In this article, we explore the outdated processes behind typical B2B payments, and how AP automation is the way to improve finance workflow.
An Essential Guide to B2B Payment Solutions
Automated b2b payment solutions can improve company operations. Learn more about b2b payment options and choose the one that’s right for your business.
Aside from the price and quality of goods and services being purchased, businesses are also concerned about b2b payment solutions – how payments can be made and when can they pay.
Amid the COVID-19 pandemic, the global payment market value is expected to reach USD 273.1 billion by 2028. Experts also see it expanding at a compound annual growth rate (CAGR) of 31.8% until 2028. Business-to-business payment has taken the digital shift such that companies merge their technologies to come up with innovative payment methods.
The digital shift increased but studies show that about 90% of businesses are doing offline transactions including paying purchases from other companies. The entire process involving the act of purchasing, issuing invoices, tracking shipments, settling payments, reconciling, and collecting makes b2b payment a little more complex than we thought.
The Challenges of Making B2B Payments
The most common payment options people can think of is through credit cards. However, since credit card application can be difficult for small businesses, there is a clamor to look for other online payment platforms that promote more productive workflows. And this is not an easy feat. Retailers and other merchants have been looking for a form of payment with increased functionality that would address the following challenges:
You might think that online transactions are complete in minutes, but the case could be different with payments when platforms may need more time processing them for up to 7 days or more.
High processing fees
Although some payment solutions like Spenmo charge 0% markup on foreign transactions, other payment platforms include up to 15% fee on top of the rates you see on Google.
Transaction tracking is limited
From the time you made a payment, you don’t know where the money goes until it reaches the merchant. You will need a payment confirmation from the seller to make sure that the payment is received. Until then, you’re left guessing whether you really keyed in the right account numbers or how long does your money gets floating in the cloud.
Supplier payment method is varied
Although this rarely happens, an e-commerce business may not accept payments through credit cards but will say yes to Paypal and Skrill. Before making a purchase, business-to-business payments should be made compatible between the merchant and the buyer.
Ease of use is compromised
A business owner would always look for ways to reduce costs but may not be convinced with international payment or mobile payment solutions that are difficult to manage. Some existing payment services seem a little complex for traditional small business owners.
Most Common Business-to-Business Payments
We’ve listed the most common form of business-to-business payment method which are also applicable in processing b2c payments. Here are a few of the payment options which start-ups use for their purchases:
1. Credit cards
Whether it’s a personal or business transaction, credit card payments have become one of the mainstream online payment methods amid the pandemic. Cashless payments may have decreased but the visa or MasterCard credit cards did not monopolize the payment method amid COVID-19. In a report, alternative forms of payment are also attracting consumers.
Credit cards provide a huge advantage for businesses allowing better cash flow. Instead of using the company’s current cash on hand, credit cards provide the opportunity to purchase without cash and pay a few weeks later upon the due date. Aside from this, some credit cards may not offer payment discounts but will let you earn points and rewards when used to pay purchases.
2. Automated Clearing House or ACH Payments
ACH is an alternative form of business-to-business payments that also facilitates faster and easier settling of bills compared to manual hard-copy methods. ACH moves payment electronically from one bank account to another through a routing number.
Aside from being cost-effective, small businesses consider ACH payments because these can be easily integrated into their ERP systems and other accounting software.
3. Digital Payment Platforms
B2b payments also become possible through digital payment platforms as a payment gateway. These payment providers include PayPal, Venmo, Google Pay, Dwolla, and Skrill. These digital platforms have payments processes connected to both the receiver and sender’s bank accounts in which credit and debit transactions are made.
B2b payment systems processed digitally allows for faster crediting of payments and easier tracking of b2b transactions involved.
4. Wire Transfer
Wire transfers are a form of digital payment for b2b payment processing. Most small businesses may also prefer the wire transfer method because of the real-time tracking of the transfer. Usually, the transaction happens from the sender’s bank account towards the receiver’s nominated account. Wire transfers make it quick for companies to manage their accounts payables and accounts receivables as wire transfers happen quickly online.
Usually referred to as electronic payment, wire transfer involves the use of the company’s current available balance to settle b2b payments. Currently, wire transfers can also be done through mobile payment platforms aside from the usual bank transfer methods. Depending on the account you’re using, some banks allow saving of the payment details which can be used for all the payment cycles involving the retailer.
A lot of companies are still opting for traditional payment methods like paper checks. Although payment speed is a concern, some companies prefer paper checks due to security concerns. Paper checks can be automatically deposited into the business bank account without the need for any payment gateways or payment platforms online. The issuer is compelled to make sure these are funded before the date provided in the check.
If the issuer fails to check out the issue date and funds them, then they will be automatically held liable for penalties. The bounced check can serve as proof of non-payment and suppliers can claim for disruption of their cash flow because payments will be delayed thereafter. However, some fintech startups prefer checks as these also promote protection from fraud, traceability, and the ability to be exchanged for cash without a bank account.
Probably one of the best b2b payment methods is cash. For a long time, cash is king until COVID-19 prompted a shift to digital payment methods. If you pay in cash, you can immediately update your ledger, you don’t need to worry about annual fees and late payment fees. You also save your small business from paying interest. Most cash purchases also come with discounts which allow for prices to go lower than the retail or advertised price.
In recent years, paying in cash is also considered preferred means of managing business transactions. However, in times when Saas has come up with an automated payments process, cash is no longer the mainstream in the payments market.
7. Virtual or Corporate Cards
Virtual cards also offer a faster way of paying your company’s purchases. Without the use of cash or physical checks, you can process a payment through virtual cards and debit cards. Debit cards are different from credit cards because they are loaded with available cash. Virtual cards operate through the same concept, however, the budget can be customized by the management which ensures no overspending will be done by the employee.
Automation of B2B Payment Solutions
B2b payment automation removes all manual processes involved in making payments. Accounting and bookkeeping work like invoicing are streamlined and somehow templated which means the process is repeatable across all payables. Payment automation also smoothens the b2b e-commerce transaction of disbursing funds for payments from the buyer and receiving funds on the supplier’s side.
The Benefits of B2B Payment Automation
1. Time efficiency and cost reduction
Through automation, the process of verifying payments and issuing them is shortened because the automation system can generate data, record, and verify them in a short period. Sterling Commerce claims that the cost of each paper invoice rage anywhere from $13-$30 when processed manually. On the other hand, if these invoices and payments are automated, each invoice may only cost around $3-$16.
2. Work productivity
Accounts processing automation also lessens the time each accounting staff spends on invoice processing. Thus, when the automation system does the work, the entire accounting team can accomplish other tasks and can improve other business processes.
3. Visibility and Better Reporting
Implementing an accounts automation system to handle b2b payments allows each member of the team to access a dashboard anytime. This accessibility feature can facilitate the evaluation and correction of entries immediately. This will also allow for better reporting because errors can be identified and rectified as soon as possible.
Adopting payment options available online is one way for businesses to improve their processes, reduce cost and promote efficiency within the company.
Choosing the right b2b payment solution should consider practicality, ease of use, security, integration, and ability to handle and produce reports. Through modern-day payment options, business-to-business transactions will no longer suffer the cost of manual accounting.
Automating b2b payment solutions through Quickbooks or virtual cards is a strategic approach to improving the company’s accounts payables process.