When the everyday customer wants to purchase something from a business, all they have to do is provide their payment. But when it comes to one business paying another business, things get a lot more complicated. Completing a B2B payment is a multi-step process that requires meticulous data tracking and approvals from various teams throughout its journey—and it involves a lot of manual work.
The B2B payments landscape is rapidly shifting, however, with emerging technologies that make the entire process far less painful to manage. In this blog post, we’ll cover the basics of B2B payments, including common challenges that teams face throughout their workflow and how modern B2B payment solutions solve them.
What is a B2B payment?
A B2B (business-to-business) payment is the purchase of goods or services from one business to another business or from one business to a contingent worker (e.g., freelancers, consultants, independent contractors). These payments are often recurring transactions under contractual terms or can occur on a one-time basis.
B2B payment examples vary widely and can include:
- A ride-share app paying every single one of its many drivers
- A startup paying its email software provider
- A car repair shop paying its vendors for unique parts
- An e-commerce store paying its international partners for inventory
There is no one method in which these payments are made, and they range from traditional paper checks to electronic payment methods.
B2B payment methods
B2B payment methods can have positive or negative impacts to the payment life cycle depending on which you choose. Transaction fees can add up over time, and payment delays can have serious repercussions for your cash flow. Plus, there’s the security of your transaction to consider. Below, you’ll find brief explainers of various B2B payment methods along with a few pros and cons of each.
Suggested reading: Small Business Payment Options
Credit cards are most common in business-to-customer transactions (i.e., paying a restaurant for your meal or paying an online store for your order). There are plenty of credit card providers out there (like the well-known Mastercard and Visa), and processing fees vary depending on the transaction method and rates for each card. Payment volumes between businesses are higher than those made by consumers, which means processing fees can add up quickly. For this reason, credit cards haven’t been popular for B2B transactions.
ACH payments are electronic payments that go through an Automated Clearing House Network, which is managed by a non-profit called the National Automated Clearing House Association (Nacha). They are often referred to as ACH direct deposit payments, e-checks or direct pay. Many businesses prefer to accept ACH payments due to their level of high security and the quickness in which they’re completed, arriving in usually about one to three business days. In terms of fees, they cost less than $1, which offers significant savings compared to credit cards.
Wire transfers are typically used when moving a significant sum of money to someone you know well. With wire transfers, money goes straight from the buyer's bank to the seller's bank before ending up in their business account. Wire transfers are generally considered to be safe, but they can be pricey: Fees can reach up to $50 per transaction, depending on your bank's policy.
Suggested reading: ACH vs Wire Transfer
You've likely used a payment aggregator like Paypal or Square. They are popular because payments can be made quickly and their checkout processes are easy to use. These platforms are much more common in P2P (peer-to-peer) transactions (e.g., paying a friend back for lunch) due to their user-friendly interfaces, but businesses also use them for payment processing. Each platform has its own fees and constraints. For example, many businesses instead end up looking for a Paypal alternative due to the platform’s feature limitations, such as lack of mass payments, accounting software integrations and bill approval workflows.
Paper checks are familiar, flexible and reliable for many business owners, making them a popular method for B2B payments. But they’re not perfect. Purchasing checks can get expensive and manually processing them can be a burden on an accounting team depending on the volume.
Suggested reading: ACH vs Check
Additionally, checks can take several days to arrive to the recipient, and there's a risk they can get lost in the mail. There’s also an inconvenience placed on the recipient if they don’t use mobile banking to deposit their check; they’ll have to visit a bank in person to process the payment.
EFT stands for Electronic Fund Transfer and refers to the electronic movement of money from one bank account to another. An EFT payment method isn’t actually considered a payment method per se. Instead, it’s an all-encompassing term used to describe a range of electronic payments, like the ones we described above (wire transfers, credit cards and Paypal). EFTs are fast, reliable and easy to track, making them a good choice for B2B payments.
The top challenges of B2B payments
B2B transactions are riddled with complications, but you can overcome them with careful planning and payment automation solutions (more on this in the following section). Here are some common challenges and how they affect business and accounting teams.
Everyone has their preferred B2B payment method
While you may have a particular payment method that you prefer using, it doesn't mean that all the businesses you work with will want to use the same one. For example, you may favor ACH transactions, but your trade partner is adamant about digital payment platforms. To facilitate this, your accounting department will have to be flexible to your clients' needs to the best of your abilities.
Scaling payments gets messy
An accounts payable team can manage a few hundred payments per month. But when those payments reach the thousands (or even up to 500, really), mistakes and delays occur. Most tasks throughout B2B payment processing are done manually (e.g., data entry and reviewing) so it’s not surprising that challenges only increase for a team when payments start scaling; there’s so much more data and paperwork to track.
Cross-border B2B payments are slow and expensive
Cross-border B2B payments (also known as international payments or payment remittance) can be a burden on businesses due to the added expenses and planning:
- Can the vendor be paid their local currency?
- Are payments trackable as they move across borders?
- Is there awareness around country-specific compliance laws and regulations?
The number of touch points a B2B payment undergoes only increases as it moves internationally. Managing this manually can be exhausting for accounting teams.
Suggested reading: Paying International Contractors
Increased risk of fraud
B2B payments have been increasingly experiencing payment fraud, and it’s a trend that isn’t going away. According to a survey by the Association of Financial Professionals, nearly 75% of businesses say they were targets of an attempted attack or actual payments fraud in 2020. The report also points out that compromised emails are the primary source of attacks.
A few reasons for so much fraud: Over the pandemic, many storefronts went digital and teams shifted to remote work, opening up payment processing to vulnerabilities.
Lack of visibility
It’s crucial to make each B2B transaction as transparent as possible, but it’s all too common to receive vague documentation without a detailed breakdown of charges. And poor communication between businesses also occurs frequently.
Fluctuations in processing time
Many factors can cause delays in B2B payment processing. For one, paperwork often has to go through both accounting departments, waiting for various approvals before moving forward. The type of payment used can stall the process, too. Mailing a check, for example, can take significantly longer than using electronic payment methods. This variability means that even recurring orders aren't always processed at the same time each month, which can make some transactions unpredictable.
How B2B payment solutions alleviate these issues
Companies implement B2B payment solutions (sometimes called a B2B payment system or B2B payment service) to avoid these common processing issues. Solutions with robust tools (particularly automation) help keep payments secure while also cutting down on an accounting department's tedious manual work. Benefits you may experience from adopting B2B payment services include:
Improve cash flow
Delayed and inconsistent transactions with other businesses can dramatically impact your cash flow. Paying bills on time and getting your invoices paid by their due date is crucial, but piles of paperwork and other complexities can slow these processes. By implementing a B2B payment solution, you can process these payments through the platform itself, accepting online payments and paying bills through an easy interface. Doing this not only provides an automated paper trail and notifies you upon payment receipt, but it also helps streamline the workflow between you and your partners.
Simplified workflows via integrations with your accounting software
B2B payment services often connect directly to your accounting software to automate invoicing, data entry and bulk processing. These centralized platforms may also allow you to email, upload or scan bills for more manageable payment and tracking. With everything being accurately processed in the same way, bookkeeping and taxes become more straightforward since you aren't searching for missing invoices in your cluttered email inbox.
Solutions offer tight security with encryption for each B2B payment. And due to the detailed paper trail kept within many of these platforms, you'll be able to easily refute the transaction if fraud occurs.
Teams can focus on more meaningful projects
Accounting teams spend too much time on manual, tedious work. Automation streamlines most of this work to add hours to your team’s workweek. Teams can focus on tasks that require a human touch (i.e., vendor relationships and analysis) rather than wasting time on data entry.
What to look for in a B2B payment solution
Before evaluating B2B payments companies and their platforms, talk to your team first. Along with awareness around what your business needs as a whole (i.e., growth), set aside time to understand your team’s frustrations with day-to-day work and how a new tool could solve their concerns.The following features may be applicable to those conversations:
We’ve talked quite a bit about automation throughout this blog post because its addition to your B2B payment setup will support your team and the greater business in multiple ways. By automating the accounts payable cycle with a B2B payment solution, teams streamline their workflows, accelerate payment processing times and strengthen data accuracy (just to name a few).
Integrations with accounting tools
Some B2B payment services integrate seamlessly with your existing accounting software, which makes the transition to a new technology much more accessible since your team can continue working with familiar tools. Some options can even keep your software updated to ensure flawless integration throughout all of your products.
Ease of use
When implementing completely new technology to your team, ease of use is key. B2B payment services are supposed to make your team's job easier, so as you decide which product you want to use, make sure that the platform's implementation and workflow are simple, quick and empowering for your team.
Mass payouts to scale with your business
Look for a platform that offers mass payouts to manage your scaling payments. This is an essential functionality to automate vendor and supplier onboarding, payment initiation and cross-border payouts at scale. It’s also the best way to pay contractors and other contingent works at scale.
And if you’re not processing a high-volume of payments just yet, consider it a form of future-proofing: You don't want to have to purchase another platform when your business grows.
Use Routable to simplify your B2B payments
Routable simplifies any B2B transaction by accepting online payments, automating invoice payments and sending real-time notifications every step along the way. With integrated automation tools and direct connections with your current accounting software, Routable can help your team spend less time invoicing and safely collect payments no matter how many you send.
Automated accounts payable
Routable simplifies your accounts payable process. For AP teams, Routable gives you the option to scan, email, or upload any bill or batch file, allowing your team to send one or thousands of payments. You can automatically set up approval rules to get payments approved without slowing down your processes.
Integrations with your accounting software
API access to build more automation
Routable’s sophisticated API helps you create a powerful payments infrastructure for your business. Whether you're sending 500 payments a month or 500,000, Routable can handle it.
Whether you’re part of a small business or a large one, a B2B payment solution can help simplify a complex workflow, protect your business from fraud and save time. To learn more about Routable, sign up for a demo here or below to experience firsthand how we can simplify B2B payments for your business.