B2B Payments: A Guide to B2B Payment Processing Solutions for Your Business
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 simply pay for their purchases. Companies such as Paypal and Venmo allow you to simply send funds to family, friends and acquaintances with the click of a button. Along with this, big technology companies such as Apple, Google and Samsung have introduced the ability to make payments by simply touching your mobile phone onto a card terminal. We are all living as consumers and we have all noticed how our lives have become much more efficient and simple when it comes to making payments and sending direct bank transfers. 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. According to a recent webinar, 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. According to a report in April 2020, the B2B payment transaction market size is predicted to be worth around $63,084 billion by 2026. This means that SaaS businesses have a real opportunity to disrupt the payment industry and make profits. Evolving the B2B market is beneficial to all companies across the globe - creating an environment for faster payments, time efficiency and, in turn, improved experiences for all.
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, you probably have applications or tools that you use to improve productivity (such as communication platforms like Slack), 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. Although slower than the B2C market, B2B payment trends have also evolved:
According to Mastercard’s latest B2B payment report, checks are still the most common way for businesses to make and receive payments but there has also been a rise in credit card payments, cryptocurrency payments and same day ACH payments. The slow evolution is starting and Mastercard believes that we are at a ‘tipping point’ for businesses to change their payment processing habits and enter into the digital world.
The Current State of the B2B Payment Market
Companies vary in size and complexity - some have large accounting departments whereas others have under five members of staff overall. You would expect that the larger companies are better positioned to cast aside paper-based payment systems and evolve electronically.
The key takeaways in Mastercard’s latest B2B payment trend report are:
Checks are still the most common payment method for companies
32% of businesses prefer to receive checks more often than other forms of payment, while 34% of businesses also prefer to use checks when sending payments.
Regular ACH payments, credit card payments and electronic bank transfers are growing in usage
ACH is the second most popular B2B payment method with 18.2% of companies preferring to receive money via this method. Credit cards are rising and 9.1% of businesses pay other companies via credit card. Electronic bank transfers are also more popular than other forms of B2B payments such as wire transfers, cash and e-payables.
Cryptocurrencies are the least preferred payment processing method
Unsurprisingly, cryptocurrencies were answered less frequently than ‘other’ when businesses were asked how they send and receive payments. Fairly new to the market with unclear regulations in the U.S., cryptocurrencies have yet to make an impact in the B2B world.
67% of companies are satisfied with using credit cards
As credit cards are becoming more common for sending and receiving B2B payments, many companies have agreed that they are satisfied with their usage. Ease and convenience are two of the advantages cited by businesses as to why credit cards are becoming more popular.
Companies are most satisfied with accepting and making regular ACH payments
74% of businesses surveyed by Mastercard preferred the ACH method. This was the method that businesses were most satisfied with, followed by electronic bank transfers and credit cards. 57% of those businesses that claimed they were satisfied with ACH also stated “ease and convenience” as to why.
Along with this report, in 2019, McKinsey found in their latest payment report that the overall B2B payment market had grown by 4% since 2018. The growth has been particularly higher for SMEs (small and medium enterprises) rather than with the larger organizations as they are more open to emerging technology and markets.
What are the different types of B2B payments?
Although we’ve briefly covered these forms, 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 always take cash payments. Cash payments in the B2B world is 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 to be due to the convenience of writing on a piece of paper and sending it simply in the post. 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 and 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 again and potentially a late fee from the business that you are paying. The Federal Reserve claims that there is a downward trend in check usage but they still dominate the business payment world due to the widespread acceptance and the security features (protection from insurance, banks, etc).
3. Wire Transfer
Western Union introduced wire transfers over a century and a half ago. The process then is the same as 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. Although the process at Western Union is still the same today, wire transfers have evolved. Services such as SWIFT allow electronic wire transfers which immediately sends money from point A to point B. In the 1800s Western Union radically changed how businesses made payments and today, with the rise of technology, wire transfers can be instant - 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 which make them less likely to be used by businesses who are 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 for businesses who are 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 only takes 3 days to process a payment. The fees vary but are more reasonable in price compared to wire transfers. NACHA, who governed ACH deposits, currently processes $43 trillion in transactions annually.
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 to their credit service. Reward schemes, cashback and low interest rates have resulted in increased adoption of credit cards within B2B payment processing. 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. They are digital assets coming out of niche technology and are championed by passionate enthusiastic supporters. Many believe that cryptocurrencies will overtake traditional money and therefore they expect adoption within the B2B landscape. The noise coming from the crypto community, as well as the ease of international transfers, saw major financial players investigate integration with this emerging industry. In 2018, American Express launched a BETA test to see how they could integrate payments with Ripple. The volatility of the crypto markets, the unclear regulations within the U.S. and the more complicated process for sending and receiving payments makes cryptocurrencies a less attractive option for processing B2B payments.
7. Online payment methods
One of the associated websites when thinking about the incredibly fast rise of the internet is eBay. Along with eBay, PayPal became a quick and easy way for consumers to pay businesses or other consumers for goods that they won in their online auction. PayPal was advertised as the safest way to pay. Today, many people use Paypal on a daily basis and competition has arrived. Since 2016, the rise of the NeoBank saw PayPals initial entry into the market develop into services offered by the bank themselves. Revolut, N26 and Monese are just three of the growing list of NeoBanks that have entered the market and account holders can instantly send money safely through a variety of ways within the application itself. These NeoBanks have entered the B2B market too and business accounts can be opened very simply by downloading the associated app. This space will continue to grow as more people are looking for convenience with everything that they do.
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. According to the AFP 2020 Payments Fraud and Control Survey, 78% of businesses experienced attempted B2B payment fraud in 2019. This is a challenge that many wish to avoid completely and there is hope that technology could further secure the funds you have available.
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. Not only are there 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. Investing in a payment processing solution saves you money and 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 modern 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. No longer would you have to wait so long to be paid for work that you have already done.
Transactions become more visible
Modern B2B payment solutions provide full visibility into payments. They also integrate with existing accounting tools that you may already have e.g. QuickBooks. It is now 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.
With the large number of payment mediums available and the variation in payment preference of companies, it’s 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.
Payment processors such as CardConnect are PCI compliant. Security, therefore, is top priority and many have a team of developers and data analysts to rapidly detect intrusions.
Gives you 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 in which you are confident in their ease to integrate.
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 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 solutions available for your business today.