4 strategic shifts to make for a top-tier B2B payments offering
The past couple of years have been nothing short of transformative for B2B commerce. 2022 saw a migration to online that has introduced new levels of potential for entire industries: Ecommerce now accounts for 60% of all global industrial sales transactions, B2B marketplaces grew over 100% in 2021 and 2022, and all the while, technology has lowered the barrier to entry for new players who want a piece of the $17 trillion B2B pie.
The digital transformation of business-to-business commerce has been a win-win situation for all stakeholders, beckoning growth and change for both sellers and buyers.
These changes have demanded new solutions for how business purchases can be made and we cover it all in our latest guide:
With B2B payments in particular, fintech innovation has tackled the complex business purchasing journey– leveraging automation and other technology to turn it into a seamless online experience while still offering all of B2B’s requirements like payment terms, invoicing and varied pricing structures. That innovation truly has opened new doors—as recently as 5 years ago, it was difficult to imagine a world where one could purchase hundreds of thousands of dollars worth of steel online in a secure payment the way we purchase a pair of sneakers.
The trends that pushed payments forward in 2022 have enhanced business to the point that they have become expectations, and in 2023 we will see those expectations being pushed even further, setting a new standard for B2B transactions.
It’s time to transform all of those “nice-to-haves” into “must-haves”—Here are 4 strategic shifts to make in order to meet the new standards for B2B payments.
Becoming digital-first through digital payments
Last year, the call to create an online channel in B2B was defined by urgency. Faced with the notion of “move online or get left behind”, everyone from wholesale to manufacturing ran to open ecommerce sales channels or storefronts on online marketplaces: McKinsey reported that in 2022, 65% of B2B companies across industries offered an ecommerce channel for purchasing their products and services, and the number of B2B marketplaces has jumped from 75 to over 400 in just a few years.
The significance of this cannot be understated, especially considering that prior to opening online stores, many of these companies were showing inventory via paper catalog and taking payments over the phone.
This migration online established new possibilities for what B2B purchasing journeys could be. New tools moved business forward, fast—as integrating ERPs, offering personalization, implementing online invoicing, and using third-party providers to process multiple B2B payment methods became much more commonplace, some of those payment methods including automated clearing house (ACH payments), electronic funds transfers (EFTs), wire transfer, business credit cards, and more, all in a digital interface.
We saw online channels and electronic payments in particular creating a faster, easier way to scale: removing barriers for new business buyers and increasing automation, resulting in higher AOVs and and unlocked cash flow.
What began as simply “having an online presence” transformed into something much bigger: embodying the digital space as a digital-first organization, and leveraging those tools, their functionality and integrations to create a roadmap for the future.
Today, that embodiment of digital-first is setting a new standard for business payments, and is defined by the following elements:
For years, personal relationships reigned in B2B transactions. And it’s no wonder why—personal relationships among buyers and sellers have enabled long-lasting strong loyalty and strong business partnerships. But alongside B2B’s digitization and move to an online payment cycle, many players have wondered how to translate that trust to new channels. As B2B joins a less personal and more globalized payments landscape, it is no longer reasonable to expect a merchant to have personal relationships with all of one's buyers, and vice versa.
B2C payments, of course, have already succeeded in translating trust online. After all, millions of purchases are made every day between consumers and sellers who do not know each other. For B2B payments, garnering that trust is not as simple. With higher purchasing volumes, the stakes become much higher.
A wholesaler can’t be expected to independently build a checkout that enables the kind of trust needed to facilitate these transactions—but a solution that can seamlessly underwrite buyers in seconds while offering diverse payment methods, can.
And leveraging a payments platform presents businesses with opportunities to grow and scale in a sustainable way: “As the relationship becomes much more digitized and more transactional, that trust becomes more inherent,” says Paul do Forno of Deloitte. “There's an opportunity to broaden your market because you can sell to a set of businesses you couldn't have sold to you prior.”
So, outsourcing to technology partners enables businesses to show themselves as trustworthy, and that built-in trust makes reaching new customers much less labor-intensive than building personal relationships.
Last year, the modular approach to providing strong customer experiences became mainstream. In contrast to the limitations of "old school" monolithic architectures, composable commerce enables ecommerce businesses to customize their technology stack to completely optimize for their specific needs.
With this approach, businesses can choose a payment stack that is easily customizable instead of being forced into a less-than-optimal payments processor that requires time-consuming, manual processes, the only reason being that it’s already built in.
Prioritizing agility is not something to overlook, considering that 74% of B2B executives believe that buyers expect an experience personalized to their needs across the purchasing journey.
In short, players who adopt B2B payments solutions are strategically positioning themselves to go to market faster, adapt quickly alongside customer needs, and ultimately come out on top.
Offering digitally-native B2B payments for digital natives
B2B’s digitization is not random and it’s certainly not all-of-a-sudden. Instead, it has been expedited by the demands of millennials, who now make up 65% of the global workforce and are involved in 73% of all B2B purchasing decisions.
This generation grew up with social media, review sites and search engines, and it shows–McKinsey’s 2022 report found that 77% of B2B customers are willing to spend $50,000 or more through an online channel. And while in 2022, having an online channel was a strategic way to appeal to millennial buyers, it is no longer enough to stand apart from the pack.
What will be the differentiator in an increasingly crowded B2B ecommerce space in 2023? Digitally native payments, or rather, appealing to a generation of buyers who are very much used to an easy online buying experience in their personal lives.
But translating that online buying experience is not as simple as bringing credit cards over to B2B, despite their growing use in this space. The reality is that 80% of B2B purchases are still made via paper checks, and credit card payments are just not the first choice of many businesses out there.
But for merchants, high card processing fees often negate the gain made on the sale itself, making them a less-than cost-effective option.
More importantly, credit cards were built and are optimized for consumers, and while they may be a perfectly fine temporary solution to business purchasing today, merchants must ensure that their credit card offerings are compatible with the specific needs of business-to-business payments with features like surcharge transaction fees and flexible authorization periods. Furthermore, credit cards should be offered alongside a range of other offline and online payment methods.
The existing payment technology today enables business buyers to pay online the way they would offline, with multiple payment types: ACH, wire, bank transfer, paper check—and now with embedded financing making its move in B2B—online net terms at checkout in real-time. This is both timely and welcome news, considering that more than ever, buyers expect and demand more from their experience with payments services. Features that were once nice-to-haves like cross-border payments are no longer negotiable as the payments ecosystem becomes more global.
What’s more, they have no problem switching suppliers if those demands are not met, with 40% of business buyers reporting switching vendors in the last 12 months. No longer are the days of “lowest price mentality”—DC360 reports that more often than not, business buyers prioritize convenience over price. And picking up the phone to read off a SKU of a product you saw online is far from convenient.
Businesses who choose to adopt digitally native B2B payment systems are saying to their buyers, “we see you”, by giving them the payments experience they are looking for, including the experience before and after the payment.
In DC360's latest report, fastening systems marketplace BaySupply shares how they worked to provide more value in the online customer experience by adding more digital payment options. BaySupply COO Michael Eichinger explains, "We worked with Balance to create a custom marketplace financed solution [that] enables us to provide credit terms in minutes.”
As B2B ecommerce continues to grow en masse, customers will have plenty of options will choose to do business with those who offer the added value of a great experience.
Digital B2B payments as a main sales channel
Last year, McKinsey reported that 94% of business executives saw omnichannel sales as an effective way to survive in B2B. This makes sense. Having more than one purchasing channel for buyers is a trend right out of the B2C ecommerce playbook. But in B2B, how do you effectively streamline the workflow of your sales team, diversify cash flow and optimally leverage many sales channels?
As omnichannel becomes the new standard for B2B, sales teams will have the ultimate tool at their disposal: self-serve digital payments. This model is so impactful for sales teams because of its scalability. Self-serve enables more customers to make more purchases in less time, with less money, and less manpower.
Time, money and manpower in turn can be spent on winning large enterprise clients or nurturing more complex customers; all the while shifting long-tail customers over to the self-service, consumer-esque model.
Self-serve digital payments are not only a game-changer for B2B sales teams, offering a scalable and cost-effective solution for handling payments and streamlining operations, but will become an increasingly important tool for newer businesses to be more competitive against legacy players who are reluctant to adapt.
A digital back-office alongside digital B2B payments
In B2B, the point of purchase is only the beginning of the transaction journey.
After comes invoicing, order fulfillment and shipping, and finally, collections and accounts receivable. And luckily, digital payments capabilities are replacing the time-consuming manual processes with automated workflows that require less effort on the part of the finance team and address classic challenges in a simplified way.
Let’s take, for instance, the issue of late payments. The unfortunate reality is that 47% of suppliers experience delays in receiving payment, creating a negative impact on business operations and cost while the manual and time-consuming process of collecting those delayed payments leads to increased days sales outstanding (DSO) and cash flow issues. Even receiving occasional payments a number of days late has a negative outcome on business processes.
But thanks to digital back-office capabilities, the ease-of-use and better experience doesn’t just end at the moment of payment, and instead finance teams have at their disposal impactful tools to optimize accounts receivables and subsequently reduce the frequency and severity of late payments. These tools include automated invoicing and payment notifications and a “control center” where finance teams can see aggregated, up-to-date information on each buyer’s payment status and history. If a buyer has agreed to recurring payments, that information is also available in the control center.
Additionally, these tools also help maintain more positive customer touch points. Instead of having to flag down an overdue payment by calling a customer, you can send them a friendly notification that enables them to make the payment on-the-spot.
Digital tools such as these are invaluable to maintaining a healthily-running financial back-office and making digital payments work optimally for an organization scaling its online presence.
The trends of 2022 have unlocked new possibilities for digital payments in B2B. Now, in 2023, we will see a new standard for the business transaction as players continue to leverage digital tools and integrations to meet customer demands and create a roadmap for the future. At Balance, we're helping business