Think facilitating consumer payments can be a challenge? Well, managing transactions for a business can be even more tedious.
From writing checks to setting up wire transfers and paying in cash, some of the traditional payment methods businesses use are just very… twentieth-century.
But what are B2B payments actually like nowadays and are they better than their paper-based predecessors?
As late as 2019, half of all business-to-business transactions were made with checks and cash, according to market research company eMarketer. But fast-forward to 2024, and that share has declined by 35.8%.
Source: eMarketer
As traditional B2B payments are being phased out, payment methods like automated clearing house or ACH payments and digital payments are fast becoming the payment option of choice.
This evolution of payments can be viewed through four distinct eras: the paper era dominated by cash and paper checks, the plastic era sparked by credit cards and debit cards, the account era ushered in by digital wallets and P2P apps, and the dawning decoupled era of open-system, decentralized payments.
This evolution of the payments landscape, described by auditor McKinsey in their 2023 Global Payments Report, moves the B2B payment system from the paper era of cash and checks, through the current account era of digital payments with virtual cards and A2A transfers, to a dawning decoupled era of open payment systems.
Source: McKinsey
These advancements couldn't come at a better time for B2B payments. Long dominated by cumbersome, paper-based processes unfit for our digital era, companies are rapidly modernizing their B2B payment processing.
Businesses operating in a globalizing economy are looking for efficient international payments, and small businesses selling through ecommerce need online payments with low processing fees.
So while B2B payments may seem behind on the fintech vanguard of the payments landscape, those same innovations are disrupting the corporate space – adding functionality and reducing costs for US businesses embracing the new payments era.
So what are B2B payments in the digital era? And what are the best B2B payment solutions for your business in the payments landscape of 2024?
[Why stick to conventional payment methods if you can get faster and cheaper transfers? Contact us for free advice on how to integrate virtual cards and real-time payments into your payment system.]
How do B2B payments work in the digital era?
With paper checks and cash going out of fashion as payment options, what are B2B payments like in an increasingly digital economy?
First, what is a B2B payment actually? B2B payments refer to any financial transaction from one business to another, from paying for goods to services rendered.
This can include a manufacturer paying an invoice to a supplier, a subscription platform collecting revenue from a corporate customer, or an enterprise transferring funds to cover contractor fees.
Compared to consumer transactions, whether C2C or B2B payments, business-to-business payments are more complex processes. For starters, amounts involved tend to be much larger. Secondly, keeping a clear and detailed paper trail is the backbone of a company’s accounting and tax filing.
Trina Dutta, Vice President and General Manager of B2B Payments Automation & APIs at American Express, explains how “when businesses buy from other businesses, they need to make sure that they are meeting the required payment terms, issuing invoices with all the right data, reconciling the payments accurately, and much much more.”
For these reasons, B2B payment cycles have historically been arduous, paper-based ordeals. Payment processes that were prone to human error and costly delays. And yet, paper checks and wire transfers have persisted as dominant methods in the B2B payments landscape for longer than they do among consumers.
But that’s changing now, according to Dutta. “This has historically been a complicated process with many steps, but tech improvements are helping to make that easier and smoother.”
Payments automation is taking over to B2B payments
Payments automation is achieved through software and API technology to simplify, streamline, and expedite the processes involved in business-to-business transactions.
This enables early payment discounts, more efficient reconciliation processes, and reduced data-entry errors in accounts payable and accounts receivable processes.
Compared to time-consuming manual processes, automated payments promise enhanced productivity, faster payment cycles, and lower transaction fees.
It’s no surprise, then, that 68% of businesses surveyed in late 2023 by American Express plan to start automating or further automating their payments to suppliers in the next six months. 60% of businesses also indicated that their efforts are aimed at improving the speed and effectiveness of making and receiving payments.
Companies can only automate their B2B payment processing by embracing electronic payment methods. It’s for this reason that we see such a steep decline in traditional B2B transactions like paper checks – but don’t rule out last century’s B2B payment methods just yet.
The b2b payments landscape is evolving unidirectionally towards a digital future, but the complex processes underlying businesses’ payments and the need for a paper trail keep old payment methods in use.
Another issue that comes with implementing digital payment gateways is the need for interoperability with partners and internal processes like ERP systems and invoice processing.
7 popular B2B payment solutions
With digital innovations swooping through the B2B payments landscape and legacy payment types remaining in use, what are B2B payments that your company can use in 2024 – and how do these payments work?
Below are 7 popular b2b payment solutions, some of which your business might not yet be using but which can streamline your payment workflows:
1. Automated Clearing House (ACH) payments
Automated Clearing House payments (or simply ACH payments) are electronic bank transfers of funds between two bank accounts that are routed through the electronic funds transfer system. The system is managed by the National Automated Clearing House Association (Nacha).
Widely adopted for B2B payments, ACH transfers are mostly used by businesses for high-volume transfers and can be used for a variety of transactions, including direct payments, direct deposits, and account-to-account (A2A) payments.
Compared to other traditional payment methods, routing payments through the electronic funds transfer system remains a cost-effective and secure payment method.
However, many ACH payments are still handled through end-of-day batch processes and are only settled within two to three business days.
Same-day ACH solves this issue for businesses at a domestic level. Same-day ACH payments are processed several times daily, resulting in faster processing and settlement of ACH transactions. For that reason, same-day ACH payments have taken off in recent years, as shown by Nacha’s data.
Source: Nacha
When we look closer at transactions by payment type, as publisher PYMNTS did in a large business survey spanning multiple industries, we see that the combined share of regular and same-day ACH payments amount to a large portion of total b2b money transfers.
Source: PYMNTS
Will this share increase in the coming years? Perhaps not.
Same-day ACH transfers might overcome the hurdle of long waiting times for settlements, but they still come with glaring limitations – because same-day processing isn’t available for high-value transactions above US$1 million nor for international transactions (IATs).
With cross-border B2B payments forecasted to top US$40 trillion in transactional value in 2024, that’s a serious shortcoming.
2. Commercial credit card
Direct credit and debit card transfers have their place in the B2B payments landscape, too. B2B credit card payments are convenient and fast compared to the more complex payment methods businesses use.
A payment made by credit card is accepted and made available within seconds rather than days.
Additionally, networks like Mastercard and Visa are virtually frictionless between borders, and accepted by accounts payable worldwide. These reasons make accepting B2B money transfers through credit card a great solution for retailers in the e-commerce market and for one-off payments to vendors and suppliers.
What’s the downside of B2B credit card payments?
First, credit cards have limits that make them unsuitable for high-value b2b transactions.
Second and more important, accepting credit cards for B2B transactions means dealing with high processing fees. For example, American Express charges a fee of 3.5% on each transaction, which can add up quickly for larger payments.
Lastly, commercial credit cards come with high-interest rates. Businesses should avoid racking up debt on a credit card.
So while credit cards offer a fast and convenient way for sporadic payments, they don’t offer businesses an affordable, scalable solution that can be implemented in high-volume payment processes.
3. Commercial debit cards
Like credit cards, commercial debit cards offer a convenient and relatively fast way to conduct B2B payments from one bank account to another.
Where do debit card transfers outshine their credit counterparts? Debit card transactions generally have lower processing fees than credit card transactions, which helps businesses save on transaction costs and make them more interesting as a payment option for merchants.
They also prevent businesses from accumulating debt since funds are directly debited from the business account, eliminating the risk of overspending or accruing interest charges associated with credit card payments.
On the other hand, this means you need to have cash on hand in order to pay by debit card.
Compared to credit cards, debit cards come with a caveat: not all processors accept debit cards. And then some do but issue separate statements for debit card transactions. This creates more work for reconciliation.
4. Virtual cards
Virtual corporate cards are quickly gaining popularity as a secure and efficient payment method for businesses. The global volume of virtual card transactions is expected to grow from $35.8 billion in 2023, to $174.5 billion in 2028, representing a staggering 30.2% yearly increase (CAGR). Business transactions are expected to be a major constituent.
Why do we see such massive adoption? That’s because virtual cards offer companies the benefits of physical cards while improving on some of their caveats.
These digital cards bring enhanced security, customizable spending limits, and detailed reporting capabilities. When implemented well, they can streamline expense management by automatically recording transactions and thus simplifying the tracking process.
Various innovative payment providers, including Berkeley Payment, provide virtual card solutions tailored to businesses' needs.
5. E-checks
In the global shift towards electronic funds transfers and digital payment methods, the once-dominant and still popular paper checks have also undergone a digital transformation.
Compared to their printed predecessors, e-checks provide faster processing times and lower costs, with fees as low as 50 cents per transaction.
Because they are digital, e-checks streamline digital workflows and integrate seamlessly with ERP systems and accounting software. And while not completely fraud-proof, electronic checks are less prone to payment fraud than paper checks, going through encryption when they’re processed by the ACH payments network.
6. Wire transfers
Wire transfers are a type of electronic funds transfer from one bank account to another. In the United States we have two wire transfer systems operated by major financial institutions. The first, Fedwire, is operated by the Federal Reserve. The second is the Clearing House Interbank Payments System (CHIPS), operated by The Clearing House (TCH).
Wire transfers might be less frequently used by businesses, but they still represent a good part of the total payment volume. That’s because they often involve mostly high-value transactions.
Domestic wire transfers are mostly settled within the same business day. International transfers, though, can take up to five business days.
However, the single biggest drawback of wire transfers is their cost. They’re one of the most expensive ways to transact payments, with single transfer fees reaching up to $50.
Considering the high cost and less-than-instant processing speed, wire payments simply do not deliver the same convenient experience as the latest generation of real-time payment systems operated by the Fed and TCH.
7. Real-time payments
Real-time, business-to-business payments are on the rise globally, with payment rails like SWIFT in Europe widely in use and the United States catching up in the adoption of RTP with The Clearing House's RTP and the Federal Reserve's recently launched FedNow.
Businesses are hungry for fast and cost-efficient b2b payments, with the TCH’s RTP network seeing record use in Q1 of 2024, surpassing 1.25 million transactions in a single day.
Deloitte predicts that real-time payments could replace between US$18.9 and 37 trillion in ACH and check-based B2B payments in the United States by 2028.
Source: Deloitte
One of the big factors driving RTP adoption in the US is payroll processing, which allows employers to offer instant payroll capabilities and employees immediate access to their earned income. But the use cases of real-time payments aren’t limited to payroll.
Completed within seconds and affordable at $0.045 per inter-participant credit transfer, real-time payment services can be automated to all kinds of ends because they use ISO 20022 messaging standards that enable two-way communication for payment requests and confirmation, as well as richer data transfer.
Other benefits that firms regularly cite as a top reason to use RTPs include enhanced security and better cash flow management.
Source: PYMNTS
With RTPs offering obvious benefits, what is the main drawback of using real-time payments? Cross-border b2b payments through the two major US RTP networks are still in their pilot stage, with global RTP payment rails years away from true interoperability.
Another possible drawback lies precisely in RTP’s strength: ISO-20022 can be hard to use. Deloitte notes that specialists who genuinely understand ISO 20022 appear to be in short supply in the industry.
A one-stop solution: Digital payment platforms
While the discussed payment methods like ACH, credit cards, same-day wire transfers, and RTPs have their merits, most come with limited workflow integration and poor cross-border functionality.
To solve this issue, many US businesses have started using digital b2b payment platforms that integrate all their b2b payment needs in one digital solution.
Fintech players like Berkeley Payment offer centralized b2b payment services for companies to streamline their finances across payment types, operations, accounting, and more.
Instead of juggling different tools, approvals, and reporting for each payment rail, BP’s digital payment platform enables smart and cost-efficient b2b payments powered by rich data.
The platform allows for virtual card issuing, real-time payment processing, and smart payroll processing. Some of the key features of the platform are:
- Single unified platform for all B2B payment types and operations
- Real-time payments including tracking and remittance data visibility
- Global payment capabilities for domestic and cross-border transactions
- Robust security compliance including PCI certification and fraud detection
- Competitive pricing to easily implement and scale payment programs
- Fully branded experience for emails, cards, collateral and more
Finding the best B2B payment method for your business
Though slow to adapt, businesses have embraced the new era of payments. While some still stubbornly hold on to their paper checks and cash, others transform their payment processes with digital wallets and real-time payment rails.
If you’re wondering which payment methods work best for your business, below is a chart that compares the most popular B2B payment solutions.
The table makes it clear: if you want to have fast, secure, automated and global B2B payments capabilities, outdated methods fall short.
While our financial institutions have built reliable payment rails with RTP and FedNow, they work best when built into an integrated B2B payment platform.
Berkeley Payment’s all-in-one digital payment platform streamlines payments and operations, combining the best capabilities of tomorrow’s payment technologies into one seamless experience.
[Ready to power your business with tomorrow’s payment tech? Sign up with Berkeley Payments to seamlessly integrate our instant payment platform into your daily operations.]
