Business-to-business (B2B) payment transactions are more complicated than consumer payments. Multiple steps are involved in the process, from negotiating pricing to fulfilling orders, and accounts receivable and payable teams must ensure all transactions are accurate and secure. Traditional B2B payment methods include credit cards, ACH, wire transfers, and checks. Each technique comes with transaction fees that can add up and reduce margins.
Wire Transfers
Businesses are constantly seeking for fresh approaches to boost their sales. And for many, that means attracting large enterprise clients and providing them with safe and convenient methods to pay for goods or services. With the right B2B payment solutions, companies can reduce the risk of invoice fraud and payment delays. They can also improve electronic invoicing, accounting, and other business payments. One popular option is the wire transfer, which has a faster processing time than credit cards and other electronic payments. However, this method has its drawbacks. Customers must first log into their bank accounts and enter the transaction details, which can be error-prone. Plus, other digital options are more customer-friendly.
Another popular choice is ACH, which provides businesses an efficient way to send and receive large amounts of money. Its advantages include low fees and the ability to process multiple payments simultaneously. It’s crucial to remember that ACH takes a little longer to process payments than other options.
Other digital payment options that are gaining popularity among B2B companies include eChecks, which offer the speed and efficiency of a credit card but with the security of a paper check. They also provide the flexibility of a digital wallet and can be used for purchases across multiple platforms. And they can be easily paired with automated invoicing, eliminating the need for manual processing and reducing the likelihood of errors or late payments.
Debit Cards
Debit cards pull directly from business bank accounts when used instead of checks. They are the halfway point between cash and traditional wire or ACH payments, offering security and speed. Though declining in popularity, bills remain the most common form of B2B payments. While slower than other options, they are very secure and provide a clear paper trail that is difficult to manipulate. However, they expose businesses to fraud and are susceptible to postal robbery. Despite increased usage, only a tiny percentage of B2B payments are made using credit or debit cards. The quick expansion of online payment options is to blame.
Companies should invest in a robust business payment system regardless of their chosen methods. Look for a Nacha and AICPA SOC 1 and SOC 2 compliant platform that offers powerful data encryption and has an easy-to-use dashboard to view user activity. Also, ensure your selected solution provides an audit trail for every transaction. It will help you track payment activities, including approvals and submissions, to avoid fraud and other mistakes.
Credit Cards
Credit cards are a popular form of B2B payments, providing convenience for both buyers and sellers. They allow businesses to postpone payment for one or more billing cycles, helping them better manage their operational cash flow. Digital payment solutions also increase the speed of payment, decreasing days sales outstanding (DSO) and boosting business productivity. Many B2B payment services support cross-border operations, enabling companies to make and receive prices in multiple currencies at competitive rates. These solutions often integrate with FX risk management and trade finance tools for more intelligent, more efficient management of currency exposures and payments.
Another popular method is ACH, or Automated Clearing House, which allows business clients to charge each other regularly for products and services. The system uses a unique account number and routing number to move money electronically between the buyer’s and seller’s bank accounts. The system is typically used for recurring payments, such as monthly memberships and software licenses. Another form of digital income is the e-wallet or online payment service. These platforms allow businesses to accept digital payments, including credit and debit cards, ACH, RTP, and wire transfers. Some e-wallets, such as the mega-giant PayPal, are integrated with accounting software like QuickBooks, making them more appealing for businesses that need to streamline their payment processes.
Checks
B2B payments are one-time or recurring, depending on the buyer’s contract with the supplier. When businesses need to pay for supplies, they typically do so by using a check. However, a business-to-business payment is much more nuanced than the B2C transactions consumers make to buy new shoes or grab lunch with friends.
Buyers often purchase against an account or use negotiated payment terms for more extensive sales. It leads to higher-volume, recurring payments that require more sophisticated payment processing systems and tools. The proper B2B digital payment methods can streamline these transactions and help companies improve cash flow. By eliminating the need for paper checks, for example, companies can reduce days sales outstanding (DSO) and lower operating expenses.
Other popular B2B payment methods include commercial credit cards, ACH payments, and wire transfers. Each of these transaction types has unique benefits for both buyers and sellers. However, the fees associated with these transaction methods can be costly for businesses if they’re not managed carefully. Traditional B2B payment methods can also delay payment, negatively impacting cash flow. It can be due to manual processes, payment disputes, inefficient invoice processing systems, and a need for more visibility into payment status. You can avoid these issues by providing vendors with multiple digital payment options and enabling them to enroll quickly.