B2B payments are a crucial part of many business operations. However, they’re prone to errors that can lead to costly delays. Fortunately, digital payment solutions can automate the entire process and make it much more efficient.
There are several types of B2B payments, including paper checks, ACH payments, wire transfers, and credit cards. The best method for your company depends on your preferences and needs.
ACH
ACH payments are electronic money transfers that use the same information as a check. They are typically processed within one to three business days and used for various purposes, including direct deposits for payroll, recurring bill payments, and B2B invoice payments. The ACH network processes billions of dollars in financial transactions each year. 2021, the total ACH debit and credit transactions reached $61.9 trillion. Consumers, businesses, and the government made these transactions. The ACH network also processed 5.3 billion business-to-business (B2B) payments, a 20.4% increase over the previous year. This B2B payment was made using AP automation software, accounting for 33% of the total ACH payment volume.
Unlike paper checks, ACH payments are digital and secure. They are regulated by the Federal Reserve and considered one of the safest payment methods a business can accept. They are also faster and more convenient than traditional methods and have lower transaction fees than credit card payments.
The benefits of ACH payments for businesses include reduced costs and improved cash flow. These advantages make ACH payments an excellent choice for many companies. Moreover, these payments are easy to automate and require less manual intervention than other forms of compensation. They are particularly helpful for high-volume transactions, such as reoccurring payments. Additionally, ACH payments carry complete remittance information and can be matched to the correct invoices using artificial intelligence.
Credit card
Credit card payments are a great way to boost sales for many businesses, especially small businesses. However, they can be complicated and require special hardware and software. It would help if you also had a payment processor and an account with the bank that processes the transactions. You can open a merchant account or use all-in-one payment service providers (PSPs) like PayPal, Stripe, and Square, which work with most major banks.
When a customer purchases, the business’s POS system or payment gateway records the transaction details and transmits them to the payment processor. The processor then sends the information to the credit card network. The network then evaluates the transaction by checking the cardholder’s account for available funds and detecting fraud or security issues. If the transaction is approved, the issuing bank sends the funds to the merchant bank. The merchant bank deposits the funds into the business’s regular business bank account minus processing fees.
This process usually takes 1-3 business days. The cardholder receives a monthly credit card statement showing the transaction amounts and charges made to their account. In addition, the issuing bank may add transaction amounts to the cardholder’s existing balance. These added amounts are often referred to as deferred payments.
Wire transfer
You should send a wire transfer to move large amounts of money internationally. These transactions are made through a network of banks and transfer services worldwide and settled electronically without a cash exchange. To make a wire transfer, you must provide your bank with the recipient’s name, bank account number, and SWIFT or BIC number. This is a faster and more secure way to send money abroad but it can be expensive.
Unlike ACH transfers, which can take up to two days to clear, wire transfers typically settle within minutes. This is why they are commonly used to pay for international business purchases, such as real estate or equipment. However, wire transfers have some drawbacks, including that they need to be reversible once sent. In addition, the sender is charged a fee for sending a wire transfer, and the recipient may have to pay additional fees.
Unlike ACH, which allows for a certain amount of wiggle room, wire transfers leave little room for error. For example, if you input the wrong bank account information or routing number, funds can easily end up in the wrong hands. This is why it’s important to double-check all the details before initiating a wire transfer. You should also use a trusted non-bank wire transfer service like Western Union or MoneyGram.
Payment gateways
In today’s cashless society, consumers expect to purchase instantly and easily. Payment gateways are vital to this process, making it easier for customers to shop online and in person. They are the bridge that enables credit card payments to move from one party to another, and they are designed to make the entire transaction more seamless for both consumers and businesses alike.
For example, when customers enter their credit card details on a website’s checkout page, the gateway connects to the bank and verifies the information. It then transmits this data to the payment processor, which authorizes or declines the transaction. The payment processor then delivers the funds to the business’s merchant account, which holds them until they are ‘ settled’ in one to two days.
In addition to credit card payments, payment gateways facilitate ACH and wire transfers for B2B transactions. They can be configured to support multiple MIDs (merchant identification numbers), allowing businesses to accept different payment methods from their target market. This feature is especially useful for small businesses that operate in many other markets and can help increase the flexibility of their online checkout processes. Moreover, a payment gateway can also be used to accept mobile payments. This type of payment processing is more secure. It offers a better customer user experience, making it ideal for businesses that receive most of their revenue through online sales.
