Business-to-business, or B2B, payments are an enormous part of the global economy. One study from Deloitte found that B2B payments will reach $23.1 trillion by 2020.¹
Increasing digitization and global adoption of digital payment methods is changing the face of B2B payments as well. There is a continuing shift away from the use of paper checks to pay vendors and suppliers. This is due in part to the growing acceptance of digital funds transfer and in part due to the problems with paper checks, which are prone to fraud, slow payment cycles, and manual processes which are difficult to control.
Additionally, the growing use of application program interfaces (APIs) and open banking initiatives are making digital B2B payments even more attractive to companies and financial institutions.
The benefits to a company adopting digital B2B payments over paper checks are many. Payment cycles can be cut from 30-120 days to hours or even minutes, improving cash flow and supplier relationships. Processing costs are far lower – paper checks can cost a company from $4 to $20 per check,² depending on the company’s process. Errors are reduced, employee resources can be diverted toward higher-level activities, and international transactions become easier to complete and track for regulatory purposes.
Here are the three fastest processes for digital business-to-business payment methods that take advantage of digital technology.:
1. Same-Day ACH
In September 2016, the U.S. ACH (Automatic Clearing House) network began adopting rules that would allow a company to make same-day funds transfers. Today, virtually all types of credits and debits are available to the payee on the same day the payment is initiated.
The only payments that are not same-day certified through the ACH include those over $25,000 and international transactions, which are subject to additional verification requirements and account for less than 1 percent of ACH network volume.
To take advantage of same-day ACH, you need a business-to-business payment provider who offers the services. Top funds disbursement platforms and online payment solution vendors often provide same-day ACH capabilities.
2. Instant Payments
Instant payments are defined as electronic retail payment solutions that are available any time and are final, with an immediate clearing of the transaction and crediting to payee accounts. The appeal of instant payments is improved access to banking services, and support of economic growth, opening competition to new markets.
A report from KPMG noted that half of the world’s population has access to instant payments through one platform or another, and that the European Payments Commission expects that real-time payments will account for 50% of credit transfer transactions over the next five years.³
Like same-day ACH, business-to-business payment vendors often offer instant payments through funds disbursement platforms and other solutions with a range of payment options.
3. Virtual Payment Accounts
A virtual payment account allows a company to use a financial services platform, or suite of payments APIs, for virtual payment accounts that automate the process of B2B payments. A virtual account can be embedded into a business process, such as the procure-to-pay cycle, travel booking, or payer-to-provider payments.
A virtual account allows companies to reduce the number of physical bank accounts that must be maintained and monitored. Instead, a company can use a single, centralized bank account which is then divided into virtual accounts that support a branch operation, department, or functional profit center. Automation reduces manual processing requirements and potential for errors. Oversight is improved, as are controls, and regulatory compliance is made easier with a virtual account structure.
When two companies both make use of virtual payment accounts, this can become one of the most efficient business-to-business payment methods on the market.
Use Technology to Improve B2B Payments
Some companies are held back from online payment solutions due to the mistaken belief that online payments offer less control than a paper check, or a lack of technology. Both are easily remedied. Digital payment platforms can provide improved communications with interactive messaging, automated approvals and an intuitive dashboard, allowing stakeholders to track the status of B2B payments from invoice to reconciliation.
Advancements in digital payments technology have increased adoption in the B2B sphere. A company can reduce regulatory burdens, while improving resource allocation, business process cycles, and supplier relationships. And there are a variety of online payment solutions that offer all three of these business-to-business payment methods, so you can choose which makes the most sense for your company.