B2B payments - Overview, challenges and how to automate

The initial stage of traditional B2B payment platforms is initiating purchase requests. The merchants detail their requirement of services to the other businesses. The purchase request marks the beginning of a buyer-seller relationship.

The purchasers can convey their intention to buy through different communication channels. Later, a physical purchase order is initiated by the merchants to confirm their purchase request.

In response to the purchase order, the B2B merchant initiates an invoice to the purchaser. Invoices play a major role in B2B payment services.

It is because invoices contain the agreed payment timeframe between the buyer and the seller. Once the deal is confirmed, the seller creates an invoice with the necessary details about their selling-purchasing process.

Invoices appear in paper form, either typed or hand-written. It is then sent to the purchaser via messaging or email. The buyer accepts the invoice.

However, the risk of fraud is involved in this kind of B2B payment solution because the buyer may provide the wrong account details. Also, employees may enter their personal account number in the invoice.

The third step involved in the traditional B2B payment solution is acceptance of the invoice by the purchaser. The finance department then reviews the invoice.

The finance team scans the invoice and enters the details manually in their accounting system. Further, they keep a copy of the invoice to keep it safe from being misplaced.

The CFO office has several key decision-makers in the cabin. They go through the review given by the finance department and begin the approval process.

Generally, the CEO of the company, along with 2-3 other employees, is authorized to approve the B2B payment process on behalf of the company. Once the invoice is approved, the finance team is informed.

Once the approval process is over, the finance department initiates the payment to the seller within the specified timeframe.

It lies in their hands whether to make payment immediately or wait till the agreed time for the B2B payment process. The payment is made either through cash or cheque.

The final step of a traditional B2B payment solution is a reconciliation of transactions. Once the payment is made, it is the responsibility of the finance department to record it in their accounts during the time of closing balance. 

These were the steps involved in the traditional B2B payment platforms. Therefore, it is beneficial to opt for AP solutions to facilitate B2B payment solutions. 

The traditional method of B2B payment services depends heavily on manual processes. Starting from the generation of invoices from the seller to receiving payment from the buyer, everything’s done manually.

Manual processes are time-consuming. Also, they are less reliable B2B payment methods. The finance department suffers the most due to the manual processes. They need to spend their time manually reviewing a bulk of invoices daily.

Once the payment cycle is over, it becomes difficult to track past details in the traditional B2B payment solutions.

This is because, during the entire course of the B2B payment services, nobody in the firm knows how, when, and for what money is transferred to the seller. Therefore, it is clear that traditional B2B payment methods lack visibility.

The traditional B2B payment solutions often become the cause of late payments because of misplaced invoices. Because there are a bulk of invoices to be handled manually, the finance team ends up creating a mess.

Sometimes, the seller even files a case against the buyer for misplacing the invoice and delaying payment. Delayed payments affect the goodwill of a company. It disturbs the buyer-seller relationship.

The chance of fraudulent activities is higher in traditional B2B payment solutions. Sometimes, the buyer may provide the wrong account number of the business.

Also, fraud can be done on the seller's side. The seller’s employee may provide his personal account number while adding details to the invoice.

Every human is prone to committing errors. Invoice details are entered manually in the traditional B2B payment methods. For instance, your employee has been overworking.

He may enter the wrong account details in the invoice out of fatigue. Also, he may enter the wrong amount of payment. In traditional B2B payment services, it is difficult to rectify human errors.

As we have seen above, the traditional B2B payment process is hectic. The seller generates an invoice in response to the purchase order. The buyer’s finance department reviews it.

After reviewing, the finance team transfers it to the higher authorities for approval. In case they have a number of invoices to be approved, the approval process becomes lengthy.