B2B payments - All you need to know
Business payments are a crucial aspect of any business organization. If B2B payments stop flowing to and from a company, operations will come to a halt and affect many other businesses that are interdependent on each other.
To avoid this from happening, businesses should use modern systems and processes capable of handling various B2B payment methods to ensure there’s no stoppage of operations.
A B2B system can be an online platform, tool, set process, or software system that is used by a business to carry out a particular function in their organization.
Examples include a B2B payments platform, an ERP(Enterprise Resource planning) system, and a CRM(Customer relationship management) system.
When a system is used by a business entity and its people for completing business tasks rather than for personal use, it can be classified as a B2B system.
Business-to-business payments can be done through traditional means such as cash and cheques or more modern methods through digital mediums such as wire transfers, online banking, etc.
Cash and cheque payments are pretty self-explanatory. You simply hand over the amount of cash/a cheque that is due to the business you owe money.
Online B2B payment methods may vary depending on the tool you use to make payments. If a vendor or supplier sends you an invoice to be paid online, the business can use a card or a form of online payment such as IMPS/RTGS/UPI/wire transfer.
Before the payment is made through any of these methods, the invoice is matched with relevant documents to verify its legitimacy. Approvals are taken from the responsible manager and the accounts payable department then goes ahead to make the payment.
A typical card payment transaction works in the following way:
● When a transaction request is initiated, the gateway securely captures the request, encrypts the payment information, and proceeds to route it to an acquiring bank.
● Once the acquiring bank, responsible for providing the merchant account, receives the transaction request, it assumes ownership and undertakes the task of obtaining authorization for the transaction.
● Subsequently, the issuing bank evaluates the request by considering factors such as the customer's available credit or funds. Based on its assessment, the issuing bank generates a response, indicating either approval or denial, which is then transmitted back to the acquiring bank through the card network.
● The acquiring bank receives the response from the issuing bank and forwards it back to the payment gateway.
● Finally, the payment gateway's ultimate responsibility is to relay the response either to the merchant or directly to the shopper in the case of a hosted payment page. Upon receiving the response, the merchant or shopper is informed of the outcome, confirming the approval of the order.
Probably one of the oldest and most traditional forms of payment used is cash. It is a good payment method for immediate settlement. Cash is helpful when you are present in the same or similar location as your vendors and suppliers.
But its usage is slowly dropping in the modern economy where there are more modern B2B payment methods.
A ‘cheque’ or a ‘check’ is a small document through which an account holder of a bank can order it to make a payment of a specific amount to the person in whose name the cheque has been issued.
The person writing the cheque is known as the drawer and the person who is supposed to receive the payment through cheque is known as the payee.
Once the payee deposits the cheque in a relevant bank, the specified amount from the drawer's account will be withdrawn and transferred to the payee's account.
A demand draft is a document similar to a cheque that is used to initiate a bank transfer. The difference here is that it does not require a signature as compared to a cheque.
The document is issued to a client by their bank directing another bank to pay a certain sum of money as specified on the document.
Credit cards are a type of financial instrument that allows a person to make payments from a certain amount of credit limit that is allotted to them by the card provider. When talking about the future of B2B payments, it's hard to not mention credit cards.
Their ease of use and widespread acceptance across the world thanks to global payment networks like VISA make them the perfect tool to carry out business transactions.
Unlock the power of business credit cards in India! Explore our comprehensive article to learn about the different types of credit cards available for businesses. Read to gain valuable insights and make informed financial decisions for your company's success.
An automated clearing house(ACH) payment method is a type of electronic fund transfer that is provided as a service by many banks and financial institutions.
The transactions happening through this network are generally domestic payments of relatively lower values. It can support both debit and credit transfers.
Unified Payments Interface is one of India’s latest innovations in payment technology that was developed and created by the NPCI(National Payments Corporation of India).
It is an extremely fast and instant mode of payment that can be done between peer-to-peer, person-to-merchant, and inter-bank transfers.
It uses UPI IDs or mobile numbers registered with a UPI ID through smartphones to carry out payments through authorized and capable apps.
NEFT is another type of electronic fund transfer system that was started in India in 2005. The system is maintained by the RBI(Reserve Bank of India) and the setup was developed by Institute for Development and Research in Banking Technology.
This payment method can be accessed through online banking/net banking using your bank account.
IMPS is one more payment interface available for inter-bank electronic fund transfers in India. This payment service can be accessed through mobile phones and can be used 24x7 throughout the year even on bank holidays.
RTGS is also an electronic fund transfer method similar to NEFT and IMPS. The difference is that it is only meant for payments equal to or more than 2 lakh INR.
The real-time gross settlement payment means that the money is transferred from one bank to another in real-time without any delays similar to a UPI payment. This method is perfect for high-volume transactions that need to be made immediately.
Evaluating the pros and cons of each payment method will help you determine which one aligns best with your business needs. Next, let's explore the latest trends and statistics in B2B payments.
If you need to make and settle a payment quickly, cash is the way to go. There’s no middleman needed to process your cash payments. Because of this, it can also be the cheapest way to make a payment, as there will be no interest or fees charged.
In the digital age, cash is slowly growing obsolete as a payment method. Most suppliers tend to prefer digital payments compared to being handed over stacks of bank notes. For your business, paying in cash directly can also lead to negative cash flow.
Paper cheques offer additional security that you may not get with other B2B payment methods. There’s a definitive audit trail as cheques are always traceable. You could also draft cheques in advance and they don’t need to be deposited immediately.
Compared to other methods, cheques are not the most convenient as there are a lot of steps involved. Generally, processing cheques are also slower, resulting in a decline in seeing cheques as a preferred payment method for vendors.
In the digital age, many vendors accept and prefer credit card payments. They’re also convenient to use for most businesses, as payments are quick and easily traceable. You will only have to repay your credit at the end of your billing cycle.
If you’re not careful, you can end up maxing out your credit before you know it. Credit cards can also come with high-interest rates, especially if you can’t pay your credit in full every month.
Electronic fund transfers can be made without needing any physical cash as the whole process is done digitally. You can send funds internationally to networks like SWIFT. EFT is also one of the fastest and safest methods for cross-border transfers.
For lower-value transfers, the costs that electronic fund transfers incur can feel too high. Even when you’re charged a flat rate instead of a percentage, oftentimes the rate will still feel expensive for transfers under 1,000 USD.
Similar to general EFT methods, the NEFT method allows you to initiate transfers online. You don’t need to go to the bank to send money to your suppliers. Transfers are also cleared relatively quickly and only incur low costs.
While convenient for domestic transfers, the NEFT method is only applicable to banks within India. This means that you won’t be able to pay any foreign vendors with this method. Bank account details are also required before you can initiate transfers.
Paying your vendors through UPI is convenient and easy for everyone involved. The only detail you’ll need from your vendor is their UPI ID. There are no hidden charges involved in UPI payments. They can be initiated quickly from anywhere through the Internet.
With no additional details needed, the 6-digit PIN as the only security layer before initiating a payment may not feel safe enough for businesses. You may be sacrificing security for speed. Any network and bank server issues can also cause payment delays.
The global market size for B2B payments is expected to reach USD 2242 billion by the end of 2030 according to a report by Straits Research. How B2B payments work in the majority of India has usually been a step behind the global economy.
It's only in recent times that businesses even in rural areas of India have started using online digital payment methods. The current market landscape of B2B payments in India is quickly shifting to use modern, convenient, and fast payment methods and systems.
UPI was launched on the 11th of April 2016 in India. It resulted in a decline in traditional methods of b2b payment such as paper cheques and cash.
To give you an idea about its popularity, as of April 2023, there are 414 banks live on UPI, and transactions of Rs. 14,07,007.55 crores have been conducted.
Many startups have emerged in the FinTech space providing payment services BNPL(Buy Now, Pay Later), corporate cards, and expense management platforms for businesses to carry out and manage their B2B payments.
Advancements in technology and new innovations have enabled the upgradation of traditional business finance processes to become more effective and efficient.
Certain tools and platforms are capable of automating tasks related to accounts payables and receivables making the jobs of finance and accounting teams much easier.
Mobile wallets and electronic payment methods are getting extremely popular and easily accessible through our devices. This makes it a no-brainer for businesses to adopt these systems and make payments on the go whenever required.
Faster payments enable faster operations and growth for a business.
Blockchain technology is probably one of the newest and most secure systems that we’ve developed to carry out trade and transactions.
Although it is majorly still used for cryptocurrency, we might soon start seeing it be applied in other ways and see blockchain for b2b payments.
• Traditional banks have been and probably will always be a part of the B2B payments space due to the vast network and infrastructure that they’ve built over the years.
• But this is not to say that banks have a monopoly. Fintech startups like Volopay have emerged and risen in popularity as a payment management system by competing with banks thanks to their modern infrastructure and features at competitive pricing.
• Payment companies that offer a range of services to businesses, including payment gateway to mobile wallets such as RazorpayX, Paytm, BillDesk, CCAvenue, etc. have also started gathering market share in this space.
B2B payment systems can be beneficial in many ways. Following are some of the reasons why businesses should consider moving to a payment management system:
When you use a B2B payment platform, you’re able to combine ease of use, fast payments, and management of budgets in one single system.
This allows your finance teams to have a full picture of the accounts payable part of your business and manage it efficiently.
Revamp your accounts payable process! Read our insightful article on streamlining accounts payable to discover the practical strategies to improve your AP process for efficiency and cost savings.
A healthy balance of payment outflow and inflow is necessary to maintain positive cash flow.
Making payments on time improves your operational efficiency while using the automation in finance management systems to send payment reminders improves your accounts receivables.
Modern payment systems are equipped with top-notch security features to ensure that confidential information and data are not leaked or hacked through online fraudsters.
These modern payment systems use technology to not only improve productivity but also decrease the chances of mistakes happening due to human error. These platforms are often also capable of spotting errors made by humans.
Instead of relying on paper ledgers and bank statements that are generated every month, using a payment platform will give your business 24x7 visibility of overall expenses.
Finance and accounting teams can do their work much faster and improve their productivity by almost five times using modern payment systems. The reduced errors and being able to spot them before they occur also save the business a lot of money.
B2B payment platforms are easily scalable, allowing businesses to easily adapt to changing business needs and growth.
Whether it is 5 employees or 500 employees, these systems are extremely flexible and can be molded to be used according to your organizational needs.
Finance and accounting teams will no longer have to manually create financial statements. These systems are capable of automatically creating important financial reports based on your payment activity and providing them to you in a comprehensive manner.
The ability for employees to attach receipt images of their expenses for reconciliation makes reconciliation much easier than handling a pile of paperwork.
Your vendors and suppliers receive payments on time thanks to automated recurring payment features. This improves vendor relationships and allows for the negotiation of discounts and better deals in the future.
The costs and efficiency of a particular B2B payment method depend on how big your transaction volume is. If you don’t have a lot of transactions, it might make more sense to use a free method that requires more work. However, saving energy and time for huge volumes can offset the costs.
No matter how convenient a payment method is, you need to make sure that it’s secure to use before you proceed with it.
Different payment methods may also have different layers of security. You’ll want to opt for a method that not only meets standard security requirements but also allow for additional security features.
You would be saving a lot of time and money if you could integrate your B2B payment method with your accounting systems.
Instead of manually reconciling your transactions and doing data entry, you could sync transaction data and close your books much faster, resulting in stress-free audits and compliance.
It’s important that you can track and review your payments easily. This provides transparency to all parties involved in the payment process and can help you manage expenses better.
Many digital payment methods will automatically record your transactions for you and allow you to easily filter payments on your dashboard for easy monitoring.
Ultimately, you will be making payments to different merchants and suppliers. This means that if your payment method of choice is not accepted by a lot of vendors, this renders it useless.
You want to be sure that your B2B payment method has a large network of acceptance for your convenience.
Your business needs will change over time as you scale. When you’re choosing a B2B payment method, you want to have a method that you know will scale along with your business.
For example, cash payments may work in your favor as a small business, but relying on it as you grow isn’t sustainable.
Businesses have started to look for better options to make B2B payments than traditional banks. FinTech companies like Volopay have started catching people’s eyes thanks to our innovative and well-rounded products.
We enable businesses to make, manage, track, and control payments through a single platform.
Tools like corporate cards enable flexibility of spending while tech automation like setting custom spending limits on each card ensures budget control.
Other aspects like cross-border payments, real-time tracking of all expenses, integrations with accounting tools, and multi-level approvals make managing business finance a breeze for accounting teams.