Business-to-business (B2B) transactions occur when two merchants transact with one another. These payments are far more standardized and vast in number than business-to-customer (B2C) transactions.
The definition of business-to-business payments or B2B payments is the transfer of value denominated in currency from buyer to supplier for goods or services rendered. B2B payments can be a one time or recurring transaction depending on the contractual agreement made between the buyer and supplier.
Types of B2B payment methods –
The most common types of B2B payment methods are paper checks, credit cards, wire transfers, ACH payments, and cash. Each B2B payment method has its own set of benefits compared to the next and here is how the many types of B2B payment methods differ.
Checks – Despite technological advances in 2020, checks remain the most-common method of B2B payment, used for 80% of all B2B payments.
ACH (Automated clearing house payments) payments – ACH payments are electronic payments and have become the someplace in recent years, with the National Automated Clearing House Association Reporting that the ACH Network processed a staggering 23.9 billion payments in 2019, or more than four for every person in the world. They have also become common for B2B transactions, with 92% of workers receiving payment through direct deposit, per a 2019 survey. NACHA already projects that ACH payments will soon account for around half of all B2B payments.
Wire transfers – Wire transfers constitute much less than 1% of the total number of B2B payments, however make up 94% of the total amount because they are often high-price payment activity according to Glenbrook. While wire sends don’t account for a fraction of payments that checks do with a recent Federal Reserve study noting ” if only 5% of the current corporate check volume moved to wire, wire volume would increase 47%” they still accounted for 95 million payments according to that study. These payments typically happen 1 of 3 ways: Fed wire, CHIPS, and RTP.
Credit cards – Credit cards are not overly popular in the B2B payment world, since some vendors prefer to duck the 3-4 percent processing fees that credit card companies often charge. That said, many businesses still make frequent use of plastic and are sometimes willing to accept payment by them. Payments Journal found that 93% of limited businesses were accepting Visa as of 2019.
Cash – Cold hard cash remains a surprisingly same form of B2B payment, with 70% of small businesses still accepting it as of 2019, according to payments journal.
The current state of the B2B payment space
The world of B2B payments is difficult and getting tougher. With accounts payable work already a sometimes-thankless chore of hitting limited and keeping vendors and contractors satisfied, an international pandemic and other pressures in 2020 have added a whole another layer of tension. But those who can rise above the tension can be richly compensated, with global payment volume in the B2B space estimated at approximately 120$ trillion in recent years.
In this section, we’ll take a look at the current state of the B2B payment space (and related issues), how COVID-19 and other factors are encouraging rapid change, and how electronic payment systems can help businesses thrive amidst the uncertainty.
Here’s the current state of the business-to-business payment space as well as some of the problems that are associated with typical payment methods.
Does the B2B payment method have any issue?
Needless to say, there are all sorts of issues with different B2B payment techniques, especially ones that aren’t made electronically. As any business person who’s filed a tax return could attest, it could be difficult to show proof of cash payment to a vendor. And that’s far from the only problem associated with accepting cash, even if some vendors insist on it. As it is with checks, processing and document reconciliation will take longer than it should with digital solutions.
ACH payments, wire transfers, and credit score the process go a little smoother, though corporations that hope that merely encouraging these types of bills without enforcing a fully-integrated, payment agnostic accounts payable automation machine are probably leaving money on the table.
Traditional, non-computerized payment systems drive up bill processing expenses, offer poor visibility, less actionable data, and longer payment cycles. And in 2020, the problems are only getting worse.
B2B payment trends
The world of B2B payments has modified dramatically in 2020, these trends are primarily due to the same reason so many other parts of the world have changed: the unconventional coronavirus, or COVID-19 pandemic and its cascading series of impacts.
Covid-19 – A new B2B payment world
COVID-19 has basically altered how corporations function for the foreseeable future, from widespread wearing of facemasks in customer-dealing businesses such as retail to an increase in patio dining for restaurants, and other retailers moving goods and services outdoors. COVID-19 has also impacted B2B organizations from essential businesses to organizations that have shifted to a remote workforce.
The world of B2B payments has been affected as well, with 76% of respondents saying in a current MasterCard survey of small businesses that the pandemic had forced them to become more digital and 82% changing the ways their businesses send and receive payments. 50% of survey respondents mentioned adding “a new digital service for collecting funds while (roughly) one in four transitioned to electronic invoice processes,” according to a press release about the study.
In addition, 68% of small corporations in the survey said cash deposits took too long, forcing them to lower use of cash and checks “more than any other payment types during the pandemic,” the press launch noted. More than 1/2 of small businesses also reported using digital services more often for B2B payments.
Benefit of electronic payments
Digital payments provide many advantages seemingly tailored to a COVID-19 world, from decentralization to automation to not requiring any touch. Solution providers like Stampli have risen to fulfill the demanding situations posed by covid-19, increasing capacity to help more firms get up and running with remote accounts payable operations.
Rising threat of financial crime
Aside from the lifestyle modifications mandated by public officials during the pandemic, the economy has experienced significant volatility since early 2020. As the announcement goes, desperate times breed desperate measures, with businesses facing rapidly-increased odds of financial crime associated with their payment processing.
Benefit of electronic payments
In a covid-19 world, agencies need every light they can to shine on possible fraud. Payment systems offer built-in protections, from 3-way matching of files assuring that transactions are legitimate to tools that can flag suspicious or outright phony invoices.
Identify B2B payment providers that have approvals constructed in, with the choice to pay how you’d like to pay. While touch less tests and ACH bills are the most common and widely utilized, choose a B2B payment system with approval workflows to provide oversight and ensure control. Then see if you can pay outside of the system because payment freedom is yours to lose, that in addition the benefits associated with not being locked into a single payment system such as rewards or for convenience.