Photo by crazy motions from Pexels
The livelihood of your B2B business depends on staying out of debt. For all your best efforts, it can still happen, though, if you do not follow payment best practices. Adding to the stress can be that business-to-business payments are typically larger than business-to-consumer (B2C) transactions, and they generally have longer payment terms. The agreements can also be more complicated. Improving cash flow and reducing risks are major reasons to follow suggestions like the ones below. Here are common B2B payment strategies to consider:
Choose Appropriate Payment Methods
Which payment method is right for your business depends on many factors, including the size, industry, and the types of products and services you offer. Keeping in mind what is most efficient and secure for your organization is essential.
Wire transfers and checks are traditional methods that are still used. Wire transfers for international transactions are the standard, offering the flexibility many companies look for, as you only need the receiving account’s info.
With that said, digital options are quickly becoming the norm. EFT or electronic funds transfer is one example. Another choice is ACH, an electronic money transfer between banks on the Automated Clearing House network. Of course, you might select a combination of these. Many business owners choosing EFT and ACH like how cost-effective they are, as well as being more secure and faster than paper checks.
While plastic credit cards are convenient, they can come with high transaction fees, cutting into your profits. For that reason, more B2B companies are choosing virtual cards. This digital payment method involves randomly generated numbers that link to a funded account. There are custom security options, and it can be a convenient way to collect payments online easily. The right payment method for your organization considers processing fees, speed, security concerns, and other factors.
Consider Automating the Payment Process
While manual payments have been the norm for a long time in the B2B industry, their challenges have led to more organizations looking at ways to automate the process. Automated payments remove the risk of human error from the process, improving accuracy and freeing up employee time to do other tasks.
Accounts payable automation software helps companies automate several activities, from invoice approvals to scheduling payments. That way, invoices don’t get missed when being sent, which could result in late fees, and there’s tracking to keep an eye on transactions.
Automated reminders are also helpful, both for making payments and receiving them. Overall, there’s less likely to be cash flow issues that increase risks like bankruptcy. Exactly what you will automate depends on where your pain points are, obviously, and your goals, such as improving accuracy.
When setting up and rolling out automation, be sure to train your team accordingly. Getting them used to the automated tools will help make for a smoother process. Finally, monitor what is working and what needs adjusting in the current processes to get the most value out of the software being used.
Improve Payment Security
Another best practice for B2B companies is taking steps to improve payment security. Protecting your financial data against cyber and fraud threats is a must or you’ll be left vulnerable. Plus, a security issue could hurt your business reputation, which has the potential to negatively impact sales.
Using multi-factor authentication can be helpful as it adds extra verification steps. That can improve the security of B2B financial transactions by preventing access by those who aren’t authorized.
Encryption also is a way to secure financial data so there is less likely to be a breach. This refers to transforming data into an unreadable format without the right decryption key. That helps protect the data both when making the payment and when it’s stored. Tokenization is another data security method.
Finally, for better payment security, consider creating a process for verifying new vendors. That can help you weed out which suppliers or buyers are reliable. While the verification process can vary widely by company, depending on your needs, in general your goal is to check the identity and legitimacy of new vendors.
Photo by crazy motions from Pexels
Negotiate Payment Terms Well
Having set payment terms helps manage cash flow well and avoids related issues. With favorable terms can come financial stability, which is what any B2B company wants to establish and maintain.
Clearly defining the payment terms in contracts is important. The said contracts ideally include due dates and fees for late payments. You may even include discounts for early payments if you want to set that up with certain vendors as a way to reward faster transactions. Doing so can benefit both parties.
Regarding payment length, shorter terms are what many B2B businesses prefer to boost cash flow, such as Net 30 (payment is due within the following 30 days) for digital payments. With that said, Net 60 and other longer terms can help build trust in vendor relationships. For new relationships, you might require prepayment as a way to reduce risk.
If you are unsure what payment terms to set, research industry standards to see what your competitors are doing. Also, consider your business goals, asking yourself what terms make sense to establish to benefit your cash flow.
Effectively Handle Disputes and Chargebacks
While you want to avoid payment disputes by putting these best practices into place, they still can happen. Unfortunately, this type of issue can delay cash flow and damage vendor relationships that you depend on. With that in mind, it makes good business sense to plan for the worst-case scenario and have a set resolution process in place.
This process involves carefully documenting transactions clearly and having a document within your organization to refer to for set steps to handle payment disputes that come up. This document is to ensure that your team uses the same resolution process time and again.
Along with having a standardized method, your team also needs to understand payment procedures, as do those businesses you work with. Explaining to businesses you interact with about details you require related to invoicing reduces the risks of chargebacks for smoother transactions.
Collect B2B Debt Effectively
Late payments are problematic, especially if the businesses you deal with won’t return your phone calls or other communications. That can hurt your cash flow, and stall plans to expand your organization.
For those reasons, having a debt collection strategy in place is important. This proactive strategy improves your ability to collect outstanding payments without harming relationships. That includes follow-ups within a certain amount of time of the invoice being sent and having templates for demand letters ready.
If internal efforts fail, reaching out to a respected commercial collection agency makes sense. Specializing in B2B debt collection, this agency offers first-party, third-party, and international collections, as well as legal services. Getting help with complicated cases isn’t something you need to do alone, thanks to this type of expert.
Going about debt recovery with a plan in place is vital in order to preserve business relationships. Working with debt collection services can help maintain those relationships by using a professional process and a skilled team of negotiators.
Use Data Analytics to Improve How You Do B2B Payments
Being able to gain insights into transactional data is helpful for companies that want to make smarter decisions. When you want to continue to grow the business, that becomes an important tool. For example, data analytics can tell you about cash flow trends you might not know about otherwise, as well as ways to improve payment strategies.
Using real-time analytics is powerful; it can improve your payment performance and identify inefficiencies in your processes that are draining resources. With data insights, your organization can proactively improve cash flow, lower bad debt, improve relations with other businesses, and more.
Advanced algorithms can use machine learning to detect when something is not right with payment activities, for example. That can lead to fraudulent behaviors being flagged earlier than you might otherwise notice them, helping you contain the issue before it worsens.
Of course, the data collection is not a one-time occurrence. Instead, it is best to regularly analyze data to learn about new patterns and trends to inform decisions.
Concluding Words on B2B Payment Best Practices
It’s clear that having best practices in place and following them is essential to getting the most out of payment processes, especially as B2B payments can be more complicated than B2C ones. Doing so can improve operational efficiency, improve business relationships, and reduce risks in the ways described above.
Creating the best practices for your business involves first deciding what payment methods are most suitable and then potentially automating the process to reduce human error. Establish a strategy for handling late payments effectively, too. The result can be optimal cash flow and financial stability, making the efforts well worth it. Taking a proactive approach to payment challenges helps make for smoother transactions and positions your organization for long-term success in its respective B2B industry.
Finally, it makes sense to audit payment processes regularly. Doing so helps you determine what is working and what could be done better, making adjustments to improve the process flow.
