The B2B Payment Processing Process
Optimizing B2B payment processing can seem impossible when so many factors are outside of a company's control. But sticking to legacy systems isn't working, either. Manual processes are unnecessarily complicated and labor-intensive. For example, manual follow-ups for overdue invoices alone take 67% more time than automated processes. And while over half of B2B organizations plan to switch to digital payments, navigating a long-term B2B payment solution is more than just accepting ACH or credit cards.
After all, a strong B2B payment process should facilitate healthy cash flow, reduced workload, and increase visibility. And, if possible, the ideal B2B payment solution should 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
Many merchants already know that a B2B payment gateway isn't the cure-all payment platform, especially for a B2B company. Of the various payment options available, many gateways only accept credit or debit cards. Some payment platforms, like Quickbooks and enhanced ERPs, might accept ACH, but payment requests and reconciliation often still end up as a manual process.
Credit card processing is hardly a "modern" digital payment, as merchants face numerous fees, including an interchange fee, transaction fee, and other miscellaneous charges. These indirect payments cut into revenue, and they can take days to process.
For a long time, the only alternative to credit cards and ACH has been traditional payment methods, such as cash, checks, and wire transfers. Unfortunately, all of these options 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 a convoluted process that includes various intermediaries. This includes:
- The payment gateway.
- The issuing bank.
- The acquiring bank.
- The credit card issuer, such as Visa, Mastercard, American Express, etc.
- In the case of ACH, the ACH operator.
- In the case of a check lockbox, the lockbox service provider and their team.
Let's look at how the sausage is made for business payments.
Payment processing per method
Keep in mind that while each common payment method has its own set of intermediaries, you or your customer may have to contact them in case of a snag in the payment process.
- Cash Processing - While many B2B organizations still accept cash, it's hardly the most efficient payment method. Sure, it seems simple enough: Your customer hands you a $100 bill, you put it in the register. Done, right? Not so fast. Once you accept a cash payment, it must be logged in your current POS software, counted, and reconciled later by accounting. Cash funds can easily go missing through intentional theft or paying for a last-minute expense. Furthermore, cash can only be used in-store and is usually reserved for small sums, such as a few hundred dollars. For many B2B operations, processing thousands of dollars in cash would take a considerable amount of time and make them a prime target for theft.
- Check Paper checks aren't much better. Checks can be sent via mail to the office or to a post-office box for processing. In either case, an accounting professional needs to manually input data from the checks into an ERP or spreadsheet. You or your bank may have scanning software to capture data, but the final product still needs to be manually reviewed for accuracy. Then, after the payments have been initially processed, they are sent to the AR team to review and reconcile with their records. Of course, checks can also bounce or get lost in the mail, so AR will also have to continue to follow up manually with payments. To make matters worse, paper checks are primed for fraud. In 2021, 66% of fraud attempts used checks.
- Credit Card Processing - Credit cards are partially better than checks, but not by much. B2B credit card processing begins when your customer submits their billing address, credit card number, CVC code, and expiry date in your chosen payment gateway. Higher volumes of B2B transactions may also require customer codes, purchase IDs, shipping, order information, VAT, product codes, and other related information. The payment gateway then pushes this information to the credit card issuer, verifying the information and submitting 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 requires a processing fee, usually 1.5-3% of the transaction. As a result, credit card processing can be quite expensive. This fee is primarily made up of an interchange fee, assessment fees, and markup costs.
- ACH Payment Usually, a client will submit their ACH details to either your AR department or through a software. Once a payment is initiated, the bank will send the ACH order to an operator. The ACH operator receives these payments in batches and must sort the entries into deposits and payments. When the operator finishes categorizing a batch, they send it to the appropriate bank. The receiving bank must review the request and verify that 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 can take longer. It’s also important to note that ACH payment is only relevant to domestic business in the US — International payment requires a different solution.
- Wire Transfers - This payment method is common for international payment, but bank wires are also a payment option for domestic billing. With a bank wire, the AR department will collect similar information for an ACH - bank address, bank name, beneficiary name, account number, and routing number. You may also require the SWIFT/BIC code or IBAN number, among other identifiers. While domestic wires can be completed within a day, international wires can easily take 3-5 days to process. Similar to checks, bank wires are more susceptible to fraud, with 39% of fraudsters using wires to either intercept payments or fake payments for services.
How to streamline B2B payment processing
Here's the thing: The payments process doesn't have to be a hot mess. In fact, it's possible to accept multiple payments, encourage electronic payments, and reduce fees with little to no hassle. The solution? Highly customized automation for business payments.
The first step to transforming the payment process is adding a payment integration that syncs with your ERP. This automation will essentially eliminate the majority, if not all, of your manual tasks.
Each integration is a bit different, but at Paystand, we focus on making every B2B transaction like a simple Venmo transfer.
- You send an invoice to a customer via email.
- They get a "Pay Now" button in their email.
- They go to a payment portal.
- Your customer chooses their preferred payment option and adds their details. They can even choose to save their payment option.
- The integration submits payments and reconciles them with the invoices.
That's really it. But to make things even easier for AR professionals, our payment platform can also:
- Schedule follow-ups for unpaid invoices.
- Transfer the credit card processing fee to the customer through a convenience fee.
- Incentivize digital payment options, like bank-to-bank transfer 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.