Current events and technological advancements have completely redefined the business-to-business landscape in the last few years. The COVID-19 pandemic, working from home, the rise in cybercrime, and the Internet of Things have accelerated the need for B2B payments to be executed swiftly and precisely. So, what’s an accounting team to do?
The answer lies in an effective, systematized B2B payment system. This piece will cover what B2B payments are, how they’ve been used and are being used today, and how they fit into the ever-changing B2B landscape.
What are B2B Payments?
A business-to-business (B2B) payment is the transfer of currency from a buyer to a supplier for goods or services rendered. Since B2B payments involve one business paying another, they are considered more complex than business-to-customer (B2C) payments.
B2B payments affect the AP team on one end and the AR team on the other, meaning there are more unique rules and processes to follow. To expedite this process, many businesses now turn to digital B2B payment platforms. Automated workflows enable AP teams to issue payments faster and AR teams to receive payments quicker, ultimately improving an organization’s cash flow.
An Overview of B2B Payments
As we mentioned earlier, the B2B payment landscape is rapidly changing, and it’s vital to understand the nuances of B2B payments and stay apprised of best practices that help optimize your AP process. Every business has different payment solution needs, which comes down to vendor transaction requirements. Some vendors primarily take cash or check payments, while others prefer digital forms of payment like wire transfers, ACH, and or credit cards.
Although many businesses still pay via traditional means, the industry is quickly trending towards digital payments because of their efficiency and security.
B2B Payment Methods
Since B2B payments can be executed in various ways, let’s review a few of the most common forms of payment:
Although the use of physical checks has decreased in popularity, many businesses still use them. Checks are a slower way to pay, but they provide a rock-solid audit trail. Not only does this make it easy for companies to track their cash flow, but it also gives them traceability and fraud protection. Plus, businesses don’t always need a bank account to cash them and they can deposit them when it makes the most sense financially.
ACH, short for Automated Clearing House, is an electronic check. Like paper checks, ACH moves funds from one bank to another but is accomplished electronically using routing and bank account numbers. Some unique benefits to ACH payments are its cut-off time for payments and low, if any, processing fees. ACH is increasing in popularity一the National Automated Clearing House Association cleared nearly $25 billion in 2019.
Due to this staggering rise in use, ACH’s batch processing is starting to take longer, leading to late payments. Also, ACH is an American institution and cannot process international payments.
Wire transfers are similar to ACH payments in that they move money digitally from one bank account to another via account and routing numbers. But wire transfers can also be cash-based, meaning that funds are routed to an office for the AR department to collect. Whereas ACH only operates in the U.S. and sends payments in batches, wire transfers occur immediately and can be used for large international transactions. Note that some banks have a daily cut-off time for making payments, but AP teams can work around that by sending transfers by mid-work day.
Employees do their best to enter information carefully, but having a system that catches miskeys and duplicate entries adds another layer of protection. Many workflow tools have features that automatically notify team members of potential errors as they work, minimizing the chances of duplicate payments.
Credit cards aren’t a typical way to send B2B payments because they have high processing fees (about 3 to 4%). But some credit card companies are attempting to penetrate the space with lower fees. This gives businesses the financial leeway to pay vendors now, while paying off their balance later in the month. Credit cards also send monthly statements–making it easier for AP departments to track month-end expenses—and often offer fraud protection services.
Cash is still a prevalent form of B2B payment. Companies don’t have to pay any fees, they aren’t spending more than they have, and never have to pay interest. Cash is also the fastest way to process payments, and some suppliers only accept cash. On the flip side, cash is extremely difficult to track, which is a major issue during tax time.
The Current B2B Landscape
When the world evolves, the financial industry must change with it. This rang true over the past several decades, and especially the last few years. The working world has changed, and the technology to support it has too. Below, we’ll discuss several ways in which the current B2B landscape has changed and what it means for the future of B2B payments.
The pandemic dramatically altered the way people and companies operate. In fact, 76% of small business owners said that COVID-19 was the catalyst for moving to exclusively digital avenues for their B2B payments. Cash deposits took too long, and going to the bank was not only a hassle but a health hazard. Electronic payments eased the transition to a COVID-19-dominated world, reducing the need for physical interaction, increasing the use of automated payments, and decentralizing financial systems and processes so that AP teams could get their job done from anywhere.
REMOTE WORK AND INVOICE APPROVAL
The workforce was evolving to a more flexible schedule and approach even before the pandemic, but the COVID-19 outbreak forced more and more people to work from home. According to Entrepreneur Magazine, 97% of North American office employees have worked remotely at least once a week. That means that B2B payments need to be authorized and processed out of the office. To do that, companies need a centralized database and cloud infrastructure. Beyond that, digital payment platforms with workflow automation features have grown in popularity because they offer much-needed efficiencies, like streamlining approvals and payments.
B2C payment systems had already ventured into the digital payment space long ago. Therefore, consumers wanted that convenience for their B2B payments as well. After all, if you can order groceries or a hot meal with a few clicks, shouldn’t making and receiving B2B payments be just as simple? With digital payment methods, the answer is yes.
The pandemic also increased the demand for faster payments. Many vendors experienced a significant decrease in cash flow, causing them to ask for payment sooner. Adopting digital B2B payment platforms allowed companies to speed up payment cycles, benefiting accounting teams on both sides of the equation.
Big and small corporations have experienced costly breaches, making financial crime a particularly acute concern. Per Citibank, Business Email Compromise (BEC) and invoice scams skyrocketed 200% in 2020. One catalyst for this alarming increase was the pandemic.
Potential criminals took advantage of the fact that more employees worked remotely than ever before and exploited hastily updated SOPs by tricking them into false approvals or requests for data. Electronic payment platforms are now enforcing stricter processes, enabling three-way matching, and offering other security protections to catch such scams.
The Internet of Things (IoT) has revolutionized the payment landscape. All these new devices that can access the web can eventually become payment devices. And as the number of IoT-connected devices surges, businesses are going to require increased flexibility. Digital payment solutions are constantly being updated to accommodate new devices, so AP teams are able to focus on their primary duties.
B2B Payment Needs
Companies must enact policies to nurture efficiency and trackability, not only for tax purposes and vendor needs but also to avoid financial fraud. This might force your company to make some tough decisions in the near future such as requiring specific types of payments.
Cash payments cannot be tracked and can lead to processing delays. Check payment and reconciliation can be painful for AP teams as well. And if you’re trying to avoid late payment fees and need to pay an invoice immediately, remember that ACH payments are batched and may not get your money where it needs to go in time. Encouraging or even requiring digital payments can alleviate these potential problems, making the process easier for all parties.
B2B Payment Trends
To keep up with the transforming B2B landscape, successful payment methods will have the following characteristics:
Just like everyday consumers, businesses want their money fast. Real-time processing is a critical element of modern payment systems, offering more convenience for vendors who are getting paid, and more security and transparency for in-house AP teams.
So much of business is conducted over the phone, most notably in transportation, food, construction, and other on-the-go industries. These businesses need to process payments right away to get back to work. Increasingly, companies are leveraging mobile capabilities and payment portals to meet this demand.
One major trend in B2B payments is to use traditional peer-to-peer payment systems. Some examples are Venmo or Zelle. Both offer near-immediate payments and are intuitive to use, making it easy for AP teams to send payments quickly.
AIRTIGHT SECURITY SYSTEM
The aforementioned increase in financial crimes has made companies hyper-aware of their security measures. Today’s payment processing platforms need extra protection against financial fraud, alerting personnel whenever anything suspicious occurs.
REMOTE INVOICE APPROVAL
Remote work was already increasing in popularity before the COVID-19 pandemic began, and will only continue. With more employees working outside of the office, businesses need software specifically built to manage remote accounting teams. Digital B2B payment solutions enforce processes, simplify approvals, and improve collaboration.
CUSTOMER COMMUNICATION MANAGEMENT
AR teams on the other side of payments, want to know how payments are distributed and when they are coming. Not only does this provide a sense of security, but it also helps them plan their budgets accordingly. Digital payment platforms empower companies to be good partners and strengthen their business relationships.
It’s tough to find a workflow automation software that checks all the boxes, but some payment automation tools, like MHC NorthStar, do. MHC NorthStar empowers accounting departments to manage their end-to-end invoice and payment processes while offering real-time updates and insights into the process. And since MHC NorthStar is a cloud-based solution, these elements and more can be managed from anywhere, anytime.
Top B2B Payment Solutions
There are a variety of B2B payment tools available, and they all have their strengths and weaknesses. Let’s explore the pros and cons of some of the most popular options. MHC NorthStar can organize all of these disparate payment tools using payment process automation.
PayPal – PayPal is one of the oldest, most well-known B2B payment providers. It has a simple UI, has built-in security and fraud prevention, and encrypts bank and credit card information. At the same time, PayPal does charge a 1% fee for instant access to payment and has a reputation for freezing accounts unnecessarily.
Square – If you’ve eaten at a food truck or bought something at a local flea market, you’ve probably used Square. For businesses, Square is great for mobile transactions and multichannel processing. It also provides appealing receipt options. However, Square’s business fees are quite high. Square also has limited digital check and ACH features and charges for instant deposits.
Skrill – Skrill is ideal for processing payments to companies overseas because they have no transfer fees. You do have to pay for currency conversion fees, open a 12-month account, and transaction inactivity fees. Plus, Skrill charges up to 2% in fees for domestic transfers, and senders’ banks may charge fees for money transfers.
Wise (formerly Transferwise) – Wise is also a good platform for processing international transactions. Like Skrill, creating and managing a Wise account is free, as is receiving direct money transfers within EUR, USD, GBP, PLN, AUD, and NZD currencies. To convert currencies, you’ll have to pay between 0.35% to 3%, and adding a direct debit to your account is associated with a 0.2% fee.
Easily Manage B2B Payment Tools with
MHC’s NorthStar payment processing automation ensures that you will be able to provide your customers with a variety of B2B payment options, like those above, while your AP team will benefit from the simplicity of automated, secure payments. This will only improve the invoice-to-pay timeline and strengthen your vendor relationships.
Take Control of Your B2B payments
With so many changes happening in the B2B landscape, you need an accounting tech stack that can keep up. Your tools must be able to adapt to current and future trends to maximize your organization’s productivity and cash flow.
The answer is MHC NorthStar, a powerful enterprise workflow automation tool and payment automation system. MHC seamlessly helps your Accounts Payable and Accounts Receivable departments manage their B2B payments. Our NorthStar product offers robust Accounts Payable Automation that has proven to boost cash flow, reduce errors, cultivate relationships with vendors, and scale your business. For the AR department, MHC NorthStar also features invoice generation and delivery, and streamlined communication with your business customers that simplifies the entire process.
On top of that, MHC is cloud-based, meaning you can complete payments anytime, anywhere, with the full scope of security you need to keep your company and your customers safe.
So, what are you waiting for? Take control of your B2B payments with MHC Automation by requesting a free demo today.