Let's face it, B2B payments seem to be stuck in the past while B2C ones are being made at record speed and with extreme ease. Yes, B2B payments are more complex and therefore more time consuming but the innovation gap between the two is just too vast to put up with.
Corporate customers regularly find themselves working with a wide collection of employees, documents and departments to effect the smallest payment for goods or services. The tools available in B2C in terms of automation, security and flexibility are easily transferrable to B2B.
B2C consumers have been spoilt in their everyday lives with anything and everything from electronic wallets to cross currency mobile transfers and bill splitting at the click of a well designed button. The total global market for e-commerce this year projected to surpass $2.4 trillion.
Unfortunately, many companies either lack the insight or the budgets to implement innovative software and systems to simplify their payment process and bring them in line with what most of us are accustomed to in our personal lives. The main ongoing situation then is companies are stuck writing checks and using paper documents instead of digitizing and simplifying each step of the purchase to payment process.
50% percent of businesses still use checks for B2B payments according to PYMNTS.com:
“As any business owner or CFO will attest, making the payment is only a small part of the overall process,” René Lacerte, CEO and founder of Bill.com, explained to PYMNTS.com. “The paper-intensive, manual process that occurs before and after the payment is made is time consuming, error-prone and expensive. Business payments require more document management, systems integration with accounting software, and collaboration with employees, vendors, customers and accountants.”
Lacerte also estimated that close to 80% of businesses have a highly manual process behind payments management. The risks and inefficiencies of paper-based models have been proven time and again yet digitising the purchase to pay process is still very low in the list of priorities for most companies.
When push comes to shove
Traditional B2B payment methods are going to have to retire however. Current payments, certainly payments via check, require a multitude of time consuming, money wasting steps from the issuing of the check, the deposit, monitoring the clearance of the check, and the manual update in old generation payment management systems. Checks tend to also involve float times which can have dramatic effects on cash flow together with a varying degree of security risk. Let us remember however that this is still the situation for over 50% of US business according to Business Insider:
The other options when it comes to B2B payments include ACH (American Clearing House), which enables electronic fund transfer within the US, BACS payments in the UK, as well as international payments via SWIFT or payments by credit card. Most of these payments can only be made in exchange for fees.
Government programs and policies have been attempting to crack the B2B payments problem for a while by pushing and encouraging e-invoicing and B2B electronic payments. Chile mandated e-invoicing, back in 2014, estimating it would save the country $600 million annually and help reduce tax fraud.
In the U.S., ever since the Department of Treasury enforced e-invoicing in 2011, it's seen savings of over $450 million every year. Governments around the world could push for similar legislation to encourage B2B electronic payment processes, with the reduction of fraud and overall spending as key motivators.
Payment digitisation doesn’t mean companies need to implement overly complicated software and hardware as the case may have been a few years back. They can instead tap into the resources of cloud based marketplaces or apllications and even create new B2B payment systems and methods.
The deciding factor
It's clear by now that companies aren’t going to ditch the paper or their current process unless new technologies support payment processing and tasks associated with e-invoicing and purchasing.
In a nutshell, businesses will not revamp their entire IT ecosystems to implement new payment processing software and tools. Any B2B payment solution will need to seamlessly become a part of B2B transactions or businesses will risk having any innovative program in this space go to waste.
But perhaps the most important argument regarding B2B payments is security. Yes, cybercriminals are our there and fraud is rife. The better that data protection gets, the more advanced the threats become. We have seen cases of phising affecting even then biggest companies like Google and Facebook as recently as April of this year.
An investigation by Fortune showed that the two fake companies setup by a Lithuanian man sent fraudulent invoices to Facebook and Google, who both paid out over $100m.
To protect the corporate data of clients, B2B payment tools and platforms will need cutting-edge cybersecurity solutions that offer both simplicity and increased control. Cybersecurity is not optional.
Don't leave for tomorrow what can be done today
“In order to prepare for the IoT, companies will need to start digitizing their B2B processes now.”
The shift is already happening and in the not too distant future most manufacturers and suppliers will have their equipment, machinery, transportation, goods and other devices connected to one another in a machine-to-machine network.
This transparency and access to real time data will gove rise to a level of visibility and management unseen before. To prepare for this level of efficiency however, businesses will need to start digitizing their B2B processes now.
As software companies continue to work on tools with heightened flexibility and security, the shift to digital payments should finally happen in B2B as well. A study by Deloitte shows the B2B payment market is projected to experience a 5.8% annual growth rate in the current period (2014-2020).
B2B payments have a long road ahead. It’s not an impossible end goal to reach, but it will be critical to start the journey sooner rather than later.