“Digital payments once revolutionized commerce. Now, commerce will revolutionize payments, making them an invisible, invaluable part of an elegant, customer-first commerce experience,” Forrester says.
While the B2B payments ecosystem may have once revolved around paper-based, manual processes, recent years have seen a shift toward cloud-based, automated payment systems. This digitization has significantly simplified the buying and selling process, making it faster and more efficient for B2B buyers and suppliers to make business payments.
And with the pandemic only accelerating this digital transformation, the B2B payments landscape shows no sign of stopping. By 2025, Gartner predicts 80% of B2B sales interactions between buyers and suppliers will occur in digital channels.
In this article, we’re breaking down the top digital payments trends in 2022 to help you stay up to speed with the B2B payments market.
B2B payments, or business-to-business payments, are the exchange of currency between two business entities for goods or services supplied. These payments may happen one time or recurrently, depending on the terms of the buyer and seller agreement, and business entities may include corporations, wholesalers, retailers, manufacturers or distributors.
One of the major differences between B2C and B2B payments is pricing and quoting. While B2C commerce does often involve 50% or “buy one get, get one free” deals, every consumer pays the same price, and there’s no room for negotiation.
However, with B2B commerce, prices often change depending on pre-negotiated contracts and quotes, as well as the relationship between the buyer and seller, the buyer’s payment history and the purchase volume.
Another primary difference between B2C and B2B payments is the decision-making processes. With B2C commerce, a customer is often purchasing products for themselves or a household, so there are normally only one or a few people involved.
However, in B2B commerce, the decision-making process is much longer. Since B2B purchases are often more expensive and involve larger quantities of goods than B2C purchases, there is more risk involved. Therefore, purchasing decisions must go through several people and opinions before being approved.
And that’s why so many B2B businesses are moving the needle toward paperless transactions — to simplify the process and improve the overall experience for both the buyer and the seller.
Although digital adoption is relatively new, B2B payments is a Fintech sector with a significant market opportunity — and considering only one-third of B2B global expenditures are processed electronically, digital disruptors could have huge potential for growth.
Here are just a few ways that businesses can profit from digitizing payment processes:
But the businesses themselves aren’t the only ones who can benefit from digitization. Card providers like Visa and AmEx can also reap the benefits and have offered new solutions in the B2B payments space.
Mastercard, in partnership with Demica, launched its Mastercard Track™ Business Payment Service, which increases access to flexible working capital for buyers and suppliers and accelerates automation when businesses complete transactions. And in 2016, Visa launched its B2B Connect, a platform that provides financial institutions with a fast and secure way to process cross-border B2B payments.
Considering the value proposition of B2B digital payments, many venture capital and private equity funds are investing in the market. In fact, according to LLR Partners, “VE and PE funds invested in over 80 B2B payments businesses, representing a CAGR of 9% since 2013.” As these investments continue to grow and open the door to new digital payment innovations, the B2B payments space will only advance further.
Amid the changing landscape, it’s crucial that B2B ecommerce businesses stay in the know about current trends and what’s to come in the world of electronic payments. Here we’ll unpack six of the top B2B payment trends and what you can do to stay ahead.
It’s no mystery that paper checks are in rapid decline. Nonetheless, even with commercial check usage reaching an all-time low in Q1 of 2022 — after a steady decline over the past two decades — 91% of fintech leaders say their organizations still receive check payments from their customers.
Although checks may seem old-fashioned, many businesses are reluctant to let go of deep-rooted operations and systems that may be difficult to digitize. However, amid the global pandemic, switching to real-time payments and electronic transactions has been essential for many remote businesses.
According to a 2020 Mastercard study, 68% of small businesses said they had to decrease their use of cash and paper checks “more than any other payment types during the pandemic” because deposits took too long. And, shown in the graph below, an AFP 2020 Payments Survey reported that 58% of practitioners are likely to convert the majority of their B2B payments from checks to electronic.
Unfortunately, while the idea of electronic payments may sound nice, some organizations are still hesitant to make the switch.
Electronic payments such as ACH (automated clearing house) can complicate the payment process. Since remittance information (i.e. invoice numbers, payment methods and amounts) travels separately, it’s difficult for suppliers to immediately see what charges they’re related to. As a result, accounts receivable specialists must manually match ACH payments with the correct invoice.
Luckily, with the rise of contactless and remote payments comes the advent of “smart” payment methods, which allow for more electronic payments without the added manual work. So, as the money moves from one set of hands to another, the data moves along with it, automatically applying the money to the correct invoice.
Not only are digital B2B payments improving internal accounts receivable and processes, but they’re also working to increase data and efficiency between buyers and suppliers. Many banks, card providers and fintech companies are working together to solve common challenges, such as data, customer and cash management, which will help simplify and enhance the B2B payment process.
Through “collaborative commerce” — the concept of organizations working together through connected systems — businesses can reduce friction and create more automation in the B2B payment process.
Long gone are the days of only paying by cash, check or card.
With payment options like buy now, pay later and virtual cards becoming more available in the B2C space, it won’t be long before these become the norm in B2B ecommerce, too.
Considering B2B transactions are typically larger and more complex than B2C purchases, there needs to be more flexible payment methods to accommodate them. This can help drive customer loyalty and retention, encourage faster payments and reduce costs for both you and your customers.
Especially with accounts payable teams sheltering in place during the pandemic, the need for payment automation has never been greater. Although this trend was already in progress, COVID-19 only accelerated the shift, with cloud-based systems minimizing the need for on-premise systems and check-printing equipment.
Rather than worrying about paper checks and manual processes, with payment automation, you can focus on core business activities and rest assured that payments are taken care of with little to no error.
Over the past several years, artificial intelligence (AI) and machine learning have permeated the ecommerce industry, and the B2B payments sector is far from immune.
Similar to AP and AR automation, which we’ll cover in a later section, AI technologies can be instrumental in accelerating payment processes and reducing the workload for accounts payable teams. Plus, machine learning algorithms can assess accounting data, learn trends and make suggestions to help speed up the payment process.
Another trend that’s changing the B2B payments landscape is blockchain, the technology behind cryptopayments. Using a decentralized approach, blockchain takes away the need for a middleman, such as a bank, and allows for a quicker transaction — 96% faster than traditional bank payments.
And finally, cryptocurrency is also making its way into the B2B payments space. However, its adoption has been slow thus far.
In 2019, 8% of firms were using cryptocurrency as a payment solution, and only 3.9% of respondents said they were “very” or “extremely” satisfied with this method. This apprehension may be attributed to mixed public acceptance of Bitcoin and a lack of fintech support.
However, this doesn’t mean you should write off cryptocurrency as a payment method. Although it isn’t yet mainstream, cryptocurrency helps remove barriers for global transactions, and it can lower fees by 75% compared to wire transfers.
As touched on before, businesses are no longer solely relying on manual accounts payable (AP) and accounts receivable (AR) processes, such as paper checks and cash. In fact, according to a study by PYMNTS and American Express, firms that depend on manual processes take 67% more time to follow up on overdue payments than firms that use automated AR.
As a result, 70% of B2B companies are taking steps to automate their AR processes in order to better manage cash flow and accelerate operations.
While it may be hard to let go of paper checks and physical signatures, these legacy processes can make payments lag and add unnecessary work for AP teams. However, with AP automation, businesses can create and deliver invoices quickly and accelerate the payment timeline. Using digital alternatives for manual processes, you can improve the transaction for your customer and also increase your chances of getting paid on time.
Although many SMBs are looking to digitize their payment processes, many still face challenges in the transition. According to PYMTS.com, over 60% of SMBs say their invoices are “routinely paid late,” and 16% report that “receiving payments can take more than a month.” However, AR automation can help you to manage payment collections instantly and increase visibility across all accounts and invoices.
On top of current trends and innovations, there are a number of new payment models gaining traction in the B2B landscape — all working toward greater efficiency for buyers and sellers. Let’s take a look at four up-and-coming models and what they can do for your business.
We’ve all heard of “buy now, pay later” — a payment solution that allows customers to choose a financing plan and pay in installments, rather than paying full price up-front. Now, installment payments are making headway in the B2B world, too. With the freedom to choose their own payment plan, customers will be less likely to abandon their shopping cart and more likely to increase their average order value.
One of the key ways to get paid quickly is by offering customers simple, flexible payment options. Unfortunately, if a B2B customer has multiple outstanding invoices, it can be time-consuming and frustrating to go through and settle each one individually.
Luckily, with pay-one, pay-all invoices, customers can track, batch together and pay all outstanding invoices simultaneously. This not only saves time and money for the customer, but it also ensures that you’ll get paid on time, every time.
Speaking of getting paid on time, another growing B2B payment model, called “workflow payments,” functions for this very reason.
By pre-authorizing a customer’s credit or debit card, workflow payments work by triggering an automatic payment after a product or service has been delivered. These transactions allow you to receive your money in a timely manner, but they also ensure security for the customer, since they never have to share their personal information or card details over the phone.
Digital payment solutions have been around for several decades, mostly in B2C ecommerce. However, there are several benefits of going virtual with your payment solutions in the B2B world, too. Let’s explore some of these advantages and what they can do for your business.
With traditionally manual processes and disjointed systems, B2B transactions can often require lots of time and monotonous tasks. However, digital B2B payments are key for automating and streamlining the entire payment process. Rather than keeping track of checks going back and forth between buyer and supplier, you can use digital payment solutions to manage and record every transaction.
Not only are the manual processes of B2B payments tedious and time-consuming, but they also run the risk of human error or payment fraud. In comparison, digital payment solutions are the more secure option, often resulting in little to no error. In fact, virtual cards make up only 3% of targeted payment fraud compared with 74% of checks.
Of course, even electronic payments aren’t immune to fraud, but there are several measures you can take to increase security and minimize your risk:
In the end, every party in the transaction simply wants to receive their product or their money in a timely manner — with as few hiccups as possible.
Completing payments on time is essential for forming and maintaining good client relationships. The more consistently you can make payments, the more trustworthy you’ll become in the eyes of your customers, and hopefully, the more likely they are to come back for business in the future.
If we’ve learned anything about payments from the B2C ecommerce industry, it’s that flexible and digital payment options are the future. New digital options like mobile wallets and mobile point-of-sale have been popping up in B2C settings for the last decade, and today they’re some of the most popular ways to make online payments.
However, in the B2B landscape, digital payments are only getting off the ground. With legacy processes ingrained in the industry, it may take some time for electronic payments to make serious headway, but there’s no doubt it’s heading in that direction.
So, rather than shying away from change, embrace it — you’ll thank yourself in the long-term.