B2B Payments: A Guide to B2B Payment Processing Solutions for Your Business
What You Will Learn in this Article:
- What Are B2B Payments?
- What Are The Most Common Types Of B2B Payments?
- B2B Payment Trends To Watch
- What Challenges Come With B2B Payments?
- How Do I Solve Those B2B Payment Challenges?
- What Should I Look For In a B2B Payment Platform?
Over the last few years, making payments has become easier for consumers. With the introduction of contactless and mobile payments, consumers have a variety of options to pay simply for their purchases.
Companies such as Paypal and Venmo allow you to send funds to family, friends and acquaintances with the click of a button. Apple, Google, and Samsung have introduced the ability to make payments by simply touching your mobile phone onto a card terminal. The B2C (business to consumer) payment trend growth is obvious, but what about B2B (business to business) payments?
B2B payments have also evolved but not at the same speed as the B2C market. 67% of consumers have embraced the new technology and are regularly making electronic payments. Despite this, in the B2B world, 64% of businesses are still making their payments via check. This means that in 2020, there are payments being made via a means that some experts believe first appeared in 352 BC by the Romans and became a common form of payment by the 18th century.
This is even more shocking when you realize how fast the B2B payment industry is growing. The global B2B payments market size was valued at $870.42 billion in 2020, and is projected to reach $1.91 trillion by 2028, growing at a CAGR (compound annual growth rate) of 10.6%. This means that SaaS (Software as a Service) businesses have a real opportunity to disrupt the payment industry and make profits.
What are B2B payments?
Business to business payments is the term used to differentiate from a company paying another company rather than a consumer paying a business.
As a business owner for instance, you pay a monthly invoice which is your B2B payment. The same term applies to other business payments such as for servers, office space, etc.
Every time a business generates an invoice for another business, a B2B payment scenario is being undertaken.
What are the most common types of B2B payments?
It’s important for business owners to fully understand each type of business-to-business payment individually. If you need to pay an invoice from a supplier, they may only accept a certain method of payment and these are the most common ways to settle your account:
Most companies in the U.S. will take cash payments. Cash payments in the B2B world are more difficult as your provider is unlikely to be local. It’s also unsafe to send cash via the postal service and therefore cash payments are becoming less and less common for B2B payments. Cash is first on the list as it will be accepted, however, this is the most obsolete approach for B2B payments.
We know checks are still commonly accepted and used by businesses across the U.S. The reason is likely due to the convenience of writing on a piece of paper and sending it through the mail.
This form of payment is not efficient for businesses as they take several days to reach their destination, however, it gives businesses more time and opportunity to ensure that they have the money available in their accounts to clear. This is based on the assumption that a business will cash the check they receive on the day that you expect - something that isn’t always true.
It’s impossible to know exactly when the receiver will cash that check which makes it harder to forecast your finances. If funds aren’t available, the check will bounce and you will find yourself having to pay a bank fee, the original payment, and potentially a late fee from the business that you are paying.
3. Wire Transfer
Western Union introduced wire transfers over a century and a half ago. The process then was the same as it is today - you enter a Western Union office, pay them funds and advise on the intended recipient of the money. Western Union transfers the balance to another Western Union branch which is local for the recipient to collect in person.
Wire transfers have since evolved. Services such as SWIFT allow electronic wire transfers which immediately send money from point A to point B - making it the fastest way for a payee to receive their payment.
Although fairly cheap for consumers, businesses have to pay up to $40 per transaction to send money and up to $15 to receive it - making it an expensive option. International payments involve even larger fees making them less likely to be used by businesses increasingly focused on profit margins.
4. ACH payments
ACH (automated clearing house) payments transfer funds from a business checking account to a client’s account.
This method requires paperwork to be completed by both you and the businesses that you need to pay. It is more likely to be used by businesses making regular payments to the same business. One-off payments are unlikely to be made using this method due to the inconvenience of the paperwork involved.
Once all the paperwork is completed, it can take up to three days to process a payment. The fees vary but are more reasonable in price compared to wire transfers.
NACHA, which governs ACH deposits, reported that the ACH network moved nearly $62 trillion in 2020.
5. Credit cards
Credit cards have been a part of consumers' lives since the 20th century. Credit card companies also offer solutions for the business world by providing incentives for businesses to sign up for their credit service.
Reward schemes, cashback, and low-interest rates have resulted in increased adoption of B2B credit cards.
Although growing, the reason for the reluctance of using credit cards in recent years is due to the heavy fees that some companies will charge. Acceptance of receiving a business credit card also relies heavily on your credit score.
Since the “Bitcoin boom” in December 2017, cryptocurrencies have been making noise across the world. As discussed above, crypto is already present in the B2B payment scene but cannot be considered widely adopted at all.
The volatility of the crypto markets, the unclear regulations within the U.S., and the more complicated process for sending and receiving payments make cryptocurrencies a less attractive option for processing B2B payments.
Here are six B2B payment trends to watch:
1. E-commerce will strongly drive B2B payments.
Investing in e-commerce capabilities is key to staying competitive: 42% of small and medium-sized B2B businesses saw an increase in online transactions in Q2 and Q3 of 2020. Who is part of this driving force? Millennials, making up 70% of all B2B decision-makers today and expecting seamless online transactions.
The potential results are inviting: businesses implementing e-commerce expect to see 5x faster revenue growth. Forrester also forecasts that B2B e-commerce in the US will reach $1.8 trillion and account for 17% of all B2B sales by 2023.
2. The need for AP (Accounts Payable) and AR (Accounts Receivable) automation gets emphasized.
Investing in automated payment technology has been in the focus of the B2B payments market for a long time now.
For companies that prefer manual processes, it takes 67% more time on average to follow up on overdue payments than those who use automated AR processes. When businesses leverage AP data, CFOs report about better cash management (70%), better supplier management (63%), and better payment strategies (61%).
3. Checks are still here but slowly moving out of the picture.
Leaving behind paper checks and cash is now slowly becoming a reality even in heavy check user countries like the U.S. Although checks account for more than 50% of the overall transaction value in the B2B payments market, the Federal Reserve projected a 3.7% decline in commercial check usage.
4. Virtual card spending is expected to grow.
According to 2020 projections, virtual card spend may grow from $213.8 billion in 2021 to $414.2 billion in 2024. One reason for this is that this B2B payment method makes up only 3% of targeted payment fraud versus 66% of checks and 39% of wire transfers, which are still the most impacted by fraud activity.
It’s a declining number over the past years but in 2020 still, a significant number, 74% of organizations were the target of payment scams.
5. Real-time payments are forming the global payment landscape.
This includes business-to-business payments, of course, as real-time payments (RTP) can lead to greater security, scalability, efficiency, and a common global language in the market.
Mastercard highlights these advantages of RTP for corporations:
- Efficiency e-invoicing and billing
- Improved liquidity management
- Optimized working capital management
Real-time payments adoption, according to 120 organizations surveyed, is driven mainly by the need to improve the efficiency of payment systems (83%), to respond to technological innovation (69%), and to reduce systemic risks (63%).
6. Cryptocurrency is cautiously emerging in the B2B payment systems.
Cryptocurrency is already present in the B2B payment landscape but is not yet a heavily influencing factor. Only 8.1% of firms use this payment method, and the satisfaction rate is not that high either, with 3.9% reporting that they are very or extremely satisfied with it.
Meanwhile, the major industry player Mastercard is bringing crypto onto their network to enable businesses to move digital value. The company already has 89 blockchain patents granted globally and 285 applications pending.
While we cannot talk about a broad adoption of crypto in B2B payments, businesses should certainly keep an eye on these developments.
What challenges come with B2B payments?
Although businesses have been making payments to other businesses for hundreds of years, the current state of play with B2B payments still has its challenges:
1. There are too many payment mediums
We’ve covered the multiple types of ways to pay within the B2B world. Some businesses accept some mediums of payments while others don’t. Some businesses can only receive money via a certain medium and another company might not have access to that payment method. As a result, too many types of “ways to pay” can create a hurdle when looking to settle bills efficiently and quickly.
2. There is a risk of fraud
The convoluted B2B payment landscape makes it difficult to fully track all incoming and outgoing funds and opens up your vulnerability to being a victim of fraud. As discussed above, the number of businesses experiencing B2B payment fraud is declining but is still significant (from 78% in 2020 to 74% in 2021). This is a challenge that many wish to avoid completely.
3. There can be a lack of visibility
With different businesses paying via different methods and at different times, it can be extremely difficult to forecast and track all the payments coming and going. The high level of variety correlates to the enormous challenge of being able to see exactly where your money is coming from/going to and when.
4. There can be fluctuations in processing time
Managing payments can be a lengthy process. Many businesses are paying several companies each month and depending on the method, each transaction will take a different length of time. On average, it takes 45 days to process a B2B payment, meaning that it can take a lot of time to actually get paid.
5. There can be high costs involved
Most of the payment methods used by businesses involve the additional charges of fees. Some methods, like wire transfer, also involve costs in receiving money as well as sending. There are high costs with money but also with time, as you find yourself managing your outflows and inflows when you could be using that time to grow your business. Huge organizations have little issue with the costs involved but it can be a stumbling block for smaller and medium institutions.
How do I solve those B2B payment challenges?
B2B payment solutions have entered the market to make life easier and using a payment processing company could be a real benefit for your business, but why?
Reduce your costs
Today, it currently costs approximately $22 to process an invoice manually. This number can be significantly reduced with a modern B2B payment solution in place. Optimizing your B2B payments allows you to reduce cash outflows and save more money. Ultimately, investing in a payment processing solution allows your business to grow.
Reclaim your time
Time is as valuable to a business as money. The traditional way of processing B2B payments takes a lot of time but B2B-ready payment gateways automate the work and drastically reduce the time spent managing money. The time saved could be invested in other elements of your business to help you reach your end goal.
Process payments faster
The automation that comes with a B2B payment processor means that the speed of processing invoices is increased. You pay your clients faster and they pay you quicker too. You won't have to wait so long to be paid for work that you have already done.
Make transactions more visible
If you've picked the right B2B payment solutions, they should provide full visibility into payments. They should also integrate with existing accounting tools that you may already have, e.g., QuickBooks. With the appropriate B2B payments integration system, it becomes much easier to analyze your spending data allowing you to take advantage of payment discounts. The lack of paper also makes auditing easier while also being good for the environment.
Aim for convenience
The large number of payment mediums available and the variation in payment preference of companies, have become a real challenge for the B2B payment landscape. Accepting digital payments gives your customers an additional way to pay which is a lot more convenient for all. It also improves the customer experience and increases your likelihood of getting paid faster.
Pay attention to security
Payment processors such as CardConnect are PCI compliant. Security, is a top priority so you should be looking for a payment provider with a team of developers and data analysts to rapidly detect intrusions.
Build a solid ROI
Reduced costs, regained time, faster payments, more visibility, convenient, top-notch security ensures that any investment you make by using a payment processor will drive a significant ROI (return on investment) in the long term.
What should I look for in a B2B payment platform?
As modern B2B payment solutions provide a better way forward than the traditional approach, it’s time to try and find the right one for you. As with anything, it’s important to do your due diligence and research to find the right payment processor for you. Below are 4 things that you must look out for when picking your B2B payment platform:
If your business has specific needs, make sure you find the right one for you. Payment processors like CardConnect have a variety of solutions depending on the size/type of your business, meaning there are versatile platforms for your payment needs.
Payments are happening every single day, particularly for ISVs who have different charge dates per customer. It’s important to find a solution that you can be sure is reliable on a daily basis. You need a tool that you can count on.
Being able to easily integrate the payment solution into your platform or business is imperative for success. You are also going to want to integrate the solution into other software you may have such as accounting or payroll to increase visibility. Find a payment platform you trust for its easy integration capabilities.
4. Ease of use
The whole point of changing your B2B payment approach is to make things easier. Having a quick and intuitive solution is important for simplifying your processes. Take advantage of the demonstrations that payment processors offer to get a feel for what you’ll be using.
Now you should be able to feel confident with understanding B2B payments, how the market will change and how your business will benefit by integrating a B2B payment solution into your platform.
More than 230,000 businesses are currently working with CardConnect to improve their payment processing approach. Sign up to learn more about the B2B payment solutions available for your business today.