Emerging Trends in B2B Payments
The survival strategy for most businesses in the current climate is to prioritize cash flow management and strategize cost-cutting measures. With time-consuming, costly and sometimes error-prone paper-based payment methods eating into profits, businesses are looking for better solutions. Let’s explore some trends in the field of business to business (B2B) payments.
1. Flexible Digital Payment Methods - Digital payments have the potential to curb some of the challenges associated with traditional paper-based payment processing while managing regulatory, compliance and cost-based challenges. According to a study by Mastercard®, 76% of businesses surveyed said that the global pandemic has prompted them to be become more digitally focused. Some of the digital payment strategies that we see emerging include:
Businesses adopting digital payment types
- Automated Clearing House (ACH): Provides faster access to funds compared to paper checks.
- Credit Cards: Includes credit and prepaid systems with open and closed-loop global networks.
- Payment Portals: Processed by a third party, these online portals facilitate easier and faster financial transactions allowing businesses to send a one-time payment to another business or customer.
- Virtual Cards: Provides access to credit card accounts from any location, at any time with the help of mobile application or online wallets.
Remote Deposits: Used for check payments where customers can conveniently make remote check deposits by scanning it with a mobile device.
- A focus on faster payment processing - With the goal of reducing costs and simplifying payment processing, digitization has all but guaranteed greater profitability and productivity. According to The Hackett Group, electronic invoice payment processes cost nearly 60% less on average compared to traditional paper-based methods. The reduced processing time and faster payment reconciliation has a significant impact on overall cash flow.
2. Marketplace Demand - While integrating a digital payment strategy has been the plan for many businesses for years, the wake of COVID-19 has created a drive for leveraging digital innovations within the marketplace. Digitized marketplaces have proven to be very appealing to different manufacturers across many industries, wholesalers and distributors.
3. Customer Demand - In today’s fast-paced world, customers want better speed and convenience when it comes to B2B payments. Demanding quick and accessible payment methods, customers are on the lookout for better control over their finances. This need for faster payments has already worked its way into the corporate space, with businesses looking to capture the same efficiencies with B2B payments as with B2C payments.
4. The Need for Better Integration and Collaboration - Digitization has also prompted businesses to cultivate new partnerships when it comes to handling the security risks involved in payment processing. Businesses have a wide variety of solutions that can provide safe financing integration into their own payment systems.
Creating a Successful Plan for Streamlined Payment Processing
In order to strategically streamline payment processing, it’s essential to determine the overall cost impact and benefits of different payment methods. Let’s go over some challenges faced by businesses using traditional B2B payment methods.
- High Processing Costs: Paper check overhead costs accumulate quickly and impact revenue. Estimates show that checks cost between $4 to $20 per payment depending on the number of checks, amount of labor and supply expenses.
- Lower Time-to-Cash: There is a significant lag time between when a paper check is written and when it gets reflected in Accounts Receivable (A/R). With this slower payment cycle, there is an increase in Days Sales Outstanding (DSO) which negatively affects the overall cash flow.
- Decoupled Payments: The manual process of gathering remittance information from different sources like web portals, emails and checks can be very time-consuming and error-prone. It also creates bottlenecks that leads to delayed cash reconciliation.
- Fraud Risks: According to the American Bankers Association, 60% of attempted financial fraud is check-related using strategies such as counterfeit checks and forgery. Businesses using a paper-based manual process are much more likely to be exposed to the risks associated with B2B payments.
- Poor Visibility: When businesses utilize paper-based payment methods, there is no visibility into tracking additional chargebacks and payment delays into individual customer accounts. With a lack of visibility, it’s a challenge to take care of payment disputes which directly affects cash flow.
The B2B payment landscape has witnessed a steady increase in the adoption of digital payment methods. In this ever-growing environment of digital transformation, we’d love to learn more about your business to see if it might benefit from faster payments; in turn, improving your cash flow and working capital. And if you’d like to learn more about Commerce Bank and its CommercePayments™ digital solutions, click here.
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*The contents of this article were provided by HighRadius.