The changing landscape of innovative technology and digital automation is transforming the way that B2B payments are conducted. In today's consumer world adoption has been rapid, with hand delivery and paper checks being almost entirely replace by electronic transfers and automated transactions.
However, in contrast, the B2B has been slower to evolve but the trend is still there. And, as more people become more tech-savvy and comfortable using digital payments in their everyday lives, they are becoming more comfortable with digital solutions in B2B payments.
But why would a business want to "do digital" and move to payment automation? How to best decide what to choose with so many payment options available?
Let's examine some of the different options available as well as why automation can make a crucial difference for your company.
What is a B2B Payment?
Business-to-Business payments, also known as B2B payments, are monetary transactions that occur between two businesses in exchange for goods or services. These can be single or recurring, fixed or variable, all depending on the terms agreed upon by the buyer and seller. The difference is in the way that the payment is made and how fast it is accomplished. Any delay can cause not just a hiccup in the payment process but can lead to the downfall of an entire business. After all, no cash means no flow especially for small businesses.
Why the Increase in Demand for Digital Solutions?
Although technology has constantly been evolving, the COVID-19 pandemic rapidly accelerated this change, causing a fundamental shift in the way businesses operate. Businesses went remote, people became more tech-savvy in their personal lives, and as things settled into the "new normal" they began looking for more digital solutions in their business lives as well.
“Very often we’re seeing customers expecting very similar types of capabilities, offerings and availability of technology in their business lives as what they’re seeing on the consumer side,” says Christine Barry, Head of Banking and Payments Insights and Advisory for Aite-Novarica Group in her presentation at the 2022 Deluxe Exchange.
Types of B2B payment
Fast-paced innovation means that the market is increasingly flooded with electronic payment options, making it easier to find a good fit for different businesses operations. The most popular types of B2B payments are:
- Paper Checks
- Credit/Debit Cards
- ACH Payments (Automated Clearing House) - the electronic version of a check
- Wire Transfers / Electronic Fund Transfers (EFT)
- Digital Payment Platforms (including PayPal, Google Pay, Venmo)
Picking Your Ideal B2B Payment
With so many different types of B2B payments to choose from, each with its own pros and cons, it's important to evaluate each type's efficiencies and capabilities.
Pros: One of the oldest forms of payment (alongside bartering) as well as one of the most common and easiest, paying with cash is one of the best ways to keep expenses and fees incurred to a minimum. There are no annual fees or interest.
Cons: Compared to other forms of payments it can be easy to lose track. This in turn can result in unreported income and misfiled taxes. It is also an easy way to result in a negative cash flow balance as direct cash payments are an immediate deduction from the cash flow balance. The amount due and transporting it also play a factor as it can be dangerous.
Pros: Although use has significantly declined over the last decade, still commonplace in B2B payments. Always traceable, difficult to alter or forge (therefore less susceptible to fraud), and generally accepted internationally. Safer than cash for large purchases. No fees to receive them.
Cons: Clearing times are slow and require manual processing. Delay in receiving the money (it must clear). Higher risk of being lost in transit or even storage. Risk of fake checks or low balances that result in a check bouncing.
Pros: Convenient, reliable, widely accepted, and can be used locally and internationally.
Easily tracked with end-of-the-month statements.
Cons: Transaction must clear before receiving funds, including when a charge is disputed. Susceptible to fraud (such as with a fake or stolen card). Can involve transaction fees (including foreign exchange fees).
ACH Payments (Automated Clearing House)
Pros: Simple, fast, cost-effective, and easily tracked with month-end statements. Good for reccuring payments. Can be integrated into an existing ERP system.
Cons: ACH payments is only used in the US and some select regions.
Wire Transfers / Electronic Fund Transfers (EFT)
Pros: Fast, safe, and protected, a good option for businesses that want to make fast large or international payments. No having to worry about bad checks or fake cash. Can send mass payments. Are faster than either ACH or wire transactions.
Cons: May have a daily cut-off time. Have a number of steps to set up ahead of the actual transaction being executed, and some wire transfers still have a daily cut-off time. Need to wait for transaction to process before receiving cash. Can incur high fees and charges and are susceptible to fraudulent activity.
Digital Payment Platforms
Another option is an online platform from a fintech brand. You may have heard of brands like PayPal, Venmo, Google Pay, or Skrill.
Pros: Can electronically transfer money from one account to another without touching any bank account (although the bank accounts must be linked). Fast, efficient, and convenient (can be done from anywhere at any time). Quick setup, easy management.
Cons: Can impose higher fees than other types of B2B digital payments. Have security concerns including technical problems, hackers, and even technological illiteracy.
How do Digital Payments Work?
Simply put, digital payments are digital transfers of value from one payment account to another in which no exchange of hard cash is involved.
Although making electronic payments only requires a couple of clicks, the electronic payments ecosystem is a complex web of intermediaries, digital software, and global companies all needed to execute transactions. Of course, to successfully facilitate electronic payment, merchants, consumers, banks, and the payment networks involved must function properly.
Once accomplished, digital payments offer a host of benefits and advantages for businesses including reduced transaction costs, secure payment transactions, and faster, more efficient payments. Digital B2B payments also ensure that all parties involved are protected, unlike non-electronic payments where late or missed payments can put small companies in jeopardy.
How Do I Make It Happen?
Businesses typically have one of two options. In some cases, even a combination of both.
A recurring online payment is a transaction that repeats on a set date and is charged on a periodic basis, often associated with subscriptions. Recurring online payments are available on invoices and installments. Innovative technology enables recurring online transactions to be executed in each business' local currency using their preferred online payment method.
A one-click payment is a convenient feature that enables merchants to provide an option to pay for a product or service by clicking on one single button. Once information has been submitted during the first transactions (such as name and shipping details), they are provided with an option to digitally store and save the information, meaning that subsequent purchases with the same merchant can be completed in a single click.
One-click payment ensures a fast checkout and a more seamless and integrated checkout experience, thus increasing conversion rates and customer loyalty.
Why Make B2B Payments Digital? Why Automate?
Digital B2B payments are faster, more secure, and easily trackable. This is especially true of cloud-based options (SaaS). However, there are several other benefits resulting from digital B2B payments including:
- Convenience (save on labor and time, instead completing payments in a matter of minutes)
- Security (digital payments are encrypted with restricted access, reducing the chance of fraud. Payments won't get lost or misfiled).
- Cost (eliminate the need for physical support in everything from transportation to processing)
- Transparency (everything is recorded and tracked, improving planning)
- Customer service (transactions are completed quickly and easily, easily tracked to answer questions, and can be customized for a personalized experience)
But payments remain the final step in the transaction process. Although they themselves can help simplify the account process, integrating a powerful B2B payments solution with an automated accounts payable platform will provide a completely streamlined invoicing experience: faster, better, easier.
How Accounts Payable Automation Helps
Thanks to AP automation, it is now possible to make B2B payments more convenient, efficient, straightforward, and faster than ever before. A modern AP automation platform eliminates all the manual tasks associated with invoice processing and approvals: document input, data entry, matching, sorting, transporting, approving, and filing. It eliminates human errors and delays thanks to AI and machine learning features, as well as makes the entire process much more secure.
By streamlining the entire approval process, the invoice gets to payment faster. By combining a digital invoice process with B2B payments, any business will truly have an end-to-end solution.
The B2B payments industry is constantly innovating to make digital payments simpler, safer, more efficient, and faster. There are now more ways than ever before to make B2B payments, so understanding this changing landscape is critical for businesses to ensure that they are making the right decision on which B2B payment solutions suit their needs the best.