Customer payments have seen a drastic change over the past few decades. There are now hundreds of ways for a customer to pay businesses for their services or goods. Technology has made the world an easier place for everyone, including payment networks. Paper checks and bank transactions are now less common, replaced by electronic transactions and eChecks.
While there’s definite progress for customer payments, B2B payments haven’t received much love. Although it’s not as quick to evolve, there’s definitely plenty of platforms on the market fighting for the top. Due to COVID-19, most businesses have or are currently in the process of making entirely digital payments, and that’s a big step forward for B2B payments.
Throughout this article, we’ll be covering every single detail that will help your business’ payment solution reach its full capacity and remind you of a thing or two you might’ve forgotten about B2B payments.
What are B2B Payments?
Business to business (B2B) payments are transactions that companies carry out with other companies. B2B payments go in the same boat as business to customer (B2C) payments and business to government payments (B2G) but are broadly different. B2B in contrast to the other two is a much more complex process and requires more precision and time to execute.
In the past, a B2B payment was only realized through paper checks and credit cards. Nowadays, you can make and accept digital B2B payments in multiple ways.
How Does B2B Payment Processing Work?
B2B payments work differently depending on what method you’re using but they all have one thing in common — sending and receiving funds. A major difference between B2B payment methods is that you can do some of them fully electronically, whereas some require paper documentation. For in-depth detail on how different payment methods impact businesses, read below.
What are the Most Common B2B Payment Methods?
- Credit Cards
- eChecks
- Automated Clearing House (ACH)
- Electronic Funds Transfer (EFT)
- Wire transfer
- Paper checks
- Mobile payment options
Credit Cards
Credit cards still remain one of the more favored payment methods for business to business purposes. They are a relatively reliable and inexpensive payment method used worldwide. However, they have fallen off in recent years due to the rise of newer and more affordable payment methods.
Probably the biggest downside is that credit cards incur hefty fees. They come with an interest rate that could damage your business’ cash flow. But, if you keep your revolving balance in check by paying it as soon as possible, they’re a great solution for B2B payments. Another thing to keep in mind is that a lot of credit card issuers set a spending limit which can be detrimental to high-volume businesses.
To avoid any possible fraud, credit card issuers may offer numbers for one-time use. In short, this means that after you execute a transaction, the number becomes inoperative and unusable. These one-time credit card numbers are usually part of your primary credit card account and the transactions will appear in your statements once completed.
eChecks
An electronic check or eCheck acts as the electronic variant of a traditional paper check. It is often confused with an ACH payment because it combines the authorization and the transactions in one. But, the eCheck is just the transaction and authorization part, without any other processes. Electronic checks are a popular B2B payment solution for a lot of businesses because of their straightforward nature.
Automated Clearing House (ACH)
Automated Clearing House or ACH for short, is a financial network that allows users to make electronic payments and other transactions within the US. ACH is the same as a direct transfer, they allow you to seamlessly transfer money from one bank to another without any hassle or paperwork. Through ACH, the participating financial institution accepts both credit and debit cards. The National Automated Clearing House Association (NACHA) is in charge of the ACH network in the US.
ACH is great for B2B payments because it’s reliable, simple, and is also one of the fastest payment methods on this list. You can integrate an ACH system within your ERP system or other software. Another great thing about ACH is that some financial institutions don’t even charge a penny when using it. The one downside to it is that it’s not available outside the US.
Electronic Funds Transfer (EFT)
Electronic Funds Transfer (EFT) refers to any kind of digital payment. The whole process is very similar to that of a wire transfer or an ACH. In fact, they are both a form of EFT. It is currently on the rise and more and more businesses are using it because it’s pretty fast, incurs little-to-no costs, and is fully digital.
Wire transfer
Wire transfer is a highly-popular payment method worldwide. It’s been in use for over 150 years now and many businesses use it for B2B payment processing. A wire transfer can either be done through a brick-and-mortar bank or digitally. The whole process is a bit more complicated as it involves a few extra steps to set up. When looking to make payments internationally, wire transfers are an excellent choice.
Paper checks
Even though it’s not a favored payment method, businesses still use paper checks for B2B payments. Paper trail is a really important aspect of any business and thanks to paper checks you’ll always have evident payment documentation in the paper trail. The great thing about paper checks is their privacy and the fact that banks take no part in them. The downside of paper checks is the possibility of making a writing mistake. Also, it is typically slower to process.
Mobile and other digital payment options
Other frequently used digital B2B payment methods are the payment solutions provided by Fintech brands. The most common names include PayPal, Venmo, Skrill, Neteller, Payoneer, and paysley. They are the fastest way to transfer money electronically but come with bulky fees that may be inconvenient for business-to-business transfers.
Which type of electronic payment is typically favored in B2B?
It’s not a shocker that a lot of businesses prefer eChecks when handling B2B payments since it’s an all-rounded solution. There are almost no costs to it, it’s reliable and fast. Its security levels are also pretty high and writing mistakes are correctible as it’s electronic.
The Future of B2B Payments: Understanding B2B Payment Trends
B2B payments were slow to progress but now there are now a bunch of ways to make B2B payments. There are ongoing trends revolving around business-to-business payment solutions, but due to COVID-19 taking the world by storm they are at a halt. Read below about all the factors that are affecting the business-to-business world.
Impact of COVID-19
COVID-19 has impacted the world in various ways. It has shifted the world from paper transactions (bills and checks) to contactless payments. Digitization and remote work are becoming more and more popular, which further promotes digital B2B payments. Entrepreneurs advocate for B2B payments. The digital payments industry is growing quickly and this is a great advantage for B2B payments – it reduces costs and increases efficiency.
Technological shift
Long before COVID-19, paper checks were going out of fashion and were being replaced with eChecks, ACH, and other types of digital payments. Our phones are now wallets which we can pay with from anywhere and anytime in a matter of seconds. Social media, fintech companies, ERP systems, and RPA software have also seen major growth and use in recent years.
Remote workers
Due to the COVID-19 pandemic, more and more employees opt to work from home. Suppliers and employees need to be compensated digitally to maximize the business’ efficiency and working capital with existing suppliers. B2B payments, because they are contactless, keep both parties safe in terms of COVID transmission. It allows work to continue safely and efficiently.
Real-time payment processing
Real-time payments are very important for businesses, especially when everything is so reliant on speed. It’s getting popular among businesses to use B2B payment methods because it helps facilitate all business processes. The best payment method for real-time payment processing is same-day ACH processing. Other than that, credit and debit card payments are a good alternative.
Mobility
Mobile payment apps are one of the most common payment methods in the B2C world but for B2B purposes, not as much. They are expected to blow up in the future because of how easy to use they are. You could say that they’re basically an eCheck that you can use whenever and wherever you want.
Benefits of Adopting B2B Payment Methods
We mentioned a few benefits of each payment method but they all have a few that apply to every single one. Here are the top 4 advantages of B2B payment methods have that will facilitate your business.
Improve cash flow
Improve your cash flow by including an automation system as part of your ERP software. Automating business processes and payments will save you plenty of time while accelerating your cash flow. If for any reason you can’t automate your business processes, it’s best to use a digitalized B2B payment method because it computerizes physical tasks.
Simplify bookkeeping
While paper checks are a great tool for bookkeeping, there are better solutions to consider, like e-invoicing. Most of the electronic payment methods have transaction statements with all the necessary details that you can access within seconds. Additionally, while paper checks need constant management, electronic software fully automates this process.
Improve security
Thanks to SSL certificates and data encryption, no one is able to breach your digital payment accounts and access sensitive information. Paper checks, on the other hand, are prone to mail theft. Don’t forget to also have set up extra layers of protection such as two-factor authentication across your business to-business payment methods.
Save time
Probably the biggest benefit — electronic payments save time and with that resources, labor, and money. Everything you need to do is within a few clicks away on electronic payment software unlike paper checks, where everything is manual. Moreover, making physical copies can add up fast, while copying something digitally doesn’t require any equipment or money.
Final Thoughts
B2B payments are evolving day by day but due to COVID-19, some forms are becoming obsolete. To be more specific, paper checks are going out of use because all sorts of physical contact is limited everywhere in the world. This has also led to digitalized payment methods to rise in use and for good reasons. Most times, they are faster, more secure, more reliable, and facilitate all of your business processes.
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