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The Age of Electronic B2B Payments

November 30, 2022


Digital payments have revolutionized B2B settlements

The digitization of B2B payment methods has simplified transactional business settlements, making B2B business more efficient. The shift to the automated payment system in the B2B ecosystem has been so vast that it has overshadowed the B2C electronic payment ecosystem.

Businesses across all industries enter into B2B transactions, whether such transactions be done vertically or horizontally.

The B2B payments market is enormous and is predicted to generate a revenue of 1,618.5 USD Billion by 2028. Traditionally, the B2B payment mechanism was a manual, cash-based process. But in modern times, this mechanism has evolved toward electronic means of payment.

Decrease in Cash Transactions

The COVID-19 pandemic accelerated the already exponentially declining trend of cash transactions in the economy. Cash transactions have been witnessing a decline rate of around 15% annually since 2017, and this rate is expected to see a notable acceleration. It has been predicted that 80% of the B2B payments by 2025 will be through electronic channels. The decline of cash transactions has been foretold for a while, although a banishment is highly unlikely.

Businesses increasingly use electronic payment methods for palpable reasons, like the convenience and safety of not carrying cash and the legal security of having digital proof of transactions. Add to that, post the pandemic, hygiene concerns and restrictions on movement caused an uproar in electronic payment adoption—and various methods proliferated.

Businesses are instinctively and systematically adopting electronic payment methods over cash transactions. Technological advancements on their part have made this transition smoother. Electronic B2B payments provided added accessibility, convenience, and cost efficiency with the help of increased data processing.

The Rise in Contactless Payments

Staying static is not favorable for any business that wants to thrive. Let’s face it, that’s what companies need to do to accommodate all the dynamics of an ever-changing economy. One such move is adopting electronic B2B payments to stay afloat and materialize the opportunities associated with lightning-fast digital payment methods.

The most significant selling point for the boom in contactless payments is that it can support the high volume of transactions, which in cash-based transactions is an expensive and complicated task. The quantum of revenue generated can easily set off the required investment in establishing modes for cashless transactions.

High Payment Processing Costs

Electronic B2B payments are a booming industry. However, companies that use them often pay high fees for their services. Depending upon the square pricing, these fees can be anywhere from 2% to 5% of the transaction value, which adds up quickly when processing hundreds or thousands of monthly transactions.

For example, you sell products and services to other businesses on an E-commerce platform like Amazon or Alibaba. You’ve set up your business as a seller and are ready to start selling. But before you can accept payments from buyers, you’ll need a payment processor, which will charge you fees for every transaction processed through their system.

So how do these companies make money? They charge merchants a fee for each transaction made by customers who pay with their platform’s branded credit card or bank account information (a “card-not-present” transaction). In many cases, these fees are higher than those charged by traditional credit card processors because merchants don’t have access to Visa or Mastercard’s networks, so there is no competition among providers vying for their business.

Increased Transparency and Reduced Risks

Electronic modes have also significantly reduced the risks of fraud in payment transactions while offering increased transparency.

Here are some of the other benefits:

  • Using checks for payments may create an audit trail, but clearing a check’s processing cost is high. There is also a risk of security and the possibility of delayed payments.
  • In instances of cash payments, the risk of carrying cash is high. Additionally, cash payments are generally not made as per the payment terms and often result in heavy discounts. On the other hand, checks tend to bounce and also reveal too much information.
  • Non-electronic payments also result in hefty investments in finance departments to maintain accounts.

On the other hand, electronic means use sophisticated algorithms to integrate flexible solutions precisely into the checkout flow and automate the entire process. The system establishes the buyer’s credit score and the payment terms based on a few questions and the transactional history with the help of real-time automation.

Electronic payment solutions allow companies to track their spending habits and monitor how much money is spent on each category. This will enable businesses to make better decisions about how they spend their money on advertising, infrastructure improvements, or anything else entirely.

Electronic payment solutions also provide security that isn’t available when using cash or checks. With an electronic system in place, you can use passwords to ensure that no one else can access your account without your permission. You can also set up alerts so that if someone tries to withdraw more than they have been allotted or make unauthorized purchases on your card, you will be notified immediately so you can take action before any damage is done.

Enabling Faster Payments

The dynamics of the economy are fast-paced, and slacking is no option for any business. The same is the case with the payment industry; the industry is changing quickly and toward a quicker one. It is crucial to engage in payment methods that are faster and smoother, and the ultimate answer is electronic payments.

The way forward

Payment service providers are coming up with innovative ideas for real-time payment modes like the Unified Payments Interface (UPI) in India or the New Payments Platform (NPP) in Australia, designed to engage more people with a simple user interface while making payments at lightspeed. The government in the U.S. introduced FedNow, which it will make available to Depository Institutions to enable people and businesses to make payments with their depository accounts.

With all said and done, it is evident that electronic payments in B2B E-commerce are the way to go. Until recent times, digital payments were revolutionizing commerce, but with the fast adoption of the method and further technological advancements, E-commerce is revolutionizing payments.

If you are looking to amp up your game, consider going electronic with your B2B payments.

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