The world’s hottest multitrillion-dollar industry, B2B e-commerce payments is emerging from the ‘80s and is ready to adopt the technology of the twenty-first century. Finally ready to trade in their fax machines for fintech gadgets and their spreadsheets for sandboxes, manufacturers, merchants, and marketplaces are joining the digital transformation sweeping the nation.
Here are all of the statistics you need to know about B2B payments in 2022 from dozens of reports and surveys published by the field’s most respected publications.
The pain points you ought to know
Extending trade credit has served as an industry standard in the U.S. since general stores started lending to farmers, who wouldn’t have working capital until after the harvest season. It’s still highly relevant today though. In fact, 40% of U.S. businesses claimed that they offered trade credit the year after the pandemic started as a means to win new customers.
However, it prevents many enterprises from functioning at full capacity. While the complete sum of funds suspended in AR and AP has reached a stunning $3.1 trillion, nearly 68% of companies that receive more than half of their payments after the due date suffer from cash flow problems. Worse still, 27.5% of companies that receive late payments pay their suppliers late too.
It generally takes businesses roughly 10 days to process a single invoice. That’s why B2B enterprises wait 40.3 days on average to receive payments that could otherwise fuel the company’s growth. Whether the CEO would have decided to use that money to purchase technology, make investments, or expand into new markets, the lack of liquidity is a serious obstacle.
Even high-margin businesses, businesses earning between 25-75% margins, which have the resources to offer net terms more frequently, cite late payments as one of their top pain points. While 55.3% of them believe that extending credit helps them acquire new customers, 54% of them are concerned about the time and complexity required to process such requests reliably.
Small businesses have their own unique set of complications. A whopping 57% of payments made to small businesses were late in 2020, and 17% weren’t collected until more than a month after the due date.
To put that in perspective, $5.7 million out of $10 million dollars in total sales would have been late, and $1.7 million would have been extremely late. That money could have been funneled into hiring new employees or ramping up marketing efforts.
Worse still, you can’t even attribute the spending habits to the pandemic because 62% of small business payments were late in 2019.
Plus, because they often experience late payments, small and medium businesses struggle to secure financing. The financing rejection rate for SMBs hovers at 40%, which is equivalent to 65 million organizations.
That’s not all though.
While 71% of B2C payments are made electronically, 42% of B2B payments are made with a paper check–and that figure is a dramatic improvement from the 80% it was in 2004.
As you can see in the graph below, 80% of B2B companies still use checks, 63% use ACH, and 45% use cash, none of which lend themselves to digitization.
Indeed, while financing does complicate matters further, the simple act of processing so many transactions with fax machines, filing cabinets, and paper checks–all with a sizable amount of human error thrown in–is overwhelmingly complicated.
That’s why so few businesses are satisfied with their payment methods. Only half report that they are satisfied with checks and ACH, and the numbers plummet from there.
According to the Association for Financial Professionals, nearly 80% of B2B companies are in the process of digitizing their paper B2B payments processes. So, just as check usage in B2C transactions dropped 60% from 17 billion in 2010 to only 6.5 billion in 2018, in another 20 years, we’ll likely see checks all but disappear from the B2B sphere as well.
Processing ACH and check payments in accounts payable and accounts receivable requires an enormous amount of resources.
In fact, 35% of businesses report that processing costs are a major challenge.
On average, it costs $8 to process a single supplier payment, 62% of which stems from labor alone.
Worse still, when it comes to processing paper invoices, companies report 18% error rates and 75% of companies report experiencing fraud, which drives up overall costs even further.
Whether it’s to reduce costs, prevent fraud, increase efficiency, or improve transparency, tech-first solutions are high in demand.
If you don’t take advantage of this opportunity now, you’ll regret it later
Crazy as it sounds, the entire B2B payments market around the world is worth approximately $240 trillion, which is twice as large as the B2C market and expanding at a compounded annual growth rate above 6% and nearly three times as large as the global GDP at $85 trillion, as multiple payments are made for the same level of production.
Even though organizations within the B2B market are generally more old-fashioned, the pandemic changed all that.
revenue for digital commerce applications alone is growing by 18% globally for B2B in terms of compound annual growth rate.
And the embedded payments industry is on track to grow 45% from $43 billion in 2021 to $138 billion in 2026.
However, not only are corporations interested in more efficient payment processes. Business buyers are increasingly comfortable with making purchases digitally.
As of the end of 2021, more than one-third of B2B buyers are willing to fork over half a million dollars or more worth of goods in a single digital transaction. Plus, 75% of those buyers are willing to pay over $1 million directly through self-service e-commerce channels.
What banks and other legacy financial institutions have been missing
Fintech startups have gained so much momentum over the past year that they’ve even started threatening the success of banks and traditional financial institutions.
Banks raked in the cash over the past several decades since 1945 as international trade tripled as a percentage of global GDP (to the tune of $50 billion in revenue alone from a $5.2 trillion global trade ecosystem). However, while 40% of global trade is supported by bank-intermediated solutions, increasing regulation and slow, outdated technological infrastructure has prevented these legacy institutions from closing the $1.7 trillion gap in access to financing.
Believe it or not…
Major banks are losing up to $10 billion in annual revenue because they haven’t been able to keep up with current demand for BNPL functionality, for example.
According to recent surveys, 64% of financial institutions are “very” or “extremely” interested in offering technology to “consumerize” B2B payments.
Plus, approximately one in every five financial institutions is working to create products in-house to mitigate B2B payment friction. This number skyrockets to 90% for financial institutions that hold more than $100 billion in assets.
However, only 37% of financial institutions have the resources and talent to address these pain points on their own.
The three features you should explore now (Hint: they aren’t what you might expect!)
In a world where supply chain delays are practically part of common parlance and business buyers expect consumer-level service, B2B companies can’t only rely on their own product line if they want to retain customers long-term.
That’s why, marketplaces have become the go-to strategy for B2B merchants looking to scale seriously–and buyers are on board.
Roughly 60% of B2B buyers would consider making purchases through marketplaces. This is almost equivalent to the percentage of people who wish to work with supplier-branded e-commerce stores directly, which is 64%.
So, even if you do own your own digital store, you should consider investing in a marketplace as part of your overall e-commerce strategy.
B2B marketplaces allow you to offer your customers alternatives when shipping delays keep certain products out of stock for longer than expected. They also allow you to offer niche products in adjacent industries that you couldn’t offer yourself, which means smaller companies can expand their reach by partnering with you and you can provide customers with more value, increasing retention rates.
The faster a business grows, the faster its payables grow, and the more stress there is on AP. According to a study done by PYMNTS.com, 93% of companies expect their monthly payables to increase over the course of the next three years.
A total of 55% of organizations expect up to a 30% rise in demand on their AP systems. That’s why 97% of firms report that bottlenecks in AP could hinder growth in sales and revenue.
So, how do you increase sales without driving up overhead?
A total of 98% of businesses surveyed reported that automation will help streamline processing within AP departments. In fact, 67% of firms managing at least 2,500 payables every month claimed that automation was actually the key to growth moving forward.
APIs and open banking
Fintechs are increasingly leveraging APIs to help B2B industries automate more and more of their payment processes from end to end. The more touchpoints, payment methods, and accounts a business has, the more resources it’ll need to aggregate and reconcile all of its data.
However, open banking changes all of that.
More and more financial institutions have started adopting open banking business models in an attempt to orchestrate platforms and ecosystems.
In a recent survey conducted by Infosys Finacle, Strategic Treasurer, and RedHat, 84% of financial institutions stressed the importance of APIs while only 10% achieved notable success using them. As of now, only 40% had deployed an open finance strategy at large, but even then, the model was mostly limited to compliance requirements in certain strategic regions.
That being said, compliance issues are on the rise. It can account for up to 25% of servicing capacity, and that number is expected to grow dramatically. In fact, in 2014, U.S. and European financial institutions faced fines of $58 billion, up from $30 million in 2007. That’s roughly a 200,000% increase in the span of 7 years. Given these figures, one can only imagine the market demand for functionality related to automation, transparency, and operational efficiency.
While banks acknowledged that fintech startups would spearhead this initiative, they know how essential it is to their customer retention rates for a number of reasons:
- Providing clients with a clear view of their transactions, cash resources, and operational information in one central location
- Helping clients make well-informed decisions more confidently
- Driving down overall costs
- Improving the customer experience
Turnkey solutions that integrate banks with AP and AR departments allow B2B companies to start automating tedious processes filled with potential human error. So, talented professionals can take the time they’d devote to data entry, reconciliation, or manual checks and devote it to strategic efforts that can really contribute to the company’s bottom line.
Realistically, financial institutions will still need to develop a variety of in-house tools to support their clients’ growing demand for technological functionality. However, with the advent of open banking and APIs, they’ll be able to increasingly rely on fintech start-ups to fill in any gaps.
While banks might lose their stronghold over international trade finance given the increasingly competitive marketplace, ultimately tech-first solutions should prove mutually beneficial to both industries.
A few final thoughts
This trillion-dollar industry is certainly moving online–and quickly. Like it or not, the potential merchants have to scale is largely dependent on their ability to automate, streamline, and simplify the various payment workflows bogging down their AP and AR teams.
Ultimately, it’s up to the burgeoning fintech ecosystem to determine how and at what pace digitization takes place, but given the enormous opportunity, this trend is certainly here to stay.