds. Hold payments until a predetermined amount is reached to improve cash flow and optimize margins.
Tipalti incentivizes suppliers to choose the most cost-effective payment methods while shifting to safe, digital payments. Fees can be passed on or discounted according to the payment method that payees choose.
If you want to reduce the number of calls and emails to your accounts payable department, proactive payment status communications are necessary. Total transparency to suppliers on where and when payments are processed is part of maintaining good vendor relationships.
Tipalti is a platform that also allows suppliers to view their complete payment history through the online portal. This frees your team up from spending hours on issue resolution or explaining why a payment was held up.
If additional information is required, payees are immediately alerted through the system to take quick action. In addition, all supplier portals are white-labeled so your brand stays front and center at all times.
Look for enterprise-grade financial control in your global payments platform. Tipalti gives a business the flexibility to protect funds that are leaving the organization. Institute robust internal controls for healthy growth. This includes delegating authority, system permissions, and segregation of duties. Tipalti allows you to set:
- Unlimited payment approvers
- Role-based access
- Configurable workflows
- Audit trail logs
This system will always send mass payments backed by money transmitter licenses.
How Various B2B Industries Handle Payments
Business to business payments are handled differently depending on the type of industry, product, and service involved. Here are how some of the top markets that are working with the technology today.
B2B Payments in eCommerce
Modern commerce expects a brand to understand the problems buyers have and solve them before they ask you to. B2B suppliers are increasingly embracing digital payment methods (from e-catalogs to online checkout) to meet these needs. That’s because B2B buyers want a B2C experience.
Unlike an individual shopper online, corporate buyers expect to purchase against an account for larger transactions. This requires additional work like purchase orders, negotiated payment terms, and invoicing. Paper checks are still the preferred method to pay these high-volume invoices off.
A virtual credit card is often used in B2B payments processing. Unlike regular credit cards, these are good for one-time use and assigned a specific amount. They are a hedge for B2B credit card fraud.
Benefits of B2B Payments in eCommerce
- Setting up an e-shop
- Processing international customer payments
- Invoice factoring to improve cash flow
- Real-time credit risk processing
- Early payment discounts
- No duplicate errors
B2B Payments in AdTech
Despite large overhauls in advertising technology, the way advertisers pay publishers is still rather traditional. One issue is that publishers get paid in longer cycles. Payment terms can go for as long as 180 days. You may get a check in the mail or wire, but the industry really has struggled to keep up with the times.
For some publishers, more than half of their working cash flow is tied up in accounts receivable. The bottleneck happens from late payments. A global payments platform creates a level of payment transparency that helps mitigate the risk of collaborating with new partners in this industry. It helps keep funds moving on time and leveraging early payment discounts.
Benefits of B2B Payments in AdTech
- On-time pay schedules
- Nourishes business relationships
- Creates transparency that alleviates workload
- Reduces human error
- Eliminates the need for large paper checks
B2B Payments in Online Marketplaces (Gig Economy)
The rise of the gig economy is forcing the payments industry to rethink B2B payment systems. It’s a complex technological leap that must satisfy gig workers and the clients they serve.
Freelancers want faster and easier access to payouts. They also seek more ways to use their money. This includes offers from the 4 major party card networks (mostly Visa and Mastercard) with an active debit card that can be used at any ATM.
If a business needs to use a contractor more than once, the right platform allows you to set up recurring payments to ensure all parties are meeting the contract terms. It also stores freelancer data (like bank account and payment method) for easier management.
Benefits of B2B Payments in AdTech
- Digital invoicing for a clear audit trail
- Pay gig workers internationally
- Facilitates cross-border business
- Lower cost than in-house payroll
B2B Payments in Retail
Online shopping is growing more rapidly than ever. Offering online payment options is critical for business success. There is currently a tectonic shift in the B2B retail payments landscape. Many providers feel underserved with their payment needs. More can be done to address the segment’s key pain points, which include:
- Fraud risk
- Payment delays
- Limited transaction visibility
- High processing costs
- Supplier payment methods
- Manual AP processing
- Remittance data management
Another new trend in the retail industry is that mobile wallets are now being used for B2B transactions. PayPal Business and Bank of America have integrated with Google Pay and Apple Pay to bring the convenience of mobile wallets to business transactions. Soon, million-dollar invoices will be paid with the tap of a smartphone.
Benefits of B2B Payments in Retail
- Processing discounts and refunds
- Digital wallets
- Speed and efficiency
- Third-party financing opportunities
- Future in bitcoin, cryptocurrency, and blockchain
B2B Payments in Affiliate and Influencer Networks
Affiliate and influencer marketing are effective promotional channels for raising brand awareness and generating leads. However, paying these workers has some companies scratching their heads. The average affiliate commission rate is somewhere between 5% to 30%. Payments to these people can fluctuate.
Influencers and affiliates are an extension of the gig economy, so payments work essentially the same. They want to be paid quickly but realize a lot of payment amounts are tied to analytics. However, like a freelancer, if you work with an influencer or affiliate often, setting up a recurring payment amount is a good idea.
Benefits of B2B Payments in Affiliate and Influencer Networks
- Scheduled payments based on metrics
- Paying with a digital wallet
- Leverages cross-border and international payments
- Cuts back on in-house labor costs
How to Improve Operational Efficiency by Automating Payment
The vast majority of small businesses still use a paper check to settle transactions. This can indicate that many companies are unaware of their B2B payment options or deem automation an expensive solution.
Although person-to-person (P2P) payments have been on the rise in the past decade, B2B presents an even larger opportunity for saving time and money. For these reasons, a modern business of any type should consider automation and digital payment options.
Going digital with your B2B payments makes it easier to send, receive, and process money. It improves cash flow, guides merchant relationships, facilitates payments, and drives growth. Simple automation streamlines operations and encourages employees to focus more on creative tasks.
Evaluate where your organization excels and where there is an opportunity to improve processes. This will help to better position your company for efficient treasury operations and prepare to take advantage of key B2B payment innovations.
Risk-Management for B2B Payment Solutions
The increase in digital payments processing has unfortunately been accompanied by an upsurge in cybercrime. 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 the provider to monitor everything.
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.