6 Trends Driving B2B Receivables Payment in Mid-sized Businesses

The B2B Payments Landscape in Mid-Sized Businesses

The survival strategy for most mid-sized businesses in the current climate is to prioritize cash flow management and strategize on the cost-cutting front. With the growing need to deal with time-consuming, costly, fraud, and error-prone traditional paper-based payments, SMBs earning less than $10 million per year are more interested in real-time payments to deal with cash flow concerns as per Mastercard. Let’s explore the advancing opportunities in the field of B2B payments in mid-sized businesses.

Key Payment Trends

1. Rise of Flexible Digital Payments Methods

The rise of digital payments comes with the potential to curb the challenges of traditional paper-based payment processing while managing regulatory, compliance, and cost-based challenges. According to a study by Mastercard, 76% of SMEs across North America has said that the global pandemic scenario has prompted them to be digitally equipped.

Digital Payment Methods

Here are some emerging digital payment methods that come with reduced operational risks and faster payment processing.

Automated Clearing House (ACH):

Provide faster access to funds as compared to paper checks. Transactions can either be initiated by the buyer or seller.

Credit Cards:

Includes credit and even prepaid systems with open and closed-loop global networks. Fees are attached to each transaction.

Direct Debit:

Provides a safe and convenient way to make recurring payments. Works via an instruction given to the bank.

Wire Payment:

Secured payments between financial institutions. No particular payment limit for a transaction.

Payment Gateways:

Facilitate easy and faster financial transactions: subscription-based and one-time payments. Payment processed by a third-party

Virtual Cards:

Used via a randomly generated credit card number linked to any card account. Provides access to credit card accounts from any location, at any time with the help of mobile application or online wallets.

Remote Deposits:

Used for check payments where customers can conveniently make remote check deposits by scanning it with a mobile device.

Faster Payment Processing

With the goal of increased economic savings and simplified payment processing, digitization has guaranteed improved profitability and productivity. According to The Hackett Group, 2018, electronic invoice payment processes cost 60% less on average as compared to the traditional paper-based process. Digital payment methods come with reduced processing time with faster payment reconciliation that has a significant impact on the overall cash flow.

2. Rising Marketplace Demand

The growth in the B2B payment ecosystem has been driven by digital innovations within the industry with evolving marketplace demand and changing market infrastructure. Digitized marketplaces have proven to be very appealing to different manufacturers across industries, wholesalers, and even distributors.

3. Rising Customer Demand

In today’s fast-paced world, customers want better speed and convenience when it comes to B2B payments. With demands for fast, accessible, and real-time payment methods – customers are on the lookout for better control over their finances with a wide range of available payment methods as per their requirements.

4. Rising Need for Better Integration and Collaboration

Digitization has also prompted businesses to cultivate new partnerships when it comes to handling the security risks involved in payment processing. Mid-sized businesses have a wide variety of third-party solutions to collaborate with that provide safe financing integration into their own payment systems.

Strategizing a Successful Plan Ahead for Streamlined Payment Processing

In order to strategize a successful plan for streamlined payment processing, it’s essential to determine the overall cost impact and benefits of different payment methods in place. Let’s go over some crude challenges faced by mid-sized businesses due to traditional B2B payment methods and the counterpart benefits of leveraging digital payment methods.

1. Evaluating the Impact of Traditional B2B Payment Methods

High Processing Costs:

Paper-check overhead costs can accumulate annually to severely harm a company’s revenue. As per reports by the Bank of America, there’s an estimated cost of $4 to $20 per payment for checks.

Lower Time-to-Cash:

Owing to slow processing methods, there’s a huge time lag between when a paper-check is written and when it’s reflected in the open A/R. With the slowed down payment cycle, there’s an increase in Days Sales Outstanding (DSO) which negatively affects the overall cash flow.

Decoupled Payments:

The manual-process of gathering remittance information from different sources like web-portals, emails, and check is very time-consuming on top of being error-prone. It also creates a bottleneck that leads to delayed cash reconciliation.

Fraud Risks:

As per reports by the American Bankers Association, 60% of attempted fraud is check related fraud. Businesses following a paper-based manual process are much more likely to be exposed to these risks involved in B2B payments.

Poor Visibility:

When businesses follow a paper-based route for documentation of payments, there’s no visibility in terms of tracking additional chargebacks and payment delays into individual customer accounts. With a lack of visibility, it’s a challenge to take care of payment disputes which directly affects the cash inflow.

2. Prioritizing the Benefits of Digital Payments

Let’s see how the adaptability of digital payment methods help in taking better cash management and working capital decisions.

Improved Time-to-Cash:

As compared to paper-checks which can take days to be processed by banks and finally reflect in the A/R, digital payments are in real-time. It also eliminates the need to manually reconcile payments to the individual invoices which result in improving the overall time-to-cash.

Lower Processing Costs:

The manual process of sending and processing paper-checks comes to be a lot higher as compared to processing digital payments. Owing to the reduced manual intervention and reconciliation efforts, digital payments are more cost-effective as compared to traditional paper-based payment methods.

Better Compliance & Security:

The Payment Card Industry Data Security Standard (PCI DSS) is defined as a set of requirements that ensure secure processing, storing, or transmission of the credit card information. New age PCI DSS compliant solutions in digital payments provide a frictionless experience by protecting the business along with their customers’ data. This ensures that the payment information is securely handled.

Improved Cash Flow & Visibility:

With a digitized framework, businesses can track invoices through their approval and final payment. This will save a lot of time and effort to re-allocate resources to high-priority strategic tasks. Finance executives can have access to real-time revenue performance for making strategic cash management decisions.

Improved Customer Experience:

The availability of multiple payment formats makes it easier for customers to pay for invoices on time. This results in a reduction in the overhead of the open A/R.

Conclusion

The B2B payment landscape has witnessed a steady increase in the adoption of digital payment methods. Mid-sized businesses can capitalize on the growing B2B payment trends by evaluating the cost-benefit and operational efficiency of different payment methods in place. In the ever-growing environment of digital transformation, businesses can benefit from faster payments, improved cash flow, and working capital. Learn more about emerging digital payment methods that provide opportunities to improve cash flow and make a positive impact on working capital.