Many companies are relying on digital payments these days more than ever. Buying organizations are looking to streamline their accounts payable processes and reduce costs associated with paying approved invoices. On the other hand, suppliers are more open to digital payments because it reduces DSO and allows for greater flexibility related to cash application. With advances in digital payments continuing to grow, both buyers and suppliers are becoming more reliant on it for good reason. There are various advantages digital payments offer and multiple ways organizations can take advantage of them.
The State of Digital Payments
Before COVID 19, digital payments were an already appealing option for global supply chains. According to a PYMTS interview with Martina Hund-Mejean, Mastercard CFO, global B2B payment volume is estimated to be $120 trillion. Mastercard estimates U.S. volume to be approximately $25 trillion. That’s a lot of opportunity for digital payment solutions.
Digital payment transactions were estimated to be $4.1 trillion in 2019 and $4.8 trillion in 2020. By 2023, that number is expected to reach $6.7 trillion. Furthermore, the gross merchandise volume (GMV) of B2B e-commerce transactions grew beyond $12.2 trillion in 2019, more than doubling the 2013 volume of $5.83 trillion.
As we can see, digital payments, especially as it relates to B2B payments, continues to grow and offer frictionless transactions checks and cash could never provide. This is good news for domestic and international businesses alike, but some obstacles prevent universal digital payment adoption.
Different Versions of B2B Payments
Before we get to the utopia of an all-digital payment environment for B2B payments, we first should look at the obstacles and alternatives that keep digital payments from being ubiquitous. Indeed, digital payments are slowly taking the place of B2B payments via check, but challenges remain.
Digital payments mean different things to different people – which is part of the problem. Can you have ubiquity when there are so many alternatives? Let’s look at those alternatives and see why they are preferred as a method of B2B payments by many organizations.
- ACH. With Automated Clearing House, companies can make and accept payments rather quickly. Managed by NACHA, this payment option has grown in use over the last decade, and opportunities for settlement of funds have increased for Same Day ACH. While not a solution for cross-border payments as of this date, ACH continues to be a mainstay for domestic B2B transactions.
- Wire Transfer. Moving funds directly from your financial institution to another party is the hallmark of wire transfer, especially when handling international payments. With wire transfers, you can either send money to a cash office or from one bank to another. While wire transfer is perhaps the fastest method of digital payments, it’s only available at certain times of the day.
- Credit Card. With the growth of eCommerce and online transactions, credit cards have become a reliable method for handling B2B payments. Virtual cards are also becoming more prominent for B2B payments. Depending on the card issuer and their agreement details, cards offer fast payment but can also be expensive to use.
- Payment Gateways. A more recent method of managing B2B payments is the payment gateway, where solutions such as PayPal, WePay, and Stripe offer businesses opportunities to facilitate payments. Understanding the details of each solution is warranted, as there are differences in hold time, fees, and where they can be used.
No matter which B2B payment method you choose to use (or accept), there are advantages over using cash and check.
How Your Company Can Take Advantage of the Digital Payments Revolution
In very simple terms, businesses can benefit from digital payments by electronically transferring funds from one business bank account to another. This method frees up time and money but also any resources that can be better used elsewhere. Considering that an average B2B payment transaction can take around 35 days to process, while 47% of invoices are submitted late, it’s clear that digital payments are much more effective and efficient. Furthermore, digital payments also have these advantages compared to paper checks:
- High security: Digital transactions are a secure way to conduct business online since they are processed through secure gateways that prevent tampering. Many platforms are heavily protected and regulated to keep your payments safe.
- Accessibility and convenience: Customers can perform self-service with digital payments while paying for invoices at any time, from any place. It’s also possible to make payments directly from emails and invoices.
- Can be traced easily: The details used in payments are stored in a merchant-specific database. As a result, customers and merchants can get easy access to payment details. This helps to avoid confusion and ambiguity when tracking payments because you’ll know where your money is at all times.
- Saves on processing fees, time, and costs: There are various payment methods loaded with soft costs and fees. Fortunately, many digital solutions offer fixed prices that allow you to plan better and help businesses choose the model that works for them.
- More options for faster payments: Many studies have proven that providing customers with various payment options can offer speedier payment times. It also helps to improve cash flow and allows businesses to expand quickly.
Supplier organizations can leverage digital payments to facilitate faster payment from more buyers. By allowing your clients to have more options when paying your invoice, you can accommodate more opportunities for faster payment while reducing costs and DSO.
Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. He currently chairs the Vendor Forum of the Federal Reserve Bank of Minneapolis and his resume includes time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.
