26/02/2021

A B2B Payments Guide & How to Prepare for the Future

By Mariana Marques

What are B2B Payments?

B2B payments are payments made from businesses to businesses. Unlike B2C (business to customer) or P2P (person to person), B2B payments is a faster process for issuing, receiving, and processing transactions for a more seamless cash flow. However, B2B payments are still behind B2C in terms of innovation, with regards to contactless cards, e-commerce transactions, and mobile payments. 

In 2016, nearly half of all global B2B transactions were still done on paper, in 2017, only 38% of US organisations utilised electronic invoices, and in 2018, 52% of B2B payments were done by a form of bank transfer. Although we see that B2B payments are increasingly embracing digital payment methods, it still remains more traditional than B2C and P2P. 

The most popular types of B2B payments include:

  • credit cards
  • automated clearing house payments (ACH)
  • wire transfers
  • digital payment platforms
  • paper cheques
  • cash
  • electronic funds transfers (EFT)

This can come with a range of issues. As payment methods become more diverse, this complicates the cash-application accounts receivable process. As this process complicates, businesses are turning to technological innovations for more trackable payment options. As out of date payment methods are often accompanied by:

  • wasted administrative time
  • failed payments
  • data security risks and their relative costs
  • chasing up overdue payments with clients
  • poor cash flow

But why are B2B payments lagging behind in technical innovation?

The B2B payments industry in the US was valued at $18.5 trillion in 2016 and grew to $25 trillion in 2020. The global B2B payments market was presumed to be worth $38 trillion in 2020, and in comparison PSP mobile payments amounted to $396.48 billion in 2020. So, it’s clear that the sheer size and growth rate of the B2B payments industry is a factor. This is due to the fact that B2B payments tend to be larger transactions, more frequently, and more regularly. For example, a merchant may have recurring payments for their monthly supplier shipments.

As B2B payments are reliant on two businesses, spending money is far less impulsive as there are administrative processes and more people involved than a simple P2P or B2C transaction. Because of this, the process is not instant and often needs to be bespoke to the business’s own procedures. For example, the procurement department, billing, accounts receivable, and accounts payable may all have involvement in a transaction. As a result, many businesses resist changing and updating their payment methods so as not to disrupt the workflow, and would rather maintain the manual, traditional accounting that their staff is accustomed to.

However, as payment technology advances to become more secure and accessible, more B2B organisations are adopting it into their payment methods.

B2B Payment Trends

Mobile Payments

As with B2C, businesses are embracing mobile devices to manage their transactions. In the US, mobile payments saw a growth of 41% between 2018-19, and the market was set to surpass $130 billion in 2020. The convenience of mobiles to create and accept payments, particularly where the business is done ‘on-the-go’ in transportation industries, is revolutionary. As the world becomes more and more comfortable with mobile payments, the more it is welcomed into B2B payments.

Real-Time Transactions

Real-time payments allow businesses to make and collect transactions immediately, so there are less delay in processing transactions for B2B products and services. Since consumers can perform real-time payments, there is an expectation for B2B payments to follow suit. To enable this isn’t easy, but there is a driving demand in the B2B industry to access real-time payments networks. In a study, 52% of businesses wanted real-time payments to improve cash flow and over 40% wanted to get payments to their suppliers and workers faster. Real-time transactions can ensure B2B payments are less time-consuming and more flexible.

Automation

Paper cheques are virtually non-existent in B2C transactions, and many consumers have embraced digital payments to be more efficient and safer. So, the B2B industry is following suit. Digital payment platforms allow businesses to manage their transactions for a more efficient and less laborious process, and some businesses reported that automated B2B payment processes cut their invoice-to-payment time by up to 80%. Not all markets accept recurring payments online so an automated system can offer a more universal solution, so they’re a great way to organise pay-day for your employees and suppliers. An automated billing process is far more effective when accompanied by automated payment collection, which offers full transparency in pricing. This avoids the need to chase bills or adjust standing orders every time the bill fluctuates. For example, pull payments, such as direct debit, instead of push payments, which relies on the customer to manually pay, can give control back to the business.

Secure Payments

Digital payments are a safer and more flexible option than cash and cheques. With concerns about postal theft and fraud, using payment software means you’ll benefit from an expert team dedicated to monitor and create a secure platform to store your information. To ensure your digital B2B payments remain as secure as possible, use a secure network to send and receive payments, and track all transactions to verify the payment provider’s information. Safer payments will help you to be compliant to data protection laws such as GDPR and avoid fraud and cybertheft costs. In addition, a digital “paper trail” is usually clearer than on paper, which is a great benefit as a rise in technology has been accompanied by an increase in cybercrime.

Simplified Bookkeeping

Managing accounts receivable and accounts payable is a simplified process with a B2B payments solution. This avoids time-consuming, messy, manual bookkeeping that is likely to incur human error. You can also integrate bookkeeping software to automate tax filing while billing and invoicing software can also streamline operations for your business. With digital payment management platforms, you can have a secure, centralised, automated accounting system with a transparent, digital paper trail.

Global Transactions

Innovative financial technology, such as cloud-based payment software enables B2B payments to be easier, safer, and immediate. Cross-border payments have been a driving force for technologies within the Fintech industry, so businesses can access multiple global payment ecosystems via innovative payment software such as Imburse’s payment solution. In 2019, B2B cross-border revenues were anticipated to grow 3% annual growth rate until 2024, so there’s an increasing demand for better global transaction methods. To process international and cross-border B2B payments, you will typically need a global payments platform to serve as a second mediator to send and receive international transfers. However, the payment industry is evolving to create better access to the global market, for example, the European Union’s PSD2 regulation will ensure universal communication across the global payments process.

Emphasis on Trusted Payments

AI performs fraud screenings to identify discrepancies and changes in user behaviour, but when it comes to human managed processes, trust is lacking. Fear of fraud and limited trust in banks and businesses can be lessened with digitisation. Technology is seen as safer, more transparent, more convenient, and easier to manage. So, adopting this into the B2B environment can allow your business to build better supplier and client relationships, to focus on the business, not the payments. As more B2B payments take place via various digital methods, businesses that take longer to adapt may be at risk. For instance, B2C establishments that have not yet adopted card payment systems have alienated a large proportion of their potential customers and are often viewed as untrustworthy.

The Benefits of Embracing the Future of B2B Payments

The potential cash flow improvements of digitised B2B payments can take your business to the next level. For example, automated payments will allow you to see exactly how your business is spending money and organise your budget more efficiently. A payment software platform will help your business go a step further by providing reports, so not only are you able to analyse outgoings, but also merchant behaviour, such as late payments. This transparency allows your business much more control. 

In addition, payment software will also make it easier for merchants to pay you, rather than sending a cheque in the post. Many companies will pay for their own costs upfront, produce a product or service for a business and invoice after delivery, to then be paid late. Bank transfers mean the money is immediately accessible, so holding onto cash and cheque payments only delays and disrupts your business’s cash flow. However, going a step further to digitalise B2B payments to be automated, and even collect payments rather than wait for them to be manually sent, could see further improvements for your cash flow. 

When your cash flow is disorganised and you’re often met with late payments, it can then lead to issues paying your own bills and suppliers. Particularly when each payment comes with its own set of parameters for each supplier, such as credit and deadlines, it’s all very time-consuming. Not only is this a stressful problem, but it’s an unsustainable one. When you aren’t paid, you can’t pay your suppliers, which leads to late fees, bad supplier relationships, downsizing the business to lessen overhead costs, and being unable to invest in the future of your business. In addition, this chaos makes it really difficult to track and manage your transactions. Understanding what you’re spending your money on is a key way of improving cash flow and budgeting, which is why many businesses manage their B2B payments on cloud-based payment software.

A payment software will simplify managing payments and therefore help avoid human errors. It can also make filing taxes easier. A payment software platform is monitored and designed to be as secure as possible, so you can benefit from safer payment methods to avoid fraud. Save time and money for your business on the reduced man-hours for managing transactions and with digital payment methods, there is no need to physically post and process cheques. 

Many businesses either have an in-house accounts receivable team to validate the sale and terms of the payment. This requires a lot of work, so alternatively, businesses choose to outsource. This can be risky as it requires a certain level of trust and is also an additional cost to your business. With automation, digital payments, and accounting systems via a cloud-based payment system, this process can run efficiently without the costly, time-consuming account administration.

Implementation and costs are often the reasons behind hesitation to embrace digital B2B payments. This is why finding bespoke, low maintenance, cost-effective solution to manage your B2B payments is advised. At Imburse we can provide just that. Get in touch with us today to find out how you can access and manage transactions with multiple global payment ecosystems, with no need for integration.

About Mariana Marques

Mariana is a content writer at Imburse, specialising in Finance and Technology topics.

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