B2B Payments

Moving Beyond The Paper Trail

The movement by small and midsized businesses to fully accept and work with electronic payments has been a gradual one, and one that has been marked by concerns surrounding costs. Firms have tread cautiously with respect to electronic payments, with costs dominating the argument against transitioning. After all, it does take time and money to bring accounting systems up to speed and to enable platforms to deal with processing fees tied to transactions.

In a recent white paper by Sage, titled “Small and Medium B2B Businesses Transition from Paper Payments,” the firm posited that it is in fact simple and cost-effective to adopt electronic payments across the B2B spectrum, and that many professionals spend an inordinate amount of time focused on short-term costs rather than long-term savings – and as is often the case, the latter swamp the former.

The hesitancy has given way to some change, incremental change, to be sure, but change nonetheless. Sage noted that in a 2007 report, Celente financial research reported that there were 11 billion B2B transactions in the United States alone, and 70 percent of that tally was paid via paper checks. But by the end of 2018, Sage stated, only 10 percent of B2B payments will in fact be made by check. The overall shift of the industry demands that B2B firms follow suit, and that they understand the electronic payments space as deeply as possible.

There certainly is room for improvement, according to the white paper, as middle market companies, which are defined as those with annual sales below $500 million, spend an estimated $7.8 trillion on B2B interactions each year, and MasterCard has estimated that $1.8 billion of that amount could be made through corporate cards. Companies, however, use those cards for less than 5 percent of their payments overall. The “check total” of payments still stands at more than 50 percent, according to the data. 

There’s also the stubborn misconception that checks are a cheaper payment methodology for businesses when in fact the opposite is true.  NACHA has estimated that it costs about $10 per check, when all processes are accounted for (including labor, ink, time and stamps).

The stage is being set for at least some movement toward electronic payments as 81 percent of B2B firms get payments from their customers through some form of ACH, wire transfers or purchasing cards.

There’s also concern within organizations that it is a hardship and a challenge to implement that payment systems themselves. Again, erroneous, according to Sage. The emergence of the cloud, along with other technology platforms, has made a real difference in ease of adoption, and allows for reconciliation with accounting and ERP software, saving time and money.

Security concerns should also enter decision-makers’ minds when considering the switch – and Sage stated that firms should be aware that paper checks are not in fact safer than electronic payment choices. As estimated by the Association for Financial Professionals, 87 percent of organizations affected by payments fraud reported that checks were the targeted payment instrument.

Cash flow visibility improves on the heels of adopting electronic payments, with an uncertain timeframe tied to receiving payment via paper checks, and a cycle therein that is roughly once a month. The alternatives, such as ACH, mean that cash is available the next day. In addition, the ability to take electronic payments may in fact entice new business to come in the door, as one survey cited by Sage found that 57 percent of buyers said they would boost their ordering frequency with a given supplier if that supplier accepted credit cards.

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