How are B2B payments generally done between businesses?
With constantly evolving technology, making payments has become a seamless process. Now, you can send the payment across the country within minutes.
When we talk about B2B payments, it usually includes payments made from a business to another business for the services rendered or any products sold. In nutshell, whenever an invoice is created and sent from one business to another the B2B payment scenario takes place.
Businesses have various methods to carry out the payment process, however, every business has different needs so they won’t be implementing the same kind of payment process. If you’re facing a challenge on which payment process to adapt, then this article is for you!
Global impact of B2B payments
B2B payments have drastically revolutionized the payment process over the years. In fact, it provides the highest number of opportunities to businesses around the globe.
According to the reports by Allied Market Research, the Global B2B payments market to reach $1918.03 Billion by 2028.
The industries that contain the largest volume of B2B payments are –
- Finance, insurance, real estate, rental, and leasing possess $2.19 trillion (17.8 percent)
- Professional and business services payment volume is at $2.60 trillion (21.2 percent)
- Manufacturing stands at $3.53 trillion (28.8 percent)
- Wholesale trade payment volume is $643 billion (5.2 percent)
- Mining takes up $685 billion (5.6 percent)
We’ve also witnessed advanced B2B payment methods such as digitized payments, wherein a company generates a services rendered invoice online and sends it to their clients, which more and more companies are now adopting. Therefore, with the right B2B solution, you can easily streamline your payment process and scale your business!
Now, let’s find out various methods of B2B payments that you can choose for your business.
Various ways B2B payments are done between businesses
Businesses prefer a payment mode that’s convenient, consumes less time and gets the task done without any hassle. So, I’ve listed down different ways B2B payments are made, their benefits as well as drawbacks, if any.
This is one of the most common modes of B2B payments. Cash is preferred as a B2B payment when both parties are located in the same places and can schedule a meeting in person to hand over the payment.
In fact, unlike other payment modes, you can only make payment when you have cash on hand, as there’s no processing time. Moreover, many vendors prefer cash payments only as it eliminates processing fees.
Benefits of cash as a B2B payment
- Quick transfer of money
- A feasible option for small scale companies
- No processing fees
- Keeps you aware of your cashflow
Drawbacks of cash as a B2B payment
- Restricts you from doing business with clients from different locations
- This mode of payment isn’t possible for large scale companies as you can’t simply carry $1 million cash with you.
A paper or electronic check takes you one step further, and it’s comparatively easier. The client issues the check to the company that has rendered their services. Later, it can be encashed through the bank or it can be directly deposited to the receiver’s account.
Checks can help you in better management of cashflow and also builds trust among clients as it’s one of the secure way of making payments.
Benefits of using checks as a B2B payment
- Easily traceable
- No bank account required to encash a cheque
- Can be deposited in the future date
- Provides protection from security and fraud
Drawbacks of using checks
- Not the fastest mode of payment
- Charges may be levied if the payment doesn’t go through
- You might need to keep a minimum balance in your bank
3. Wire Transfers
Wire transfers are one of the oldest modes of payment, as they were introduced by Western Union about 150 years back. Wire transfer is a convenient and faster way of sending and receiving payment from international clients.
Wire transfers are of two types – cash and digital.
In cash wire transfer, the funds are made available to the recipient at the cash office. And in digital transfer, the funds are directly transferred to the bank account of the recipient, similar to checks but this process takes only a couple of hours.
Benefits of wire transfers
- Quick turnaround time
- Enables you to make international payments
- Ensured safety for fund transfer
Drawbacks of wire transfer
- Difference in the exchange rate
- Return transaction unavailable
- Hidden fees
4. ACH Transfer
ACH (Automated Clearing House) lets you transfer the payment from your checking account to the business’s account. This payment process only works when both parties have filled out the necessary paperwork.
Otherwise, if only one business possesses ACH payment mode and the other party doesn’t, they won’t be able to receive the payment unless they’re ready to submit the bank account information.
ACH network has continuously grown over the years, as now the majority of businesses adapts to ACH payment method for their company.
ACH transfer is a beneficial way for businesses that deal with recurring projects like contractors. In such a scenario, recurring payments can be done without any hassle.
Benefits of ACH transfer
- Best for recurring payments
- Lower costs
- Secured transfer
Drawbacks of ACH transfer
- Needs extensive paperwork from both parties
- Not possible for businesses handling a large number of clients
5. Credit Cards
The usage of credit cards among companies is on the rise as it provides plenty of benefits. Individuals and entrepreneurs are already utilizing credit cards to pay off their bills using the allocated amount which can be paid at the end of the billing cycle.
Now, over 67% of business owners use business credit cards, which is remarkable growth for business credit card adaption. For businesses that have a high credit score, it would be easy to get a credit card. Therefore, if you want to make your payment process simpler and faster, credit cards are the way to go!
Benefits of business credit cards
- Faster payment process
- Widely accepted
- Convenient billing cycle
- Improves business cashflow
Drawbacks of business credit cards
- High interest rates
- Not commonly used by small businesses
6. Digital Payment Platforms
Now coming to the payment method that’s been rapidly becoming popular among people and businesses – online payments. The onset of pandemic indeed transformed our mode of living, enabling companies to implement a remote working and doing business deals virtually.
Therefore, the majority of companies have now adapted to making and receiving payments via online payment gateways.
Digital payment platforms such as Paypal let you make bank transfers and send invoices. With convenience, also comes a price; here it’s in form of transaction charges. So, if you’re using any form of online digital payment method for your business, you’ll have to bear the charges as well.
Benefits of digital payment platforms
- Processes payments within minutes
- No manual paperwork
- Helps track the payments digitally
- Secured payments
Drawbacks of digital payment platforms
- Service fees are charged for making online payments
- Technical problems may create a glitch in the payment process
B2B payments require a secure platform as you’re dealing with money and approaching it the wrong way may lead to financial loss. Therefore, whichever payment method your business adopts, it’s crucial to see that it aligns with your company’s requirements.
For instance, if your business has international clients, you can adopt wire transfer or any digital payment platform. Or, if you’re a local business with clients that are based in the same location, you can also consider the cash payment option.
Having multiple options for B2B payments can also cause problems between businesses. Suppose your client wants to make the payment via credit card but you only take cash and wire transfer, then there would be an issue. Moreover, tracing payments from multiple channels is too time-consuming and lacks visibility.
Hence, always pay heed to the need of your clients and select the payment option accordingly.