B2B payments guide for SMEs

How to choose the right B2B payment type and methods for your business, reduce late payments and improve your customer’s payment experience.

Your guide to choosing the B2B payment solutions for your business

B2B payment systems have developed more slowly than consumer payment systems, where utilising a paper check, for instance, to purchase products is now all but obsolete. Digital payments have almost entirely replaced traditional consumer payment methods, and the same is happening with B2B transactions. Unlike consumer payment transactions, however, B2B payments can be pretty complex as there are also invoicing, accounting, and compliance aspects to take into consideration.

This guide explains the payment options and methods businesses should look for when implementing a B2B payment system and the different functionalities of B2B payment solutions.

What are B2B Payments?

B2B payments are payments or receipts of money for goods or services between two businesses. B2B payments are often large compared to B2C payments and can be a one-time or recurring transaction, depending on the contractual agreement and payment terms between the supplier and customer.

What are the different B2B payment options?

You can accept many types of payment in a B2B transaction. The key here is to provide your customers with enough options so they can pay according to their preferences and, thus, get you paid on time. Here are some of the payment options you can offer your customers:

infographic of b2b payment methods

1. Paper cheques

Paper cheques are still one of the most popular payment options today. It is much safer than direct cash transactions as a bank authenticates them, and they are also the easiest to adopt – having been used for years as a standard B2B payment method. However, they take longer to process due to clearing periods that can take a few days

2. Direct Debit payments

Direct Debit authorises another party to collect payments from an account when they are due by completing a Direct Debit Authority (DDA) or Electronic Direct Debit Authority (eDDA). Direct Debits are used for any payment, but they are most often used as a safe and convenient way to make recurring payments.

B2B businesses benefit from direct debit payments as it eliminates the need for having to chase overdue invoices. However, a complicated application process and a customer’s willingness to provide a DDA are often hurdles to get direct debit payments implemented. The good news is direct debit technology is now more robust and simplified, and the security of making payments has also improved. The following are just some of the improvements businesses are adapting to maximise Direct Debit in their payment transactions:

  1. Integrated Direct Debits with your Accounts Receivable (AR) software
  2. Easier direct debit sign-ups online or through SMS
  3. Incentivising direct debit payments

3. Wire transfers

A wire transfer is a type of bank transfer wherein your client has your bank account details and makes the payment directly from their account to yours. Wire transfers are not limited to the currency of a business’s local banking system, making them ideal for international payments. Wire transfers are usually processed within the same day. However, some wire transfers still have a daily cut-off time.

4. Credit card or Debit card payments

Card payments are a convenient way for your business to receive payments, especially when making payments online or through phone calls. Customers can also earn reward points or get cashback on transactions.

Debit cards deduct payments directly from your customer’s connected bank accounts, while credit card payments let your customers borrow money from their bank to pay you. While debit card transactions don’t typically incur fees, credit card transactions often come with merchant fees. This surcharge often hinders businesses from adopting this payment option. However, some B2B payment providers can let you surcharge fees to customers or absorb all or part of the fees. Increasing demand for payment platforms and gateways also provides options for more competitive rates in the market.

What are the different B2B payment terms

B2B payments can be quite large and complex. That’s why extended payment terms are typical. However, there’s a risk involved when extending terms, so it’s crucial to track your accounts receivables and to offer other payment terms that can ensure you get paid when an invoice becomes due whilst offering your customers flexibility.

Net Terms

In B2B transactions, customers expect suppliers to extend their payment terms in 30, 60 or even 90-day payment windows. Also called Net Terms, this payment scheme allows businesses to pay for orders within a certain period after invoicing instead of paying it upfront.

From a buyer’s perspective, this can benefit their working capital as they can resell goods or use the raw materials for manufacturing and send the goods to distributors before the bill is due. Suppliers benefit by providing a more attractive payment scheme.

However, Net Terms can also affect the supplier’s cash flow. The supplier must monitor payments via Accounts Receivable (AR) automation to ensure that payments are made on time as agreed upon by the two parties

Instalments

Instalment payments allow customers to choose a plan and pay in portions rather than paying full price up-front. With this agreement, you can receive consistent payment amounts to your business over the period you’ve agreed upon, thereby reducing your financial risk by not waiting for your client to pay the total amount.

Customers can pay instalments directly to you or through a third-party finance provider, depending on your preference. The latter allows you to get paid in full immediately through the provider, whilst your customers can pay the amount they owe in instalments.

Instalment payments are a flexible option for your customers that can help your customer retention initiatives.

Buy Now Pay Later (BNPL)

Buy Now Pay Later (BNPL) payments are short-term loans that allow your customers to pay for their purchases later – either in full or instalments. A BNPL provider facilitates the transaction, immediately paying you the amount you are owed and collecting the delayed payment (or instalments) from the customer according to the agreed terms.

BNPL terms let you offer an attractive payment scheme to increase sales whilst reducing your risk as you still get paid in full by the provider.

Milestones

Milestone payments are frequently used in the services industries and help buyers build trust with suppliers. Payment upon delivery is a good example of milestone-based payment. For suppliers, milestones help you retain your end of the deal—you receive the payment only when you make any progress to the service/product you have to deliver.

What B2B payment methods can your customers use?

Your customers can pay you using different methods and channels and as with payment types, providing your customers with more ways to pay you gives you a better chance to reduce late payments.

1. POS Terminal/ Virtual Terminal

digital wallet mobile device scanned in a POS terminal

A Point-of-Sale (POS) terminal is a device businesses use to accept credit card, debit card payments for goods and services when the card is present. POS terminals are usually connected to a payment processing system to record and account for transactions. Modern POS terminals can also read QR codes and signals from digital or mobile wallets.

However, there may be times when it is beneficial for you as the supplier/merchant to have the capability to enter customers’ payment information manually. In such instances, it’s helpful to use a Virtual Terminal. A virtual terminal is used to manually key in credit card payments when the card is not present. This could happen if the buyer has trouble paying through the bank or online. Or perhaps they want to pay by phone. Virtual POS terminals are typically accessible through a payment processor’s system or mobile app.

2. Online B2B payment platform

Providing access to an online payment platform is a great way to make payments more convenient for your customers. Your customers can securely access the platform online whenever and wherever they are to pay their invoices using the payment options you accept. Your customers can also view their current and past invoices on the platform. This availability of information means customers don’t have to call you every time to ask for their outstanding balance or a copy of their invoice.

3. Pay by SMS and Email

pay now button on email sms invoice reminder

Two of the most effective communication channels are Email and SMS. While sending SMS and email invoice reminders are common, adding a ‘Pay Now’ link to reminders gives your customers a seamless payment. The links take them to the online payment platform where they can pay for their invoices anytime.

4. Automated payments using Direct Debit

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Automated payments through direct debit arrangements are a great way to speed up your accounts receivable collections. With a direct debit authority, you can automatically collect payments from your customer’s accounts as soon as the invoice becomes due.

Aside from automatic collection on invoice due dates, some automated payment providers allow you to adjust your collection schedule when your customers need more time to pay for their invoices. Even better, an integrated direct debit solution can let you collect payments in bulk from all your outstanding invoices and automatically reconcile them to your ERP.

5. Payment gateways

A payment gateway is an online service that allows a business to accept credit cards or other payments made through an e-commerce website or online store. It handles the complex task of securely transmitting information about transactions between buyers and suppliers through the internet.

As more and more B2B suppliers are including online channels to sell products and services, payment gateways will be a critical part of a business’ payment process and crucial to a better customer payment experience.

6. Digital wallets/e-wallets

a digital wallet app on a mobile phone screen

Digital Wallets (also called Electronic Wallets or e-wallets) is a financial application that runs on mobile devices. This application is an electronic version of a physical wallet where users can store funds and pay using their mobile devices. Users can store digital versions of preferred payment options —bank accounts, credit and debit cards, gift cards, and cryptocurrency.

The convenience of digital wallets has proven effective among individual consumers, as evidenced by the popularity of digital wallets such as Venmo, Apple Pay and Google Wallet. As B2B transactions naturally move towards digital, consumer-like transactions, digital wallet technology can transform how B2B payments are made and boost the capabilities of B2B payment platforms.

 What are the challenges in B2B payments?

B2B payments can be quite challenging to facilitate when you don’t have an efficient payment system. Moreover, there are also hurdles to adapting digital B2B payments without an agile process in place. Here are a couple of things you need to look out for when evaluating which B2B payment method to offer your customers:

1. Compatibility between businesses

As you may have already seen from the previous sections, every B2B payment option is unique. You’ll benefit from offering your customers as many payment options and channels as possible to ensure that their preferred payment is compatible with your business.

2. Security of the payment system

In implementing a new payment platform, ensure that it is hosted by a secure cloud service provider that pass industry standards. Fraudulent card transactions are a common fear for many businesses, and you want to alleviate their concerns by ensuring your card processing is compliant to the Payment Card Industry (PCI) Security Standard. Both security and efficiency go hand-in-hand in B2B payments.

3. Transaction fees and surcharges

Credit card surcharges often drive away budget-conscious customers. It’s important that the payment system you implement offers competitive rates or offer flexibility in charging fees. It’s also crucial to be transparent with your customers on the costs they can incur when using a particular payment option.

4. Visibility in processes

Visibility of payment transactions is critical in a B2B payment system. The accounts receivables (AR) and account payables (AP) team should be able to see how the cash flows through the business – including payments that come in – for better planning.

As you offer more payment options, there’s also more disparity in your fund payment days- it’s also crucial to keep track of when you should expect payments. The visibility of customer payment data helps AR teams better understand payment behaviours. For customers, making their invoice and payment information accessible adds to a better experience and aids in minimising disputes that can delay payments.

5. Late payments

In the world of B2B, extended payment terms are expected. However, there will still be instances when customers become overdue. Late payments directly affect your cashflow, so monitoring your invoices and rolling out initiatives to reduce late B2B payments in your business is important.

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 What should you look for in a B2B payment system?

B2B payments have come a long way since the days when businesses only accepted cheque payments or wire transfers. Thanks to digital technologies and payment innovations in the Big Tech space, we see all-in-one payment solutions adopted in B2B. SMEs can now use the Big Tech approach to payments to make the payment experience efficient, convenient and safe.

Moving to a digital payment system that can sync with other systems in your busines is a crucial B2B payment hack that can transform the way you receive payments. Here’s what to look for when you’re thinking about implementing new payment processes in your business:

1. Your payment solution should integrate with other software you use

Every part of the payment process should sync with your other systems, the most important of which is your accounts receivable software and accounting system. Integration with your AR software provides the visibility you need for when to expect payments and allows you to send reminders automatically. Automatic reconciliation of invoices is also possible with your AR and accounting software integrated into your payment solution.

As data flows to and from your payments system, accounts receivables system and accounting system, all data is stored in your accounting software as one single source of truth.

2. Your payment solutions should provide a variety of payment options and enable you to offer terms

Whatever payment option your customers prefer is the one that will get you paid on time. Ensure that your B2B payment software accepts various payment types – cheque, card payments, direct debit or digital payments. Likewise, you should also have the flexibility to offer payment terms that suit your customers’ capability to pay whilst ensuring you still receive payments, such as instalments or BNPL options.

As data flows to and from your payments system, accounts receivables system and accounting system, all data is stored in your accounting software as one single source of truth.

3. Your payment solution should offer multi-channel payments

The key to eliminating late payments is meeting your customers where they are. Digital spaces are where most people find convenience nowadays. Ensure you can facilitate payments online and provide easy payments via email and SMS. If you have an e-commerce store, a payment gateway must help you facilitate e-commerce payments.

With digital payments evolving at an accelerated pace, looking for a B2B payment provider that can update and add more channels is crucial. However, traditional payment channels such as bank transfers and over-the-call transactions should still be an option for your customers who prefer them.

4. Your payment solution should accept and seamlessly integrate direct debit payments

Direct Debit authorisation unlocks possibilities that can get B2B SMEs closer to how B2C and Big Tech companies are getting paid upfront. With a direct debit payment, you automatically collect payments once invoices are due. And, with your accounting software integrated, these direct debit payments are automatically reconciled. It virtually eliminates the hours you spend having to chase customers and write-back payments to invoices.

5. Your payment solution should offer competitive pricing

Your B2B payment system should offer competitive merchant rates when using specific payment options such as credit cards. When it comes to the cost of implementing a B2B payment system, you should consider the pros and cons of what different providers offer. A B2B payments solution is an investment for your business so its cost should give you a higher ROI when it comes to the benefits to make your payments process easier.

Start implementing your B2B payment process with a trusted provider

Building an efficient payment process will rely on the systems you implement in your business. Choosing the right B2B payment system is crucial because it will ensure you’re paid on time, ultimately leading to a healthier business cashflow.

To learn more about B2B payment solutions available for your business,  speak with our payment experts.

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