A Guide to B2B Payments: Methods, Trends, Process

B2B Payments Definition (What are B2B Payments?)

Payments between companies are called “business-to-business” (B2B) transactions. These transactions include selling an item or service in return for a predetermined amount of money.

It depends on the conditions agreed upon between the buyer and the seller when conducting business-to-business (B2B) transactions.

Cheques written on paper are still a significant component of the payments industry. Still, digital payment solutions for business-to-business transactions offer a more efficient financial service.

The issuance, receipt, and processing of payments are all sped up using this B2B approach, which contributes significantly to an improvement in positive cash flow.

It is anticipated that the market for B2B eCommerce will expand by 19.7% between 2022 and 2030.

The Most Popular Business to Business Payment Methods

One of the primary differences between B2B and B2C transactions is the mode of payment used by the customer.

Examine some of the most prevalent b2b payment methods.

• Credit cards
• Digital payment platforms
• Paper Cheques
• Cash
• ACH payments
• Wire transfers

Paper Cheques

Most B2B enterprises demand an invoice if customers want to pay with a check. They then send the invoice to the accounts payable department (AP). That department writes checks using a paper checkbook prefilled with their banking information.

The AP staff will handwrite the monetary amount on the check and mail it to your company. If you use a contemporary fintech bank, your accounting staff will take the paper check to the bank and either scan it using a mobile app or deposit it by hand. The money will then be released into your merchant account by the bank that issued the credit to the customer.

Paper check payments are familiar to traditional shops that have not yet embraced the benefits of technological advancements. This is an advantage of the practice of taking checks. Forcing people to pay via a different B2B payment method might be a perplexing impediment in their purchasing process; hence, the transition towards electronic payments is the most challenging operational issue for firms to overcome.

Despite the tectonic shift towards e-commerce that has taken place in the B2B sector, buyers continue to revert to payment methods from the past. In the United States, checks are still used for around forty percent of all business-to-business transactions. This year, analysts anticipate that the total amount paid by check will exceed $12 trillion.

However, there are significant drawbacks associated with using checks, the most significant of which is the possibility that paper checks would be misplaced while being sent. Customers are required to get an invoice, then write the check, and then send it to you in the mail. After that, you are responsible for bringing it to the bank.

Credit Card Payments

Credit cards are among the most common payment methods for business-to-business transactions. They provide a hassle-free and low-cost method of facilitating transactions and floating cash in an organization.

In addition, it is simple to keep track of card payments using either an electronic or a physical statement at the end of each month.

Credit card providers often provide numbers that can only be used once to prevent identity theft. This helps prevent fraud since the number is rendered invalid upon completing the first transaction.

Because these virtual credit cards are often linked to a standard credit card number in your account, you will only get one statement at the end of each billing cycle that summarises your activities.

Even while credit cards come with interest charges, such as an annual percentage rate (APR), when the revolving debt is paid off quickly, it gives a company more money.

It is a very advantageous way of payment if the credit card is used more like a debit card and the balance is paid off at the end of each month.

ACH Payments

Another kind of digital payment used in business-to-business transactions is the Automated Clearing House, or ACH, which is quicker and more efficient than traditional hard-copy payment methods.

A routing number and individual bank accounts are required for this transaction to be conducted digitally from one organization to another. ACH payments are helpful for business-to-business recurring payments because they are easy to utilize.

Because of its low cost, ACH is used by many businesses. Some financial institutions do not assess fees for using this transaction method and prefer it over paper checks.

Managing cash flow and settling accounts may be simplified using ACH payments. This is because these payments are simpler to monitor and may be seen on the statement generated at the end of each month.

Since ACH transactions are similar to electronic file transfers, they may be included in an organization’s ERP software and other programs.

However, it is essential to remember that the Automated Clearing House is a domestic entity only applicable inside the borders of the United States.

In addition, there is a time limit each day for ACH payments that must be met. This is because transactions are processed in many batches throughout the day.

Despite the drawbacks associated with ACH payments, 61% of organizations plan to enhance their utilization of ACH transactions next year.

Since ACH payments are transmitted in batches at particular time slots throughout the day, the processing time for a transaction is significantly lengthened. This is one of the drawbacks of using ACH payments.

In addition, the ACH network is mainly accessible to firms in the United States; thus, if you conduct cross-border B2B payments, you must choose an alternate method.

Wire Transfers

Wire transfers are a kind of electronic payment that may allow business-to-business (B2B) transactions and work similarly to an ACH. Companies often employ wire transfers for e-commerce and other types of digital transactions since they allow for real-time payments.

Companies who do business on a worldwide scale may use international wire transfers if they so want. After the money has been deposited into the receiving account, it is instantly possible to use it.

In contrast to the ACH, the batch system does not support wire transfers and boasts a more reasonable processing time.

Payments sent by wire offer the finest terms and timeliness for businesses trying to make a transfer as quickly as possible. Despite this, some wire transactions still have a daily cut-off time.

Cash and digital wire transfers are the two options for sending money electronically. A cash-based wire transfer involves sending money to a cash office, where the intended receiver may collect it.

Cash Payments

Cash is the most valuable form of payment, and there are times when using cash may make business-to-business transactions easier than other payment methods.

One of the most significant benefits of a line of credit for a company is the absence of any yearly fees; this is not the case with cash transactions. Additionally, they will not be spent if the funds are unavailable. Hence, no interest will be accrued on them.

Cash transactions are processed the fastest, and the associated costs are the lowest compared to other payment methods. Certain sellers will only take cash payments. Any other payment method may result in late penalties and additional hassle.

On the other hand, paying with cash all the time might result in a negative cash flow balance, which is an undesirable situation. Direct cash payment will instantly reduce your available cash balance by the corresponding amount.

Digital Payments

These platforms may perform electronic payment transfers from one account to another. This is often done between two entities, and, despite the accounts being linked, no withdrawals are typically made from either.

Some payment methods, such as Venmo and Google Pay, can only be accessed via their respective mobile app versions. In contrast, others, such as PayPal, may be accessed using a personal computer or a mobile device.

One of its drawbacks is that this strategy results in the incurring of costs for each transaction. These costs may often be much greater than those associated with digital payments.

How to Process B2B Payments Online?

Now that you are aware of the majority of electronic payments, here is how you can process payments following the below-mentioned method:

Pick a Business-to-Business Payment Processing Solution

PYMNTS discovered that just thirty percent of companies said their existing payment method successfully resolved B2B payment frictions.

A further third of respondents said their existing solutions were partially or unsuccessful.

The B2B payments environment is expansive, and several solutions are available to make online B2B transactions easier.

Consider utilizing one of the others if the one you’re now working with isn’t enough for the job. The following are examples of popular B2B payment providers:

• Stripe
• PayPal
• Braintree, etc.

When looking for a B2B payment processing platform, you should ensure they accept the payment methods your customers like to use.

Utilize the B2B e-commerce platform that Shopify provides, and you will have access to Shopify Payments. You can now accept payments in over 130 different worldwide currencies using various payment methods without making an additional investment in a back end on top of the one currently running your direct-to-consumer shop.

Confirm that your B2B payment processor allows cross-border transactions if you want to use business-to-business (B2B) electronic commerce as part of your international expansion strategy.

According to a survey by PYMNTS, nine of ten finance professionals felt that the complications associated with making cross-border payments hampered their capacity to expand their business internationally. Another nine out of ten companies have trouble navigating the complexity of international currency exchange rates.

Now, Start Making Invoices For Your B2B client

On an invoice, essential details about the order include the stock-keeping unit (SKU) number, the quantity ordered, any applicable taxes, and the total due amount.

Before they pay for the items, many shops need to see the invoice. The accounts receivable staff will also need it to reconcile the company’s financial records.

Electronic invoicing is a tedious and time-consuming procedure that poses significant obstacles for B2B purchasers.

According to PYMNTS’s findings, 42% of buyers believe that invoice reconciliation is a cause of difficulty when paying suppliers. Furthermore, 9% of customers see it as the most significant source of friction.

Additionally, purchasers can log in to their own personal, password-protected online site to retrieve invoices for prior transactions, examine their payment history, and get automatic invoice reminders when it is time for them to make a payment.

They also have the flexibility to alter their order before it is sent, and they can pay using the credit card that is already on file. This helps to remove as much friction as possible from the B2B purchasing process.

This not only provides customers with the self-service B2B e-commerce experience they want, but it also helps businesses save valuable resources. There is no need for a business-to-business customer service representative to manage the request.

Be Clear about Your Payments Terms

According to Deloitte, it takes an average of thirty days for business-to-business customers to pay for an item. It’s estimated that over half of those vendors aren’t paid on time for their goods or services.

B2B purchasers have more substantial negotiation power when acquiring items from another company than consumers. They are not used to making payments for their purchase in advance and buy things in quantity, which allows them to get a discount.

Cash flow is a famously challenging problem for small companies; in fact, inadequate cash flow management is the cause of failure for around 82% of enterprises.

For example, a little merchant operates a shop and buys merchandise to fill it. Suppose the vendor allows variable payment terms, such as net 30, 45, or 60 days. In that case, the retailer has up to a month to make a profit on the product before making payment. These are all examples of payment terms.

Customers in the B2B space who are new to your business may be put off from purchasing by payment conditions requiring immediate action.

During the B2B sales process, you should attempt to negotiate delayed payment conditions with buyers and then publish the terms agreed upon to their business profile. The timing of payment for any future purchases will be determined according to the conditions you have agreed upon.

Be Aware of Fraud

Any company that accepts online payments, including B2B businesses, is susceptible to the problem of fraudulent activity. Concerns about fraud force businesses to lose an average of 3.5% of their yearly income.

This is primarily the result of businesses shipping products to clients despite having previously agreed to delayed payment conditions. The vendor takes their stuff and vanishes before the payment deadline.

How to Accept B2B Payments?

Stripe, PayPal, and Venmo are just a few of the many suppliers out there, but not all of them are made equal. If you run a small company, you’ll appreciate how Moon Invoice streamlines the payment processing procedure.

By automating processes, Moon Invoice makes it easier to receive payments from businesses to one another, and B2B payment processing is simplified.

Difference Between B2B & B2C Payments

Transactions between businesses are more straightforward than those between businesses and consumers. In most B2C transactions, the customer pays the seller directly through their debit or credit card for a predetermined amount.

The money from the online payment will be transferred to the company’s bank account via a third party known as an acquirer. However, there are some critical distinctions in the B2B payment procedure.

Methods of Payment

For a long time, businesses relied on payment methods that are now uncommon in the business-to-consumer sector.

Eighty percent of all B2B payments are still done through check, according to research we did with PYMNTS in 2020. Additionally shared are bank transfers, wire transfers, and ACH transactions.

In contrast to business-to-consumer (B2C) payments, which often use just debit and credit card payments, these techniques take longer to process.

Categories of Goods and Services

With a few notable exceptions, the goods and services offered in the business-to-business and business-to-consumer marketplaces are radically different.

The fact that they are often marketed via different distribution methods also reflects this reality. This is true even if the same individual is offering the two items.

Payment Schedule

In business transactions, payment periods of Net 30, 60, or 90 are standard, as opposed to the immediate, one-time payments common in business-to-consumer transactions.

Many companies won’t be able to expand or make necessary acquisitions without them.

The Current B2B Landscape

As the globe changes, so too must the financial sector. This has been true during the previous several years, if not the last many decades. The tools available to employees and the nature of work itself have evolved. What follows is a discussion of how the B2B environment has evolved and the implications these shifts have for the future of B2B monetary transactions.

Customer Experience

Business-to-consumer (B2C) payment systems have long since expanded into the digital payment market. As a result, customers want the same ease of use for B2B transactions.

If it’s possible to order groceries or hot dinners online, then B2B payments should be as easy. Yes, if you use a digital payment system.

The need for quicker payments also rose as a result of the epidemic. Due to a drastic drop in cash flow, several suppliers have accelerated their payment due dates.

Businesses’ use of digital B2B payment systems has shortened payment cycles, which has benefited accounting departments on both ends.

Financial Crime

Financial crime is significant due to the high costs businesses face with data breaches. Invoice and Business Email Compromise (BEC) frauds increased by 200% in 2020, according to Citibank. The epidemic likely had a role in this startling rise.

More people are now working remotely than ever before. Potential criminals have taken advantage of this by using hurriedly updated SOPs to deceive workers into giving bogus permissions or providing false requests for data.

More stringent procedures, the ability to do three-way matching, and other security precautions are now standard on most electronic payment systems to curb this kind of fraud.

Remote Work & Invoice Approval

Even while the workforce was already shifting towards a more flexible schedule and attitude before the pandemic, the COVID-19 epidemic accelerated the trend.

Entrepreneur magazine reports that almost all office workers in North America have done some kind of remote work at least once a week. This necessitates that all business-to-business transactions be handled and approved remotely.

To do this, businesses must adopt cloud computing and centralize their data. In addition, the adoption of digital payment systems that include workflow automation capabilities has increased since these tools facilitate the expedited processing of payments and approvals.

How to Process International and Cross-Border B2B Payments?

Business-to-business (B2B) cross-border payments are monetary dealings between organizations in different nations. These wire transfers are essential for multinational corporations or any group with an international payroll.

Buying products and services, paying employees, and remitting money to overseas branches are just a few examples of the many uses for business-to-business (B2B) cross-border payments.

Currency conversion is necessary for a B2B cross-border payment since the buyer and seller may use different currencies. Companies must verify that they are getting or paying the proper amount in their currency, which may be a challenge given the volatility of exchange rates.

In addition, using several financial institutions, payment processors, and currency exchanges is commonplace for such transactions, which may add costs, processing times, and other complications to the payment process.

Companies must be familiar with the rules, taxes, and accepted payment methods for cross-border transactions to go off without a hitch.

The following international payment guidelines consider the specifics of financial dealings across borders.

1. Make a Purchase / Deal
2. Preparing for Cross-Border Payments
3. Verifying Compliance with Global Payment Rules
4. Monitoring and Oversight of Global Payments Status
5. Routing and Processing
6. Payment Approval or Denial
7. Confirmation and Fulfillment
8. Settlement & Tracking of Payments

How Do Various B2B Industries Handle Payments?

The best business payment options might be different for different businesses. Although business-to-consumer (B2C) transactions are increasingly conducted electronically; most organizations continue to depend on traditional payment methods like paper checks and ACH transfers.

It might be challenging to reformat long-established practices and infrastructures to accommodate Internet commerce. There is still room for improvement in the efficiency of electronic processing for commercial transactions.

However, demand and innovation have prompted a recent transition to commercial payment systems. This becomes more important for the rapidly expanding e-commerce sectors worldwide. The payment cycle of a business must be accounted for in any payment system (more on this below). The company has created payment gateway cycles to handle all possible forms of transactions.

An in-house Accounts Receivable department offers greater control but also requires more man-hours. In this situation, the seller must consent to the sale and its conditions after the buyer has begun the transaction.

A purchase order must be issued and processed via the proper channels in business accounting. The order goes through after it’s been approved. The next step is to build an invoice and send it to the client for payment within the standard 30-day period.

Electronic invoicing is increasing as a means of payment; in fact, 90 percent of enterprises in Latin America already utilize some kind of electronic invoicing. The last step is payment, which may be accompanied by a receipt or, in certain situations, a late charge.

One standard method used by companies is outsourcing. Many businesses have found that outsourcing each of the phases mentioned above has resulted in a noticeably shorter procedure overall. This necessitates an ongoing engagement with the outsourced provider and additional costs.

Automating the payment cycle allows for swift handling with little human intervention. Without needing as much oversight, a computerized system will do all the necessary tasks utilizing cutting-edge software and hardware. With this growing trend, the processing time for company payments may be reduced by as much as 80 percent.

B2B Payment Trends

As the market expands at unprecedented rates, certain tendencies are emerging that every company must account for, whether large or small. If they do this, they could have a leg up on the competition in business dealings.

The following are some of the most typical trends in the B2B payments market:

Remote Invoice Authorization

Even before the COVID-19 outbreak, remote employment was becoming more common. More and more people are working remotely; thus, companies need accounting software to handle working with distributed teams.

Solutions for digital B2B payments regulate procedures, streamline approvals, and enhance teamwork.

Mobile Payments and Electronic Wallets

B2C mobile commerce has exploded in popularity, and B2B is quickly following suit. A staggering 292 million individuals will have their mobile device by the year 2024, according to research. More than 40 percent of sales for the most successful B2B companies are influenced by mobile devices.

In addition to protecting your company from credit card theft, mobile payments have built-in biometric authentication. For example, Apple Pay requires a successful Face ID or Touch ID verification to process purchases.

Real-Time Payment Processing

Real-time payments are another development gaining traction. In contrast to same-day ACH, immediate (or real-time) payment systems and infrastructures are now being created and planned in more nations.

Payment processing must meet the needs of businesses for speed, simplicity, convenience, security, and availability. Because of this, the payments sector is seeing a wave of innovation and change.

Peer-to-Peer Payments

Regarding financial transactions between businesses, the most prominent tendency is for B2B payments to mimic P2P models. First and foremost, consistency and quickness are required. After all, businesses can’t stay afloat without timely payments, so whatever solution you choose should provide those funds as soon as feasible.

Crypto Currency

Cryptocurrency is digital money that commercial clients may use to purchase services and products on the Internet. The volume of online business-to-business transactions is expected to grow to $35 trillion by 2022, and 58% of multinational corporations have utilized at least one kind of Bitcoin in the previous year.

Conclusion

B2B payments include a variety of payment methods, company sizes, and sectors. They still differ from B2C payments, however, in several ways. More extended lead periods, preferred payment terms, financing procedures, and collections procedures often distinguish B2B payments.

Despite the distinctions between B2B and B2C, B2B experiences pick up on B2C market trends. This covers both particular payment alternatives and broad trends. The most glaring illustration is the switch from paper checks to electronic payments.

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