The Definitive Guide to B2B Payments

Sep 14, 2021 by Kelsey Banerjee

While consumer payments have transitioned to a fully digital landscape, today, 64% of businesses are still paying by check. But all of that is changing fast.

AR departments can now leverage technology to drastically reduce their costs and DSO through business automation. And while not every program is like Venmo for business (that’s what we’re known for), the exact application your department needs will depend on your specific business objectives.

But before we can get into the nitty-gritty of B2B payment benefits and finding a best-in-class application, let’s take a quick look at the payments landscape. Before investing in a solution, it’s critical to review industry-wide problems and how big of a competitive advantage automating B2B payments really is.

B2B payment processing today

The state of payments processing is ripe for major change. According to an American Express report, the average US business has 24% of its monthly revenue held up in AR, terms, or trade credit. At the same, we are seeing consumers and business accounting departments shift to digitized payment platforms.

Approximately half of the global population will be using digital wallets by 2024. And that doesn’t stop with consumers. AP and AR departments are rapidly picking up the technology, too. This shouldn't be too surprising. After all, today, 70% of B2B decision makers are millennials.

Digital processing offers many benefits, including cost reduction, convenience, and visibility. Take e-invoicing, for example. Companies can save up to 81% on costs through digitized invoices and they can process payments 77% faster. Customer-centric user experience combined with “pay now” functionality makes payments convenient for your vendors, thus reducing your DSO. And since the entire process is transparent, you have access to more data than ever before.

Why AR is struggling with payments

If technology is such a boon, why are AR departments still struggling? The fact is, too many businesses are still relying on manual processes – at their own risk.

Even when it’s partially digitized, manual processing can result in lengthy DSO times – on average, without an automated process, DSO is extended by as much as 30% – especially when payments are sent via snail mail. Consider the invoicing process with a semi-digitized, non-automated system. You’ll need to manually create invoices for every vendor and log them as “paid” when their check arrives. As a result, these manual processes extend payments by an average of 67%, and yet, only 48% of financial professionals are making a move to digitized payments.

This means that AR and AP are reliant on inefficient and insecure methods of payment. Consider the lack of visibility that occurs with the process – not to mention the lack of security.

The challenge of international payments

Traditionally, there have been a number of issues with international payments. While global trade has accelerated, the payment landscape has become somewhat convoluted. AR departments have to juggle various localized payment applications, compliance regulations, taxes, and various currencies.

The most common method, international wires, is hardly straightforward. Between your bank and your vendor’s account, two to four intermediaries may be involved in processing the payment. This leaves you with hefty fees and, again, keeps you waiting for your payment. And while your suppliers are sending a payment through their banks, there is little to no transparency from either side. You simply have to wait for the payments to show up.

But things are changing. International wires haven’t gone away entirely, but fintech solutions provide platforms with more transparency and accessibility. Alongside the digital versions of the wire transfer, we are seeing the rise of “pay now” technology.

For example, international vendors can settle their invoices through instant bank-to-bank transfers, credit card payments, and other options.

The benefits of B2B payments technology

There are numerous benefits to shifting B2B processes towards digitization. In addition to cost reduction, an automated process makes it easy to track payment status for both your AR department and your vendor's AP team.

Not only can you offer more payment options, but you can also encourage preferred payments. Let's take a look at the benefits below.

  1. 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 a considerable number of resources and time, all of which indirectly affect your cost optimization. And, 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..
  2. Streamlined workflow

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

    At the same time, you can create more accurate and strategic workflows based on your payments 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.
  3. More time for high-value tasks

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

    And since your digital transformation also provides end-to-end payments visibility, you now have a robust and accurate data set for your projections.
  4. 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.
  5. Enhanced security

    Let’s face it, the traditional method of B2B payment processing is not very secure. In fact, checks are the victims of fraud 74% of the time. In comparison, virtual cards are only victims of fraud 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 ensure that sensitive data is protected. This process, which replaces sensitive information with a randomized token, ensures that hackers will not be able to touch important vendor data.

Identifying the best B2B payments vendor

When looking for a B2B payment vendor, you’ll want to look for more than just ERP compatibility. There are many integrations out there 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 drop your invoice costs to around $2.56 per invoice and your 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 to use for our team?
  • 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?

Towards future of AR in B2B processing

B2B payments automation is the way forward for financial professionals who want to do more than input data. When it comes down to it, the future of AR is already here. And AR automation is easier than ever with Paystand.

Schedule a demo here to learn more about how Paystand can help your organization achieve 60% lower DSO, reduce fraud, and provide a touchless payment experience.