How to manage B2B payments to improve cash flow

For many businesses, securing timely payment from clients can be a significant achievement in itself. 

However, there’s more to B2B payments than being compensated for the goods and services you provide to other companies. For instance, how you manage B2B payments can impact how quickly they are processed and how long it takes to receive funds.

Fortunately, digital innovation within the payments industry has made it much easier to send and receive B2B payments. This efficiency has streamlined payment processing and allows businesses to better manage their cash flow. So, how can you leverage these modern payment solutions to benefit your small business?

Use this guide to get a better understanding of current B2B payment options and learn the best practices for accepting and managing these payments.

How do B2B payments work?

Generally, B2B payments are made once the goods or services are delivered. This is commonly referred to as billing in arrears. When a client requests goods or services from your business, you’ll fulfil the order and send an invoice. Once they receive the invoice, they’ll have a certain amount of time to make their payment—which is based on your payment terms. Once payment is submitted, you’ll process that payment. You may have to wait several days for funds to be available, based on the payment method.

Depending on your relationship with the client, you can set payment terms like their billing cycle and how much they can receive on credit. Consider factors like whether they’ve purchased from you before, their creditworthiness, and the details of the transaction.

B2B vs. B2C payments

The most notable difference between B2B and B2C payments is the payee. B2B payments are payments made by one business to another. These businesses could include startups, retailers, e-commerce companies, corporations, and any other type of entity. B2C payments are consumer payments made by a customer to a business. Consumers are individuals who are purchasing goods or services from a company for personal use.

Some other key differences include:

• B2B payments are more often used for recurring purchases, while B2C payments are typically for one-off purchases.

• B2B payments are processed based on billing cycles and often involve invoices, while B2C payments are usually processed immediately.

• B2B payment solutions typically involve multiple departments within both businesses, while B2C payments are completed in one step.

Common B2B payment methods

Offering as many B2B payment solutions as possible is best when trying to grow your business because it makes things easier for buyers. 

Here are some of the most popular B2B payment solutions:

Cheques

While cheques may be becoming a less common form of payment for B2C transactions, they’re still fairly common for B2B transactions. However, paper cheques are far from being the most convenient method of payment. Checks are often thought to be a workaround to avoid credit card processing fees; however, there’s a cost for accepting cheques as well. If most businesses you work with pay with a cheque, these costs can add up quickly.

Another thing to consider about accepting cheques as payment is that they are less secure. Cheques are a major source of fraud because they lack the security measures of cards and digital payments and can be easily faked or replicated.

Credit and debit cards

Most companies have a business-only credit card for expenses. Credit cards are an easy way to make payments both in-person and digitally. Credit cards also provide a simple way to track monthly transactions on the billing statement. Accepting all major credit cards will make buying your product easier at checkout and help you close more sales. Another great thing about credit card payments is that businesses tend to spend more when using them.

Clients may also use what’s known as a virtual card, which has a temporary credit card number and is designed for safer online payments.

Wire transfers

Wire transfers electronically move funds from a buyer’s bank account to yours. Wire transfers are typically completed within a few hours, taking up to one business day at the longest.

Keep in mind that international bank transfers can take longer and incur higher payment processing fees.

Over the last few years, digital solutions have grown significantly, thanks to innovations in payment processing and FinTech, as well as the rise of eCommerce.

Steps in the B2B payments cycle

Unlike B2C payments, B2B payments aren’t completed immediately. Instead of one step—swiping your card or submitting payment for the goods or services—B2B payments are more involved.

Here are the basic steps necessary in the B2B payments cycle:

1. You set payment terms for the buyer.

2. The buyer sends you their order request.

3. You fulfil their order, delivering the goods or services they’ve requested.

4. You send them an invoice for those goods or services.

5. The buyer submits their payment.

6. Your business processes their payment internally.

Once the payment has been processed, the funds will become available to you. For recurring orders—say those that occur on a monthly basis—the process will continuously repeat itself.

How to set up a B2B payment platform and process B2B payments

Many small business owners forgo setting up a B2B payment processing system because they perceive it as a daunting task with little reward. However, setting up a B2B payment system is well worthwhile—especially given that modern software solutions make it as easy as possible.

Ideally, you want to find a way to streamline your B2B payment system to process payments efficiently. Digital payment processing solutions like pay-enabled invoices make it easier for clients to submit payment online and for you to process payments internally. Beyond ease of use, having a secure payment gateway is also essential if you want your buyers to feel confident making online payments.

To set up a B2B payment system and process B2B payments more efficiently, you should:

• Find a payment solution that works for your needs. 

• Integrate your business and client data.

• Train your team on how to use the system to process and track payments.

• Add links for making payments through this new payment system to your site and invoices.

• Begin processing payments through your new payment system.

How good practice can help manage your B2B payments

Establish Clear Payment Terms

Clearly outline payment terms in contracts or agreements upfront. Specify payment due dates, accepted payment methods, late fees, and any discounts for early payment.

This is a particularly important first step, as late payments could have a significant impact on the financial health of a business.

Electronic Invoicing

Electronic invoicing systems or accounting software can generate and send invoices efficiently. Electronic invoices are faster, more accurate, and easier to track compared to paper invoices, which can reduce the risk of errors and delays associated with manual processing.

Automate Payment Processes

Automation tools for payment processing could reduce administrative overhead and improve efficiency, which includes setting up recurring payments for subscription-based services, automating invoice reminders, and using payment gateways to streamline transactions. 

Track Invoices and Payments

Your business could implement a centralised system for tracking invoices and payments. This may be through accounting software, spreadsheets, or dedicated invoice tracking platforms. Track the status of each invoice, including when it was sent, its due date, and whether it has been paid. This helps identify outstanding payments and follow up on overdue invoices promptly.

Send Timely Reminders

Reminders for upcoming and overdue payments can be scheduled to notify customers before payment due dates and follow up on overdue invoices.

Offer Multiple Payment Options

If possible and appropriate, you can provide customers with multiple payment options to accommodate their preferences. Accepting various payment methods such as credit cards, bank transfers, and electronic funds transfer (EFT) enhances convenience and encourages timely payments. Ensure that the chosen payment methods are secure and compliant with industry standards.

You can also define your payment terms before agreeing to any recurring payments.

Set up Recurring Payments

For recurring services or subscriptions, customers could be encouraged to set up recurring payments. This may ensure a predictable cash flow and reduce the administrative burden associated with manual invoice processing. You can also offer incentives such as discounts or flexible billing cycles to encourage recurring payments.

Monitor Cash Flow

Keep a close eye on cash flow by regularly monitoring incoming payments and outgoing expenses. Try to use cash flow forecasting tools to predict future cash flow patterns and identify potential gaps or surpluses, which allows for proactive financial management and helps mitigate cash flow challenges.

Implement Credit Policies

Establishing clear credit policies can manage customer credit risk effectively. It may benefit your company to conduct credit checks on new customers before extending credit terms and set credit limits based on their creditworthiness. Consider regularly reviewing and updating credit policies to reflect changing business conditions and minimise the risk of bad debt.

Maintain Communication

Try to foster open communication channels with customers regarding billing and payment matters. Address any payment-related inquiries or issues promptly and professionally. Building strong relationships with customers can promote trust and cooperation, leading to smoother payment processes.

By implementing these best practices, businesses can streamline B2B payment processes, improve cash flow management, and maintain positive relationships with customers. Effective invoice tracking is a critical component of these practices, ensuring timely payments and efficient financial operations.

How do recurring online or subscription B2B payments work?

Recurring online and subscription payments are transactions made on a regular basis for ongoing services, the continued delivery of products, or subscription services.

Two businesses may agree to a recurring payment arrangement, which could be for services like software as a service (SaaS), ongoing supplies, maintenance, or any other subscription-based offering. 

The paying business, or subscriber, will authorise your business to charge specified amounts at regular intervals, at which point both parties will integrate their respective payment systems with a payment gateway or a subscription management platform. This ensures smooth processing of payments and allows for automated billing.

This type of agreement has a number of benefits to both parties, chiefly that it reduces admin time on both sides. Without a recurring agreement such as this, it would take extra time for the customer to manually request orders, inventory, or even make a payment each month, and for the receiving company, it can take extra time waiting for a new order to come in and process the payment manually through their payments team.

Challenges associated with B2B payments

As you know, B2B payments are complex. Understanding the challenges associated with managing payments from your clients can help you get ahead of them, and help you choose a payment system that works for your business. 

Here are a few of the common challenges that impact B2B payment processing:

Security

B2B payments are often subject to security threats and fraud attempts. While payments security has improved significantly in recent years, cyberattacks have also become more sophisticated. Choosing a secure payment processor can help mitigate the risk of fraud.

Longer billing cycles

Most B2B payments are processed based on a consistent cycle. Payment cycles can be as short as 30 days or even as long as 90 days. Not only that, but B2B payments are touched by many more hands as they are funnelled from the sales department to accounts receivable and accounts payable. In contrast, B2C payments typically complete over a short period of time, with one transaction clearing before the next begins, making B2C payments relatively simple in comparison to B2B payments.

Tracking

Because of the extended billing cycles associated with B2B payments, a business will often manage more than one B2B transaction at a time. This can result in challenges associated with processing, tracking, and reconciling many payments in different stages of the billing cycle. Keeping track of outstanding invoices and your books up-to-date is key to ensuring you get paid on time.

Privacy restrictions

Businesses in certain industries may be limited in payment processing options due to privacy restrictions. Depending on the payment options available, this can significantly slow down the payments process.

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