A Guide to B2B Payments: How to Boost Your Cash Flow

Mar 25, 2024 by Zazil Martinez

Over the past decade, payment methods have evolved to support several consumer and business needs. The same goes for B2B payments. Electronic banking, the rise of fintech, fraud growth, labor shortages, and tightening capital all contribute to adopting new and improved B2B payment methods.

Your chosen payment option can depend on transaction costs, speed, convenience, reliability, and security. By offering the right payment methods, you can reduce outstanding invoices, collect payments faster and more efficiently, and optimize transaction costs.

 

What are B2B payments?


B2B payments are transactions between companies to purchase goods and services.
They involve a series of processes related to the company's treasury, such as cash flow management, accounting, or tax payments. Understandably, they are more complex than B2C payments or payments between individuals.

According to a study by Allied Market Research, the global B2B payments market had a total volume of $125432 billion in 2021. By 2031, it is estimated to reach $313947.8 billion, with an estimated annualized growth of 9.9%.

Although some parts of the B2B process are digital, significant gaps remain. Nearly 30% of all payments are made through bank transfers, and almost half of all global business transactions are still paper-based.

Regarding innovation, B2B payments need to catch up to consumer payments. This is because a variety of factors affect them, such as:

  • Volume. Merchant-to-merchant payments tend to be higher than consumer-to-consumer payments.
  • Frequency. Merchants often have contracts that allow for regular, recurring transactions. For example, a retailer may receive a monthly recurring shipment from its supplier.
  • Industry. Certain industries have specific payment needs. Due to privacy regulations, healthcare providers often use customized B2B payments.
  • People involved. Every B2B transaction involves many people, including AR, AP, billing, and procurement teams.
  • Delayed payment. Direct payments are often right on the spot or a few hours after the event. In contrast, B2B payment cycles last 30 to 90 days.

In light of the complexity of B2B payments, more and more companies are opting for digital and trackable payment options.

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What Are the Most Common B2B Payment Methods?


Whether you need to improve your accounts receivable or meet changing customer needs, offering relevant payment methods to clients can help. These are the seven most common payment methods available, and each is ranked based on cost, speed, and experience.

B2B payments

Ideally, your B2B payment platform should offer multiple payment methods. Creating an incentive strategy for your preferred payment option can help determine which ones are better for your business. While every one of these options will benefit your customers, you should also consider your business's needs and use this list to enhance your existing payment selection without increasing costs.

 

B2B Payment Strategies


Based on the information above, your business could only accept electronic B2B payments. They are convenient and can be processed faster. But what if customers still ask for checks, cash payments, or credit cards?

These two strategies can help you encourage customers to use your preferred payment:

  1. Convenience fees. One option is to shift the processing costs to your client. This is more common with credit card payments, but you can technically do this with any payment solution you want to discourage. Your client's AP teams also want to save money wherever they can, so adding a fee to an undesirable payment method can prompt them to use another payment type. Worst-case scenario, your team saves money.
  2. Zero-fees. You can also "reduce" fees by offering a "Zero-fee" option for certain payments. For example, since bank transfers are incredibly low-cost compared to credit cards, you may choose to make bank transfers "free" for your client. Typically, you absorb the cost, but wouldn't you rather pay $0.20 compared to 2% of $50,000 (AKA $1,000)?

B2B payments

 

Are B2B Payment Platforms Secure?


Each B2B payment platform has security features. They should comply with industry security standards, such as PCI-DSS, SOC 2, or SSL. Most will typically have established basic encryption for transactions.

However, it's best to leave nothing to chance regarding security. The sensitive data you store and transmit is incredibly valuable, and any breach can harm your reputation—even if your payment platform controls the information flow.

Some additional security measures to look for are tokenization, 3-D secure technology, and blockchain.

Although they are often used together, a tokenized transaction goes further than encryption. This security method replaces sensitive data with random letters and numbers, making the information unreadable to hackers.

3-D Secure payment protocols are for online payments. Customers will be prompted to enter a password or code, usually sent to their email, phone number, or an authenticator app. This approach adds some friction to the customer experience but adds another layer of security.

Finally, blockchain technology safeguards data as well. First, data cannot be changed once entered into the blockchain. This prevents potential internal fraud attempts. Paystand also uses blockchain to verify transactions without transmitting private information in a process known as Anonymous State Pinning (ASP).

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What is a B2B Payments Platform?


Many financial professionals opt to invest in a B2B payment platform to help alleviate the immense workload related to processing. While not all payment platforms are made equal, these can generally provide:

  • Digitization
  • Payment tracking or analytics
  • Secure databases
  • Invoicing and receipt generation
  • File storage
  • VAT and GST tracking
  • Tax estimation
  • Payment follow-up options

Your B2B payment platform may also include your offline processes related to payments.

It's common for an institution to invest in an ERP and choose credit card merchants. But as we'll see later, this isn't necessarily the most efficient setup for most businesses.

 

What Should I Look for in a B2B Payment Platform?


Every B2B payment platform is built a little differently, but the following features ensure that your new system is streamlined, scalable, and secure:

 

Multiple Payment Options

The core feature of any business payment platform is its payment method options. The more options you have, the more convenient it is for customers to pay. The ideal payment platform should include the following:

Automated Reconciliation

Invoice reconciliation is often a time-consuming process for the AR team. A best-in-class platform will automate this process, leaving only a few exceptions for processing. When integrated with your ERP, keeping a clean ledger is a cinch.

 

Payment Self-Service

Another essential feature is the ability to offer customers self-service options. A simple payment portal enables customers to fulfill an invoice, save their preferred payment method, and pay multiple or partial invoices.

 

Enhanced Payment Analytics

The best way to figure out if your payment strategy is working is to measure it. But that's only possible if you have clean, quality data. A sound B2B payments platform should collect detailed data about each transaction and generate reports.

 

ERP Integration

Your finance team is most likely using a platform like Netsuite, Sage, or another ERP or accounting software. You should effortlessly integrate your payment software without your current infrastructure. This will reduce your employees' learning curve and ensure that all your records are synced.

 

Streamlined Collections

The accounts receivables team wastes valuable time contacting customers and reminding them of outstanding invoices. Creating an automated workflow enables your AR processionals to spend this time on other, more pressing tasks.

 

Custom Fee and Discount Tools

A vital aspect of any payment strategy is influencing customer payment behaviors. Typically, there are two ways to do this: discounts or fees.

For example, you may pass on a credit card processing fee to the customer as a convenience fee. You can also absorb the fee for ACH or bank transfer payments. Additionally, you may add an early payment discount to encourage customers to pay earlier.

 

Sophisticated Security

Accepting payments translates into handling sensitive customer data. As a result, your B2B payment platform needs to be compliant with PCI-DSS standards and additional codes. But you may want to take it a step further.

Programs like Paystand use tokenization to hide and secure customer data.

 

Digital Notarization

Accurately verifying a transaction is vital for recordkeeping and identifying potential fraud. For most firms, manually notarizing transactions would be impossible, especially at scale. Digital notarizations, however, can confirm transactions without slowing down your process.

For example, we use blockchain technology to validate transactions and provide a notarized receipt. This rapidly indicates the status of every transaction and becomes set in stone, making it challenging to forge numbers or cook the books.

 

Extensive Bank Network

The post-pandemic environment spawned the popularity of touchless payments, which have also crossed over to B2B payments. Working with a payment platform that has a developed bank network makes this process more efficient and secure.

 

What are the benefits of a B2B Payment Platform?


Shifting B2B processes towards digitization has numerous benefits. In addition to cost reduction, an automated process makes tracking payment status for your AR department and your vendor's AP team easy.

You can offer more payment options and encourage preferred payments. Let's look at the benefits below.

 

Cost reduction

One of the main reasons accounting departments look to digitize their AR operations is to lower costs. Most tend to review the cost of processing an invoice manually, which can be up to $22 per invoice if processed by hand. Automation can reduce that to around $2.56 per invoice. But that isn’t the only cost.

Automation saves your team considerable resources and time, which indirectly affects your cost optimization. Depending on your B2B payments vendor, you may be able to reduce other costs, such as transferring credit card processing fees to the vendor as a convenience fee. The right B2B payment solutions will even give you ways to incentivize your customers to move away from credit cards as payment options altogether.

 

Streamlined workflow

Automating your B2B processing can also ditch paper-based processes and reduce your team’s workload. Instead of data entry, you can focus on the exceptions that make it through your platform.

At the same time, you can create more accurate and strategic workflows based on your payment data. For example, you can create separate, automated email campaigns to follow up with vendors who have viewed your invoice versus those who haven’t.

 

More time for high-value tasks

As we mentioned, automating your B2B payments saves you hours, if not days, of time. Rather than focus on data entry, your team can prioritize high-value tasks to optimize your organization’s finances.

And since your digital transformation also provides end-to-end payment visibility, you now have a robust and accurate data set for your projections.

 

Improved DSO

Because payment automation can offer immediate payment options, such as paying through credit cards or bank-to-bank transfers, your invoicing system is far more convenient. As a result, your vendor’s AP team is more likely to pay faster. At the same time, you will have removed all of the time-consuming obstacles, such as bank intermediaries or the post office, which will knock days off of your DSO.

 

Enhanced security

Let’s face it: The traditional method of B2B payment processing is not very secure. Checks are the victims of fraud 74% of the time, while virtual cards are only 3% of the time.

B2B payments processors need to comply with PCI-DSS standards. While we can’t speak for every solution, we use tokenization at Paystand to protect sensitive data. This process, which replaces sensitive information with a randomized token, ensures that hackers cannot touch important vendor data.

How to Identify the Best B2B Payment Platform?


When looking for a B2B payment platform, look for more than just ERP compatibility. There are many integrations for Sage Intacct or NetSuite, but you’ll want to find the best processor for your business goals.

Ultimately, you’ll want to focus on investing in a platform that provides the best long-term value. According to Ardent’s 2020 State of ePayables report, the best-in-class software should reduce invoice costs to around $2.56 per invoice and processing time to about three days.

But as we’ve mentioned, cost reduction isn’t the only focus of automation. Here are some questions to ask as you review your vendors:

  • What payment methods does this B2B payment vendor offer?
  • How easy is it for our team to use?
  • Will our vendors have any difficulty with the new payment process?
  • What are the platform’s security measures?
  • Does it have fraud verification capabilities?
  • What type of data does this vendor capture?
  • Does it offer an embedded “pay now” button or immediate online payment functionally?
  • Will it work with subsidiaries and e-commerce options?
  • Do you have the ability to incentivize specific payment methods, such as zero-fee bank-to-bank transfers or ACH?
  • Does your automation have the ability to handle international payments and apply appropriate taxes?

How Are B2B Payments Made?


B2B payments can be made via paper check, eCheck, ACH, bank transfers, and payment card transactions.
Each B2B payment solution has its own processing time and cost.

Typically, you send an invoice to your customer with either your bank wire credentials or a link for an electronic transaction. Many smaller businesses accept credit card payments from merchants like PayPal or Square. However, these merchants have their processing fees.

At Paystand, users pay a flat monthly fee, regardless of the number of B2B transactions. Your electronic invoice contains a "Pay now" button that takes your client to a payment portal, where they choose and save their preferred payment method.

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What Are the Challenges Associated with B2B Payments?


There are three critical questions every AR professional has when it comes to choosing a B2B payment platform:

  • Will it work with my ERP?
  • Is it secure?
  • Will my clients be able to use it?

With so many legacy systems in place, your B2B payments solution must work with your current software. This will lower the learning curve for your team and your clients.

It can be challenging to decode security, especially for those with little cybersecurity experience. You may know you need to be PCI-DSS compliant, but what does that mean in real life?

Paystand uses bank-grade encryption (only the sender and receiver can see the information), tokenization (data is masked with a random string of characters), and blockchain technology (books can't be tampered with). This combination makes it incredibly difficult for malicious persons to grab sensitive data.

Faster, cheaper, more efficient payments


In summary, many payment methods carry hidden costs, extra fees, and additional manual labor. That's why choosing the right payment options for customers should depend on your business model and needs.

Our recommendation: Find a B2B payment system that supports several payment methods and is compatible with your accounting software or system of record. The best payment options will help your business reach more customers while making your accounts receivable process easier to manage and scale.

Suppose you're looking to accept new payment methods or need help finding ways to get paid faster and more efficiently. In that case, our payment specialists can help you identify ways to quickly reduce fees, streamline collections, and shift customers to zero-fee options.