The CFOs Guide to Digital B2B Payments

The CFOs Guide to Digital B2B Payments

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. 

 

What are Digital B2B payments?

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:

  • Receive your money on time, every time. 
  • Protect your financial details and the safety of your clients. 
  • Have less to worry about defaulters. 
  • Have sufficient funds to ensure you can supply your goods to your buyers.

 
Related blog post: Modernizing B2B Payments For the New Normal
 

B2B payment methods

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 

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:

  • Cheques are a great way to encourage conservative or old-school companies who haven’t digitised yet, to do business with you.
  • Since cheques don’t charge convenience fees, they will be inexpensive for your clients.

Cons:

  • Clearing a payment using cheques is time-consuming.
  • Start-ups and businesses run by millennials and younger cohorts may not be as familiar or interested in paying you through paper cheques because they’re accustomed to digital payment systems.
  • Both the paying and receiving companies need always to keep a minimum balance at all times.

Direct Debit

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:

  • Automatically collects payments from customers, so payments are never forgotten or delayed.
  • Direct Debit payments integrated with your accounting system can save you a huge time in reconciliation.
  • Cost-effective – Direct Debit transactions fees are much cheaper than credit card fees which charge around 3-5% for transactions.

Cons:

  • Possibility of payments not being collected due to insufficient funds.
  • There’s a certain level of trust required for customers to authorise direct debits. Customers might need some time to feel comfortable approving suppliers to collect automatic payments. 

Wire transfers

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

  • Wire transfers help you receive same-day payments.
  • You can receive wire transfers from both domestic and overseas bank accounts.
  • Wire transfers are safe, and you can track your receipts using the ID generated for each transaction.
  • For businesses dealing with international clients, wire transfer payments can easily be converted to your local currency.

Cons

  • Wire transfers are expensive compared to ACH or Direct Debit due to processing fees, service tax and foreign currency conversion fees (if applicable). 
  • If your client wants a refund, you will be unable to reverse the transaction.
  • If your payment receipt transaction ID becomes known to someone else, it is easy to manipulate the wire transfer.

Credit cards

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. 

 

Pros

  • Easy set-up for suppliers and adaptable to digital payment platforms
  • Convenient to use for your clients.
  • You receive payments quickly since your clients borrow money from their bank to pay you.
  • Banks always share a credit card receipt report with their B2B clients, helping you track who made payments to you and when. You can also identify any clients who have defaulted their payment to you.

Cons

  • Merchant fees can be expensive. However, there are online payment platforms that will let you surcharge the fees at checkout, or absorb all or part of the fees.
infographic of b2b payment methods

B2B Payment Terms

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.

Instalments

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.

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.

Net Terms

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.

Challenges of B2B Payments

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:

  1. Interoperability between businesses – Check if the payment method is compatible with your client’s preferred method. Or, select two or more payment methods that can support all of your current and future clients.
  2. Security issues – When receiving money, your payment method should offer you and your client security. It’s best to check what security features each method offers before selecting one.
  3. High transaction fees – Depending on the payment method, your transaction fees can range from 2% to 5% per transaction. This may drive away budget-conscious buyers who don’t want to pay these processing fees. 
  4. Lack of visibility and efficiency – Some payment methods aren’t transparent, and it can be hard to identify which stage of the transaction your payments are in during processing periods. 
  5. The disparity in fund payment days – While some payment methods offer a 24-hour payment cycle, others can take up to 30 days to clear. It can be challenging to keep track of what is owed to you and when you may receive it.

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.

 

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Benefits of Digital B2B payments

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:

  • B2B digital payments involve self-service platforms for customers, which they can use to pay invoices irrespective of their location and the time.
  • Modern B2B payments automation technology has safe authentication measures. From credit card pins to 2FA on mobile/desktop payment management apps, you can safeguard the financial privacy of your client and yourself.
  • Digital transactions are easy to track, with payment details stored in easy-to-access databases – reducing duplication and ambiguity.
  • Digital B2B payments are less expensive in the long run. Processing fees associated with B2B digital payments are low compared to traditional payment methods like paper checks.
  • Automation helps you maintain good relations with all of your stakeholders because of the ease, efficiency, and promptness of digital payments. 
  • Many digital payment systems integrate with AR automation software that can generate detailed reports about your financial health. You can use these reports to gain insights regarding customer payment behaviour to help your collections strategy.

 
Related blog post: Top 5 B2B Payment Hacks for Digitising Your Business
 

Steps to digitalise B2B Payments

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:

  1. Think of your B2B payments experience as a B2C experience. Consider what people may prefer in a payment system and try to make it happen for your B2B needs. Features such as a digital ‘Pay Now’ button on your invoices and SMS reminders can make the payment experience better for your clients.
  2. Identify the nature of your B2B payments system. Figure out what may need changing and how you can improve your payments management system. For instance, you may need payments to automatically write back to your ERP so you don’t have to worry about reconciliation. Also, identify what you wish to retain from the old system if it is good.
  3. Think of which payment methods your clients are most likely to use and try to offer multiple payment methods. Some clients might prefer credit card payments, while some may prefer a direct debit payment. The easier it is for them to send payments, the more likely they will do business with you and pay you on time.
  4. Make available digital offers that provide your clients with the buy-now-pay-later options, helping you improve client loyalty. Consider financing solutions to offer to your clients for them to be able to complete payments.
  5. Implement identity-management protocols and premium security measures to safeguard your payment system users.

Transform B2B Payments with ezyCollect

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.

Your Quick Guide to AR Automation

Your Quick Guide to AR Automation

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.

The challenges of manual AR processes

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.

1. Inefficient payment acceptance

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.

2. Poor cashflow

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.

3. Higher administrative costs

In addition to poor cash flow, businesses incur increased administrative costs linked to debt collection that involves:

  • Collection calls
  • Reminder letters
  • Receivables emails
  • Human resources dedicated to late account collection

4. Impacts productivity

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.

5. Impacts innovation and growth

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.

Improve payment collections with AR Automation

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.

AR automation stats on improved efficiency

According to research, businesses that use AR technologies experience a 23 percent improvement in payment collections compared to firms that use manual methods.

  • 75% of firms reported that AR automation enabled them to offer superior customer experiences.
  • 87% of businesses that employed AR automation observed improvements in their overall payment process speed
  • 79% of automation adopters agree that it improves team efficiency
  • 89% of firms experience faster processes.

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.

Modernizing B2B Payments For the New Normal

Modernizing B2B Payments For the New Normal

The increasing importance of digital payments

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.

The focal points for B2B merchants

Here’s how B2B merchants can keep pace with the changing payment landscape:

1. Offering multiple payment options

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.

2. Digitize B2B accounts receivables

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.

3. Providing instant credit

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.

4. Beefing up security

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.

In Summary

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

4 Steps For Optimising B2B Payments

4 Steps For Optimising B2B Payments

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.

The customer is always right

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.

Room for improvement in B2B payments

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.

4Frequency

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.

How to solve the pain points of B2B payments 

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:

  • It builds customer trust and confidence in the business by offering customer security.
  • It offers extra protection to sensitive information that passes through a company. Thus, it reduces the risk of unauthorized access and hacks.
  • Extra security offered by multi-factor authentication reduces the risk of processing fraudulent payments.

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.