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Digital payments are the key to unlocking optimisations in payment transactions. Digital payments have been the way for many B2C transactions for years but haven’t gained the same prevalence in the B2B space until recently. With the COVID-19 pandemic accelerating e-commerce and increasing customer expectations toward using technology, B2B organisations will inevitably march toward digital payments.
But the march has been slow – the reality is not many companies have adopted B2B payment automation yet. A study published in the Next-Gen Digital Payments Report shows that 51% of the B2B respondents are yet to digitalise their accounts receivables and accounts payables, which means more than half of the respondents do not have a solid payment digitalisation plan.
Here, we discuss what digital B2B payments are, the challenges of B2B payments and how you can start to leverage digital technology to improve your payments process.
Any payment or receipt of money for goods or services made between two businesses using an electronic medium is a digital B2B payment. B2B payments can be a one time or recurring transaction depending on the contractual agreement between the buyer and supplier.
Digital B2B payments include online payment platforms and use technologies such as APIs for integration with other software and automation to streamline workflows. Advanced technologies such as blockchain and artificial intelligence (AI) are also making their way into the B2B space. It won’t be long before we see these technologies further redefine digital payments.
Economies worldwide recognise the importance of digital technology in improving business efficiency and profitability. In Australia, the latest tax break incentive for businesses adapting digital technology – including payment systems – emphasised just how crucial it is in building healthier businesses.
Additionally, giving your B2B clients an automated payment system will ensure you:
Related blog post: Modernizing B2B Payments For the New Normal
There are different options available for businesses regarding payment receipt methods. Here are the most-commonly used B2B payment methods with their pros and cons.
Paper cheques are still one of the most popular payment methods today. It is much safer than direct cash transactions, and they are also the easiest to adopt – being used for years as a standard B2B payment method.
Pros:
Cons:
Direct Debit authorises another party to collect payments from an account when they are due by completing a Direct Debit Authority Form. Direct Debits are used for any kind of payment, but it’s most often used as a safe and convenient way to make recurring payments.
Direct Debit used to be the privilege of bigger and more established businesses with many customers, but technology has democratised and simplified the systems involved. Now any business – big or small – can benefit from the Direct Debit payment’s speed, convenience, and security.
Pros:
Cons:
A wire transfer is a bank transfer wherein your client has your bank account details, and they make the payment directly from their account to yours.
A wire transfer is different from a Direct Debit in that it is not limited to the currency of a business’ local banking system. Wire transfers are also usually processed within the same day, whereas Direct Debits can take a couple of days.
Pros
Cons
Credit cards are a borrowing mechanism that banks give both B2C buyers and B2B companies. Any business using a credit card can borrow money from their bank to make payment to you for the products/services they have purchased from you. But you will always be assured of your payment since the bank pre-pays you on your buyer’s behalf.
Many banks offer credit cards that are specifically designed for business payments. These cards also offer desirable deals that enable users to waive certain fees, earn bonus points, allow business savings and avail of a cash advance facility, amongst other features.
B2B Payment Terms sets the payment agreement between you as the supplier and your clients. While creating a standard agreement across all of your clients is ideal and is the simplest option, the reality is each of your clients may require different terms depending on their financial situation.
Instalment payments allow your 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 time period you’ve agreed upon, thereby reducing your financial risk by not waiting for your client to pay the total amount.
You can sync your instalment payments to a milestone met. We’ll touch upon milestone payments later in this article. But to illustrate, let’s say you receive the first instalment of your entire bill when you deliver the first batch of raw materials to your clients. Then you continue to receive each instalment as subsequent deliveries are made. You can choose even to charge interest on instalments, but that’s not mandatory. An equated monthly instalment (EMI) is an example of a commonly-used B2B instalment scheme.
Instalments are essentially a flexible payment method and can help with customer retention. You can offer your clients the payment technologies mentioned earlier to make each instalment payment.
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.
In B2B transactions, it’s common for suppliers to extend their payment terms to their customers – called Net Terms. Net Terms allow businesses to pay for orders within a certain period after invoicing instead of paying it upfront.
The most common set-up is for businesses to be allowed to pay 30, 60, or 90 days after they receive goods or services, with no interest. From a buyer’s perspective, this can be beneficial to their working capital as they have a chance to resell goods or to use the raw materials for manufacturing and send the goods to distributors before the bill is due. Some suppliers may even offer discounts if the invoice has been paid before they are due.
As net terms are important to buyers, it will do well for suppliers to offer them. Suppliers benefit by providing a more attractive payment scheme, thus improving customer retention, and that is reflected in an improvement in sales and an increase in order volume.
However, Net Terms can also affect the supplier’s cash flow. The supplier must monitor payments via Accounts Receivable automation to ensure that payments are made on time as agreed upon by the two parties.
Choosing a B2B payment option isn’t always easy. Here are a couple of challenges that you need to look out for when evaluating which B2B payment method to offer your customers:
To address the issues surrounding B2B payments, the efficiency and reliability of systems used are essential, and the ability of payment systems to accept various payment methods.
Understanding the nature of B2B payments and the issues that can arise during transactions has paved the way for B2B payment automation. And with digital technology becoming more sophisticated yet accessible, automation takes a step further with digitalisation.
Indeed, Digital B2B payments are increasingly becoming the payment method of choice for many businesses in today’s economic landscape. Here’s why:
Related blog post: Top 5 B2B Payment Hacks for Digitising Your Business
According to new predictions made by FIS in the latest Global Payments report, only 2.1% of payments will be made by cash in Australia by 2024.
There’s no doubt that there is an ongoing shift toward digital payments. With the benefits accompanying it proving to be substantial, now is the right time to start planning how you can digitalise your payments. Here are some tips to help you get started:
Contact an accounts receivables automation expert to help customise a digital payment system for your business. Book a free demo of ezyCollect and discover how AR automation and B2B digital payments can work for you.
Accounts receivables (AR) are a critical component of every business. The AR team is responsible for sending out invoices, billing customers, processing payments, and following up on payments due. Your business’s cash flow and, consequently, productivity and growth hinges on the efficiency of the accounts receivable activities.
Many CFOs strategically deploy AR automation to streamline invoicing, payment processing, acceptance, and collections management. It is imperative for any business that the above activities work in harmony to ensure a healthy cash flow. AR automation is seen as the solution to realize this objective.
This blog looks at how AR automation can improve different areas in your business by streamlining the efficiency of how you collect payments.
Despite the growing demand for AR automation, many businesses rely on manual AR processes. A 2017 Small Business Trends study showed that about 84% of companies use manual processes such as Excel and spreadsheets. A 2021 report reveals that manual AR processes are still prevalent across industries.
Manual processes slow down collection processes significantly. Companies across industries experience longer collection cycles when they rely on manual AR processes. The PYMNTS research shows that, on average, firms that use manual methods take 25.3 days to follow up on payments. Firms that have not automated their AR processes have 18 percent longer collection terms than businesses that have adopted AR automation.
Delayed payments are typically the top cause of poor cash flow for small to midsize businesses. An earlier survey in Australia suggests that 90 percent of small businesses face cash flow issues and go broke due to delayed payments. The 2020 MYOB Business Monitor found that 38 percent of Australian SMEs (small to medium-sized enterprises) feel financially stressed due to late payments, and 42 percent are concerned about cash flow.
In addition to poor cash flow, businesses incur increased administrative costs linked to debt collection that involves:
A survey of eleven countries, including the United States, by a consulting firm, Plum, found that manually following up on payments is highly time-consuming. On average, 15 workdays are lost each year in chasing after late payments.
According to Plum’s researchers, 7.5 percent of invoices are written off ultimately as bad debt. A 3-day delay in invoice due can take away $115,000 from the working capital with a $10 million yearly turnover ($10 million divided by 261 working days). With cash locked up in delayed payments, the potential working capital is frozen – putting financial brakes on innovation investment and scaling up production.
A recent industry survey found that one of the significant barriers to following up on late payments is the lack of dedicated resources. Businesses also report a lack of personnel and staff time as common barriers to payment collection. A significant proportion of companies find it difficult to broach the payment issue with their clients as they fear doing so could harm their future relationships.
With digital processes for invoicing, AR automation effectively handles labor-intensive AR processes such as deductions while accurately capturing and prioritizing collections efforts. Integration with an online payment platform also streamlines the process, with a payment write-back that syncs to your ERP while providing a seamless experience to your customers.
AR automation brings convenience for both you and your clients, making it an essential tool in today’s fast-paced and evolving business landscape.
According to research, businesses that use AR technologies experience a 23 percent improvement in payment collections compared to firms that use manual methods.
The numbers don’t lie. AR automation brings many benefits that impact overall business health – minimizing your exposure to risk from manual processes.
Talk to us today to learn more about how AR automation can help your business. Or watch a free demo to see ezyCollect’s AR automation platform in action.
The past decade has seen a marked proliferation of e-commerce. This is leading business-to-business (B2B) payment merchants to strengthen their digital payments infrastructure. Over the past couple of years, the world has struggled to get to grips with the COVID-19 pandemic, as a consequence, a lot has changed even for business-to-consumer (B2C) companies, who are now bracing for the transition to digital payments.
According to a study conducted by McKinsey & Co., 66 per cent of participants say that digital sales options for customers have become more important during the pandemic, compared to traditional sales options. Also, it revealed that the trend of omnichannel sales methods supersedes that of traditional methods after the pandemic.
So, it becomes imperative for B2B companies to address these changes in customer expectations triggered by the pandemic and the collective transition to digital payments, characterized by automation. B2B buyers now look for variety, ease, and convenience while transacting—something that B2B payment automation can provide. With the improvement in payment options for B2B buyers come the benefits of increased customer satisfaction and transaction conversions, ultimately leading to business success.
Here’s how B2B merchants can keep pace with the changing payment landscape:
Now, B2B merchants should look for ways to recreate the B2C payment experience for their customers. B2B buyers look for ease while transacting, and companies that offer multiple payment options can provide them with instant gratification. Contactless B2C digital payments can also be done in the B2B landscape in real-time by adding features like wire transfer, credit card, and digital wallets.
B2B companies can stay abreast of the changing payment landscape by digitizing their accounts receivables. This can be achieved using automated onboarding, which can save them time and money by eliminating time-consuming credit decisions, emails forms, PDF invoices, and manual bank reconciliations. B2B payment automation can provide buyers with consolidated periodic invoices and give companies more control over their cash flow.
B2B customers show a preference to transact more when they hold a credit line and have forged a financial relationship with the company. For getting a leg up over competitors, B2B companies can offer their customers the ability to get instant credit while making a purchase. Such a strategy can help companies retain their customers and win their loyalty.
B2B business identity theft and fraud have become increasingly common as the customer acquisition process occurs online. As such, security is something B2B companies should pay attention to. They need to leverage advanced fraud detection software and processes to protect themselves and their customers. A well-developed security solution can definitely fraud-proof the payment infrastructure and build risk-aversion abilities.
B2B payment landscape is becoming increasingly digitized, and companies will have to adapt to these changes. In order to keep up, B2B companies need to review and evaluate their existing payment system to use technology to streamline areas where it’s necessary. Creating and adopting an omnichannel payment strategy can greatly help B2B companies get an edge over their competitors.
At ezyCollect, we understand the importance of modernizing your payments in order to keep up with the rapidly changing digital world. We provide Accounts Receivables Automation software that helps businesses automate and digitize their payments. Our solution is designed to help businesses get paid faster and easier, so they can focus on what they do best.
Contact us today to learn more about how we can help you streamline your B2B payments, get your business paid faster and keep up with the competition
The pandemic and its aftermath have expedited the digital trend in B2B and B2C. Though many were initially hesitant to embrace the lifestyle that digitization provided, being digital-first is now an essential part of doing business. Making the switch to the latest technology is no longer a choice but a necessity. As a result, digital transformation is now more than a buzzword in most industries. While the industrial sector embraced it years ago, the service sector is also increasingly becoming more digitalized. One of the areas that have recently undergone massive digital transformation is payments.
Pause and consider how we pay for our clothing, french fries, or a new coffee table? Many people make their payments over the internet today, especially with the rapid growth of online shopping and D2C brands.
As most retail customers demand easy, safe, and quick payment options, traditional banks, and digital experts have focused their efforts on developing procedures to meet the needs of their customers. While significant strides have been made to automate traditional banking procedures, little has been done to improve business-to-business payment experiences.
Business-to-customer (B2C) transactions are often considered to have reached record numbers, particularly during the pandemic. The truth is that they are still minuscule when compared to B2B transactions. As per a UNCTAD report, in 2019, B2C e-commerce was estimated to be around USD 4.9 trillion. On the contrary, global B2B e-commerce was valued at USD 21.8 trillion in the same year. This provides a clear indication of B2B payments and automation potential. Consequently, many new players have begun to work on ideas to develop and modernize payments for businesses.
Before diving into how B2B payments can be automated, it is important to understand what differentiates them from B2C transactions. The following are some critical factors that significantly impact B2B payments.
1. The Number of People Involved in Decision Making
A single person has ever made no payment decision on their own in a business. Every business transaction has an indirect or direct effect on various stakeholders like customers, shareholders, managers, employees, etc. Therefore, on average, five to seven stakeholders are involved when any payment-related decision needs to be made.
2. Delays
With so many people involved in the decision-making process, there would inevitably be a delay reaching a final decision. Since B2B payments typically include the opinion of 5 or more stakeholders, decision-making takes a longer time. Delays in the payment cycle constitute a big problem for almost 30% of middle-market companies.
3. Volume
Unlike retail customers who purchase small quantities, businesses tend to buy in bulk from suppliers. Buying in bulk allows them to get trade discounts and enables them to sell large quantities to customers. As their purchases are in huge quantities, the transactions are worth several thousand dollars.
4. Frequency
Whereas shoppers who visit physical stores usually do so when they have a specific need, businesses must always ensure they have an adequate stock to offer customers. That is why they make regular and recurring orders, as they also prefer to foster healthy long-term relationships with their suppliers.
5. Industry
The intricacies of B2B transactions and the particulars and circumstances that come with them vary from industry to industry. Each sector has its own set of legislations, regulations, and payment specifications. Every deal or contract is unique. The delivery method, quality assurance process, invoicing, payment, and other terms also depend on the industry’s customary norms. These details make B2B payments far more complicated than B2C payments.
Although these differences exist, the demand for faster and more efficient processes has also grown in the business-to-business sector. Now, business people and entrepreneurs also desire similar payment services that retail customers already enjoy. Digital payments would not only save them time and money, but it would also help them improve their other business operations. As a result, banks and fintech firms are working hard to close the gap and regularly provide valuable solutions to businesses’ payment issues. According to a 2021 Statista report, 34% of companies worldwide have expressed their willingness to switch to fintech solutions.
To understand how to automate B2B payments, we first need to identify the issues companies have been experiencing with the current system. Late payments, illegitimate transactions, time-consuming manual processing, and a lack of visibility are the most common problems with B2B payments. As a result, new digital payment solutions need to address and resolve these difficulties. The following are the most important B2B payment trends for 2021.
1. Transition from manual processing to automation
Many companies still process payments manually, leading to errors and a lack of security. Furthermore, it would take longer to manage all the payments manually. Rather than continuing to process payments inefficiently when done manually, it is better to invest time and resources in more efficient automated processing solutions.
B2B payment automation addresses practically all the issues related to manual processing. It provides more control and visibility over transactions while also saving operation costs and time. Adopting AR automation software, for example, allows a company’s accounts receivables team to automate repetitive and time-consuming processes while increasing their cash flow and collection efficiency. Instead, they can devote their time and energy toward more productive or strategic projects. Similarly, integrating a payment API (Application Programming Interface) with an ERP (Enterprise Resource Planning) software allows the company to manage payments and share banking data safely and efficiently. Electronic transactions are beneficial in B2B payments, as they make them more efficient, secure, convenient, fast, and instant. Digital payments give buyers and suppliers various growth prospects by allowing firms to focus their time and resources on more profitable areas.
2. Managing risk through multi-factor authentication
With e-commerce and online transactions on the rise, businesses are also increasingly falling victim to cyberattacks and payment frauds. One of the best ways to solve this problem and provide a more secure payment platform is Strong Customer Authentication (SCA). It is a requirement of the European Union that was enforced in 2019 and has already been implemented by most member countries. Two-factor and multi-factor authentication are formed on the basis of using multiple forms of authentication.
These are:
Knowledge: an element that only the user is aware of.
Possession: use of a device that only the user possesses.
Inherence: something that the user is.
The extra layer of protection provided by multi-factor authentication blocks the access of hackers and scammers to company accounts and thus, protects data and offers secure payments. Apart from these, multi-factor authentication has numerous benefits. Some of them are:
3. Overcoming payment delays
As mentioned earlier, payment delays are a huge challenge that most mid-market businesses have to face. According to a study, 44% of B2B SMEs said late payments seriously harm their business performance. Such delays in payment impact the company’s cash flow and affect their reputation and relations with clients and suppliers. There could be various reasons for payment delays, such as insufficient funds available at a given point, extended payment terms, and outdated payment methods.
Digital payments make the process of payment processing simpler, swifter, and more straightforward. They allow companies to make rapid and error-free payments. Via electronic payments, they can keep track of late payments and also automate payment schedules.
4. Improving visibility
The vast majority of businesses do not have complete visibility over their transactions. This means they can only assume that their incoming payments are made on time and that their outgoing payments reach their destination before deadlines. However, by using digital systems, businesses can see every payment as it goes through the system. This gives businesses greater predictability and control over their cash flow, business relationships, and operations.
To summarize, automating B2B payments can provide many benefits, like improved security, faster processing, real-time updates, and end-to-end visibility. This allows businesses to offer a better payment experience for their customers and employees.