The B2B Payment Processing Process

Optimizing B2B payments is challenging, but long-term solutions involve more than accepting ACH or credit cards. It requires addressing the challenges complicating the process.

Optimizing B2B payment processing can seem impossible when many factors are outside a company's control. But sticking to legacy systems isn't working, either. Some manual processes could be simpler and less labor-intensive. For example, follow-ups for overdue invoices take 67% more time than automated processes.

And while over half of B2B organizations plan to switch to digital payments, a long-term B2B payment solution is more than accepting ACH or credit cards.

After all, a robust B2B payment process should facilitate healthy cash flow, reduced workload, and increased visibility. The ideal B2B payment solution should also reduce costs.

Transforming the payment process requires addressing the many challenges AR pros face today: staggering fees, long payment wait times, manual processing, and poor customer experiences.

B2B Payment Processing Today

Merchants know a payment gateway isn't a cure-all platform, especially for a B2B company, since many only accept credit or debit cards. Some platforms and enhanced ERPs accept ACH, but payment requests and reconciliation still need manual revision.

Credit card processing is hardly a modern digital payment. Merchants face many fees, including interchange, transaction, and other miscellaneous charges. These indirect payments cut into revenue and can take days to process.

The only alternative to credit cards and ACH for a long time were traditional payment methods, such as cash, checks, and wire transfers. Unfortunately, these put more pressure on cash flow as timing is unpredictable, processing is time-consuming, and reconciliation is prone to errors.

To make matters worse, almost all payments have complicated processes that include various intermediaries, such as:

• Payment gateways
• Banks
• Credit card issuers (Visa, Mastercard, American Express, etc.)
• ACH operators
• Lockbox service providers

Most Common B2B Payment Processing Methods

Each payment method has its intermediaries, and you or your customer may have to contact them in case of a block in the payment process.

Cash Processing

Many B2B organizations still accept cash, but it's not the most efficient payment method. It seems simple: the customer hands in a $100 bill, and it goes into the register. Done. But once accepted, the cash payment must be logged in the POS software, counted, and reconciled.

Cash funds can go missing through theft or paying for a last-minute expense. It can only be used in-store and is usually reserved for small sums, such as a few hundred dollars.

For B2B operations, processing thousands of dollars in cash would take considerable time, making them a prime target for theft.

Check

Paper checks could be more efficient, too. They're sent to the post office or a PO box for processing. In either case, an accounting professional must manually input the check's data into an ERP or spreadsheet. Then, after the payment processing, they are sent to the AR team for review and reconciliation. There's scanning software to capture data, but the final product must be manually reviewed for accuracy.

Checks can also bounce or get lost in the mail, so AR must follow up manually with payments. Besides, paper checks are primed for fraud: in 2021, 66% of fraud attempts used checks.

Credit Card Processing

Credit cards are partially better than checks. B2B credit card processing begins by introducing the customer's credit card data in the payment gateway. Higher transaction volumes also require customer codes, purchase IDs, shipping, order information, VAT, product codes, and other related information.

The payment gateway then pushes the information to the credit card issuer to verify and submit the payment. If the card is declined, the payment won't go through, but if it passes, the approval will be returned to the payment merchant and then passed to your AR team.

This process can take 1-3 days and charges a processing fee, usually 1.5-3% of the transaction. This fee is primarily made up of an interchange fee, assessment fees, and markup costs. As a result, credit card processing can be quite expensive.

ACH Payment

Usually, clients submit their ACH details to the AR department or through software. Once a payment is initiated, the bank sends the ACH order to an operator. The ACH operator receives these payments in batches and sorts the entries into deposits and payments. When the operator categorizes a batch, they send it to the appropriate bank. The receiving bank reviews the request and verifies the sender has enough funds to complete the payment. If so, the money is deposited in the receiving account.

This entire transaction usually takes a day, but it can be longer. It's important to note that ACH payments are only relevant to domestic business in the US. International payments require a different solution.

Wire Transfers

Wire transfers are a standard method for international payments but are also an option for domestic billing.

For wire transfers, the AR department collects similar information for an ACH. Sometimes the SWIFT/BIC code or IBAN, among other identifiers, is required. While domestic wires can be completed within a day, international wires can take 3 to 5 days to process. Like checks, bank wires are susceptible to fraud: 39% of fraudsters use wires to intercept payments or fake payments for services.

How to Streamline B2B Payment Processing

Payment processing can be simple. It's possible to accept multiple payments, encourage electronic ones, and reduce fees without hassle. The solution is highly customized automation for B2B payments.

The first step to transform the payment process is adding an integration that syncs with your ERP. This automation will cut most of your manual tasks.

Each integration is different, but at Paystand, we focus on making every B2B transaction as simple as possible. Consider this:

1. You send an invoice to a customer via email
2. They get a "Pay Now" button in their email
3. They go to a payment portal
4. They choose (and even save) their preferred payment method and add their details
5. The integration submits payments and reconciles them with invoices

To make things even easier for AR professionals, Paystand can also:

• Schedule follow-ups for unpaid invoices
• Transfer credit card processing fees to the customer through convenience fees
• Incentivize digital payment options, like bank-to-bank transfers, through a "zero-fee" offering
• Offer online payment, such as ACH, credit cards, bank-to-bank transactions, and eChecks
• Accept recurring payments
• Generate certified receipts in real time
• Give your customers the ability to see payment history and download receipts

Ready to simplify your B2B payments? We wrote you a comprehensive guide to help you choose the right B2B payment processor for your business.