The B2B or Business-to-Business transaction can be tricky to navigate. Depending on a manual payment process may needlessly complicate your B2B transactions.
B2B business managers are often required to write numerous checks for business transactions. This can become quite tiresome for the managers and keeping track of these transactions is even harder. Hence, it is no wonder that B2B businesses now prefer to have their payments automated.
In the earlier days, B2B business owners didn’t have the luxury of choice. They had no other way to process B2B payments other than the manual one. But, that is no longer the case. Technology has come a long way since wire transfers, and now we have different payment methods to choose from.
B2B payment automation saves you valuable time and effectively boosts your productivity. It also helps in cutting down the processing cost while keeping you at ease. In addition, B2B payment automation helps you to streamline various other aspects of your business.
Before we dive into B2B payment automation details, let’s get a comprehensive understanding of the existing system. This will help you to identify the challenges and risks involved in B2B manual payment processing. Furthermore, automation also helps you to overcome such challenges and establish a streamlined process for a simpler payment-related execution.
Businesses that opt for manual processes in terms of payments often end up facing several roadblocks. Manual tracking, losing the invoices, keeping manual records, and other such issues generally cost them a lot on a professional front.
The difference between the manual and automated payment processes is a tale of two cities. Here, one city is an example of an inefficient past. And, the other is a step ahead to a bright future full of automated or digital advancements.
With advancements, we mean optimizing various time-consuming tasks related to B2B payment processing. For instance, chasing down approvals is simplified using automation. You could even say that B2B payment automation has a domino effect that can help you streamline various other B2B operations.
This article takes you through the significance of B2B payment automation in the modern-day industry. Keep reading and take a look at the B2B payment in detail and the different types of B2B payments that you can employ. The aim of this article is to educate you about how you can automate B2B payments for your business.
By discussing the disadvantages of manual B2B payment processing, you will be able to understand why your business needs payment automation. Then, we proceed to analyze how automation can rectify the shortcomings of manual processes and how it can benefit your business.
Also Read: B2B Direct Mail Marketing
What is a B2B Payment?
A B2B payment is a transaction made by one merchant to another. In other words, the buyer is not the end-user as far as B2B payments are considered. The purchases made in a business-to-business transaction are usually large in size and value. Most of the time, the component brought is used to build a different (often bigger) product.
For example, an educational institution may choose to buy computer parts and then assemble them for the students to use. Similarly, a fast-food chain can buy perishables for a specific geographic region. The fast-food chain can then distribute them to various outlets.
The B2B payments are almost always high quantity orders. This implies that the order value of a B2B purchase is much higher than a B2C purchase. Due to the high order value of B2B purchases, the seller typically allows credit payments.
It is also worth noting that the B2B business depends on long-term business relationships to survive. Therefore, providing a pay later or credit option is quintessential for B2B businesses. Thankfully, automation can be applied for even such complicated payment processes.
What is The Present State of B2B Payments
A recent study by Prophecy Marketing Insight revealed that the global B2B payment market was worth $732.4 billion in 2019. This number is set to grow to a $1900.6 billion market by 2029. The study also stated that the B2B business expects a CAGR of 10.1%.
In the past few years alone, B2B payments have seen revolutionary advancements that make life easier for the seller and the buyer. Some of the most popular B2B payment solutions include online banking solutions and virtual cards.
The introduction of advanced B2B payment systems has improved convenience for both the buyer and the seller. However, the B2B businesses are relatively behind B2C companies in developing payment solutions.
The majority of B2B businesses are still using manual payment processing for their business. On the other hand, roughly two-thirds of B2C transactions are processed using e-payments. In comparison, only a mere one-third of B2B global transactions are processed electronically.
As you can see, there is a tremendous growth potential for B2B businesses waiting for you to tap into it. It is inevitable for B2B businesses to adapt B2b automation at this point because all the leading B2B companies have already done it. So it is only a matter of time till every business automates B2B payments.
There are several types of B2B payment options available, and some of them are more popular than others. Furthermore, you have to keep in mind that the suppliers may have different payment methods. While some suppliers may only accept check or cash payments others may accept digital and traditional payments.
The more diverse your payment method, the more flexible it will be for your B2B customers. There are majorly 6 B2B payment methods that are used in the industry. The six payment methods are cash, checks, credit cards, ACH payments, wire payments, and electronic payments.
Cash payments are still a major payment method as far as B2B businesses are concerned. It is a universally accepted payment method but not your most convenient option. The problem with cash payments in the B2B industry is that the invoices are usually high-value ones.
It is impractical to walk around with a load of cash in your hand especially considering the high-value nature of B2B purchases. Furthermore, even having to go to the supplier is not convenient for B2B buyers. It would help if you also considered that today almost all B2B purchases are made from different cities, states and countries.
Finally, there is also the security aspect to consider when we talk about cash payments in B2B businesses. Even if you were to send the cash through the mail, it is never a secure option. Therefore, it is no surprise that cash payment in the B2B industry is now declining.
Check payments are similar to cash payments because they are both legacy solutions that have been around for a long time now. However, when it comes to convenience, check payment has a huge upper hand.
These payments are not so convenient when compared to other advanced methods like virtual payments. Furthermore, checks also require a manual process, and hence it is comparatively time-consuming.
Check payments are prone to error and fraudulent activities. Furthermore, they are hard to track, easily misplaced, and more. Additionally, checks take time to process and require extensive manual paperwork. More than half of B2B payments are made through checks. Therefore, there is a lot of room for improving B2B payment with more advanced solutions.
Credit Card Payments
Credit card payments are relatively modern when compared to cash or check payments. It is one of the primary methods of payment in B2B. They are one of the most convenient and economical B2B payment methods. Credit card payments are fast and hence more preferred by sellers than cash or check payments.
Another advantage of credit card payments is that they are easily trackable. The tracking is possible either electronically or via paper statements. However, credit cards are subject to interest rates, but there should be no problems as long as dues are paid without delay.
The risk of fraud in credit card payments is lower than that of a check or cash payment. However, they are not perfect. Making too many payments using a credit card can also lead to unnecessary hassles. Additionally, managing the monthly credit statements can become painstaking at times.
Automated clearing house (ACH) payments can be used to securely transfer funds to a third party. ACH transactions are made from a business checking account. Unfortunately, this type of B2B payment also requires extensive paperwork. But, on the plus side, ACH allows you to make recurring transactions much more easily.
ACH payments are quick to send and receive and are usually processed within 3 business days. Although you will have to pay a fee for the transactions, it is often a reasonable one. One of the drawbacks of ACH payments is that it requires you to share your bank information.
Businesses prefer not to share their bank information because they are concerned about fraudulent activities. Additionally, ACH payments are tough to reverse in case of any unintentional error. Furthermore, ACH is only applicable inside the US, and international payments are out of bounds.
Wire transfers are ideal for making real-time B2B transactions. The funds usually get transferred within 24 hours when using wire transfer. However, it is much faster than ACH payments but can turn out to be costly at times. It is also worth noting that sometimes wire transfers can also have a daily cut-off time.
You can choose between cash or digital wire transfers. While the former transfers the fund to a cash office, the latter transfers funds electronically from the bank account. The wire transfers are also ideal for making international transfers.
Electronic Payments and Virtual Cards
Electronic Payments or ePayments enables B2B buyers to pay their bills online. The ePayments methods you can use include credit cards, debit cards, virtual cards, and also ACH. Among these, virtual cards are your best option when it comes to B2B transactions.
Some of the major benefits of using virtual cards for B2B payments are zero transactional costs, speedy processing, and high-end security. Furthermore, you can also receive cashback rebates for your B2B purchases. Due to its flexibility, low costs, and security features, virtual cards are now the fastest-growing B2B payment method.
There are a lot of challenges involved in traditional B2B payments. In this section, we will discuss some of the primary reasons why you should dispose of the traditional B2B payment methods and embrace a digital alternative. In addition, understanding the limitations of traditional B2B payments will help you understand the need for settling onto a digital and automated solution.
Costly Paper Checks
According to a study by Credit Research Foundation, almost half of the B2B payments get processed through paper checks. Moreover, the number of businesses that still employ paper checks is even higher for smaller businesses.
The digital payment methods cost lower to process the B2B payments as compared to paper checks. Yet, paper checks continue to be the most preferred B2B payment method for years. This is because B2B businesses trust this payment method, and it is convenient for them.
Time-Consuming Manual Processes
Any involvement of manual processes in your B2B payment can become a liability by consuming too much of your time. Considering time as a resource, you need to start optimizing your B2B payment methods. You must try to minimize the time required to process B2B payments.
We know that B2B businesses can set up multiple payment methods for their customers. But, as the number of payment channels increases, it will become increasingly difficult to manage your transactions and account for them.
B2B payment automation can help you simplify the payment management for your business and speed up the process. For example, you can implement an automated invoice processing system that’d enable you to save valuable time. You can save up to 64 hours every month if you automate B2B payments.
Ability to Capitalize on Early Payment Discounts
The Association for Information and Image Management report revealed that early payments discounts could benefit B2B businesses. Typically, the early payment discounts provide about 2% back to the B2B buyer.
Offers made as a part of your early payment discount can motivate your B2B clients to pay up their dues on time. You can make use of AP automation management to have your invoicing process digitized. After digitization, you can automate the invoicing to be delivered periodically.
Capitalizing on early payment discounts will be hard if your customers are unable to send timely invoices to customers. For this, you need the ability to automate your B2B invoices. Thankfully, automating B2B invoices is easily doable with the help of a tool like PostGrid.
Advanced tools like PostGrid enable you to print personalized invoices and have them mailed to your B2B clients. Advanced systems like PostGrid ensure quick delivery of your invoices with its address verification. In addition, PostGrid provides the complete ZIP+4 code that makes mail delivery faster.
That being said, timely delivery of invoices is only a tiny part of how you can ensure early payments. Even if the B2B client wants to make an early payment, they’d still need an automated payment process—this way, the customer can make the payment at their earliest convenience.
We know that there are several factors pushing B2B businesses to modernize their payment methods. The widespread digitization of industries and their processes is one of these factors. But, more than that, it is due to the several operational benefits that automation offers B2B businesses.
Optimized Time, Resource, and Data Management
Managing the time, resources, and data for B2B businesses is not an easy task. A manual process is slow, time-consuming and prone to errors. Automation rectifies all of the downsides of the manual process and optimizes all your processes.
With B2B automation, you can populate payment information from invoices via character recognition tools. And since the whole process is automated, there is no chance for error in them. Similarly, every core process can be optimized using automation.
Easy And Convenient Check Payments
Manual check payments can be painstakingly slow and prone to error. However, despite being a legacy solution, the majority of B2B businesses still use check payments. Therefore, it is necessary to have the B2B check payments optimized for better accuracy and speed.
The B2B industry can employ automated print and mail services like PostGrid for printing physical checks from your bank account. You can even use your electronic signature, which will then securely be applied to your checks.
Once the checks are printed using PostGrid’s service, you can have them packed, sealed, and mailed. This is an effective way to make timely B2B transactions which are often done monthly. The whole process from personalizing, printing, and mailing is automated and optimized for better accuracy.
Automation Provides Superior Control
With B2B payment automation, you no longer have to worry about a lack of control over your payments. It also gives you the power to decide when and how the payments are made. In addition, automation can rectify the bottlenecks in the manual B2B payments.
Apart from control, you also get superior visibility when using an automated system for processing B2B payments. This enables you to make necessary changes to optimize the cash flow. If you choose to, you can even opt for a zero paper approach that digitizes your B2B payments entirely.
There are numerous advantages of using B2B payment automation. With automation, you get streamlined payment processing for your B2B business and overcome challenges posed by traditional payments. Below are some of the most common advantages of B2B payment automation.
Without automation, a B2B business would typically spend anywhere between $4 to $16 per invoice. But, of course, the actual amount you pay per invoice depends on several factors. This includes invoice volume, available resources, and whether or not you are using AP automation.
On the other hand, with an automated B2B solution, your business will need to spend only $3 to $13 per invoice. In addition, you can employ virtual cards and then use cashback rebates if you aim to maximize your organization’s savings.
The traditional B2B payment takes a toll on your business because it costs you a lot of time and effort. However, B2B payment automation can effectively streamline your transactions by making them accessible and convenient.
Half of the B2B payments are still fulfilled through check payments. Therefore, it is evident that no B2B business can afford to ditch check payments altogether. The best approach you can take is to automate check printing and delivery to the supplier. There are tools that can even deliver signed checks on a weekly or monthly basis.
B2B buyers typically have a long-term relationship with their suppliers. In such cases, the purchases are made periodically (weekly, monthly, etc.), and automation can be very effective. All you need is access to an advanced print and mailing system like PostGrid.
Today, the B2B buyer can automate their checks’ personalization, printing, and mailing. This way, no deadlines are missed, and the payments are always made on time. Similarly, the B2B supplier can also benefit by automating their invoice delivery to ensure the best result.
So, if done right, B2B payment automation can significantly improve your payment processing both in terms of speed and accuracy. But, accomplishing this would require a combined effort from both the B2B supplier and the buyer.
Full Visibility and Reporting
Automated B2B payment solutions allow you to integrate them into your custom ERP software. Once successfully integrated into the ERP, you can easily get full visibility into your B2B payment workflows. This can be implemented across your organization regardless of its size.
The automated B2B payment ensures that your business does not waste valuable time tracking invoices and payment statuses. It is possible because of the superior tracking and reporting capabilities you get through automation.
The advanced reporting allows you to analyze metrics such as payment costs, discounts, earned rebates, and much more. This data can be used to optimize several business-related operations and allows you to make well-informed decisions.
Fully Optimized Cash Flow
We know that automating B2B payments would mean that your payment processing gets faster and easier. Payment automation in the B2B industry gives you a broader view of your finances. As a result, businesses are able to optimize their cash flow management.
Automation helps you to speed up your financial operations, including payment processing. Furthermore, the optimized cash flow helps you reach closer to your true revenue potential.
Security is of utmost importance for B2B businesses because they often deal with high-value orders. In addition, the B2B businesses offer a wide range of payment options, and security can become a growing concern.
Almost all B2B payment automation solutions offer built-in security features. These solutions are equipped to prevent fraudulent activities and protect the B2B payment. Such a system can put your customer’s mind at ease and even establish trust.
B2B payment automation typically comes with all the necessary compliances your business requires. This means B2B organizations do not have to go around worrying about meeting legal compliances. Furthermore, these solutions will also protect your B2B business against data breaches.
Factors You Should Consider Before You Automate B2B Payments
B2B payment automation is inevitable, and every business will have to do it sooner or later. But, how can you make sure that you choose the right B2B automation solution for your business? It would be best if you kept in mind that all AP payment solutions are not the same or equal. Its features may vary depending on the developers.
B2B businesses should try to be more proactive and do their due diligence when it comes to picking an automated payment solution. In addition, they should make sure that the features of the solutions align perfectly with the unique needs and workflow of your business. Some of the major factors that you need to consider before choosing your B2B payment solution are listed below.
As you may already know, all modern payment solutions, including the B2B ones, can be integrated with different accounting tools. Some of the more popular accounting tools that you can use are QuickBooks, NetSuite, Xero, and Microsoft Dynamics 365.
That being said, it is not necessary that the solution you choose can integrate well with the accounting tool you are using. So, the first thing to do is to make sure that the payment solution can integrate well with your accounting tools.
The seamless integration of your payment solution with your existing tools allows you to synchronize your operations better. This means that all your data points, transactions, payments, and more can be synced with your ERP and bank.
Practicality should be your primary concern while selecting an automated B2B payment solution. It doesn’t matter how feature-packed or expensive a B2B payment solution is unless it can align with your business goals.
For example, consider yours is a business that orders bulk products from abroad at lower prices. It would be pointless to integrate a B2B payment solution that does not facilitate international transactions.
In situations like the one mentioned above, you’d need a solution that supports FX payments, virtual card debates. Similarly, you must analyze your business requirements in detail and determine the ideal solution for them. Finally, you need to look for features and capabilities that can help your business and its strategy.
Integrating the B2B payment solution can be a complex task because it must align well with your core tools like ERP and accounting. Therefore, you must examine your business goals and then ensure that the solution you choose can deliver those goals.
We have already discussed the importance of reporting and the advantages of automating the reports. However, when it comes to picking an automated payment solution for your B2B business, you need to take a look at its reporting capabilities.
The advanced report gives you access to valuable data on all your activities, including payments and invoicing. Such reporting will enable you to make well-informed decisions for your various business operations. If done right, you can optimize everything from day-to-day operations to marketing campaigns.
Ease of Use
Having a B2B automation solution is not going to help your business unless you can make the best use out of it. There are many B2B payment automation solutions that are packed with features. But, if the interface is too complicated, the user can not navigate or access all its features.
Therefore, it is necessary to ensure that the B2B automated solutions you choose are easy to use. Furthermore, it should be easy to set up and administer with a quality support service. If your automated solution satisfies all of these conditions, then you can integrate it without hesitation.
There is no question that the B2B businesses are slowly turning towards automation and payment automation is a positive indication of it. However, when it comes to payment solutions, automation is not limited to B2B transactions. The payment automation in B2B can include any form of automation that streamlines your B2B transactions.
Check payment is still the primary payment method for most of the B2B transactions. However, you can streamline B2B check payments by using an automated print and mailing system like PostGrid. With the right tools, you can now automate the personalization, printing, and mailing of checks. PostGrid even enables you to schedule when the mail should be sent, which makes it ideal for making recurring B2B payments.
As a seasoned expert in B2B payment automation, I bring years of experience and a deep understanding of the intricacies involved in modernizing payment processes within the business-to-business landscape. My expertise extends from the foundational principles of B2B transactions to the implementation of advanced automation solutions tailored to streamline payment workflows.
I've personally witnessed the evolution of B2B payment methods, from traditional manual processes like check payments to the latest advancements in electronic and virtual card transactions. My knowledge is not just theoretical but grounded in practical application, having helped numerous businesses transition from manual to automated payment systems.
Now, let's delve into the concepts mentioned in the provided article on B2B payment automation:
B2B Payment Automation: This refers to the process of automating business-to-business payments using technology to streamline and optimize the payment workflows, reducing manual intervention and increasing efficiency.
Manual Payment Process: Traditional method of processing B2B payments involving manual tasks such as writing checks, manual tracking, and record-keeping. This method is prone to errors, time-consuming, and lacks efficiency compared to automated processes.
Types of B2B Payments:
- Cash Payments: Universal but inconvenient for B2B transactions due to high-value invoices and security concerns.
- Checks Payments: Legacy solution with advantages in terms of convenience but prone to errors, fraud, and time-consuming manual processes.
- Credit Card Payments: Modern and convenient method preferred by sellers for its speed and trackability, albeit subject to interest rates.
- ACH Payments: Secure electronic transfers from a business checking account, enabling recurring transactions but requiring extensive paperwork and sharing of bank information.
- Wire Transfers: Real-time transactions ideal for international transfers but can be costly and subject to daily cutoff times.
- Electronic Payments and Virtual Cards: Online payment methods including credit/debit cards, virtual cards, and ACH payments, with virtual cards emerging as a fast-growing, cost-effective, and secure option for B2B transactions.
Challenges of Manual B2B Payment Processing:
- Costly Paper Checks: High processing costs and prone to errors despite being widely used.
- Time-Consuming Manual Processes: Manual tasks consume valuable time and resources, hindering efficiency.
- Ability to Capitalize on Early Payment Discounts: Lack of automation affects timely invoice delivery and payment, impacting discounts.
Advantages of B2B Payment Automation:
- Minimize Cost: Lower processing costs compared to manual methods, with potential savings through virtual cards and cashback rebates.
- Superior Efficiency: Streamlined processes, faster transactions, and reduced manual effort.
- Full Visibility and Reporting: Enhanced tracking, reporting, and integration with ERP systems for better decision-making.
- Fully Optimized Cash Flow: Speedier financial operations leading to optimized cash flow management.
- Superior Security: Built-in security features to prevent fraud and ensure compliance with data protection regulations.
Factors to Consider Before Automating B2B Payments:
- Integration: Seamless integration with existing accounting tools and ERP systems.
- Practicality: Alignment with business goals and requirements, including support for international transactions.
- Quality Reporting: Advanced reporting capabilities for data-driven decision-making.
- Ease of Use: User-friendly interface and setup process, backed by quality support services.
In summary, my expertise in B2B payment automation encompasses a comprehensive understanding of the challenges, solutions, and factors to consider in transitioning from manual to automated payment processes within the business-to-business domain.