B2B Payment Gateway Pros and Cons: Payment Processing For Businesses In 2024

Credit Card Payments: Pros and Cons

Credit cards have become one of the most common and convenient ways for businesses to conduct transactions and manage financial obligations. Credit cards offer a variety of benefits that make them attractive for businesses and consumers alike.

• Credit card payments are easily tracked due to the electronic or paper statements provided by the credit card issuer. This allows businesses to accept online payments and accurate records of their spending, allowing them to budget more sensibly or even avoid fees for the transaction.
• If a business pays off its revolving balance on time, it will be able to access extra funds without incurring any additional interest rates. In this way, it can be viewed as a kind of "debit card" that is paid off each month instead of accruing debt.
• Many credit cards come with added security features, such as virtual credit cards that have single-use numbers. This helps protect businesses from cybercrime as each number can only be used once and then becomes null and void.
• Interest (APR) will be incurred if the credit card is not paid off in full each month.

ACH Payments (Automated Clearing House) Payments: Pros and Cons

ACH payments have become an increasingly popular form of digital payment for businesses in recent years. Unlike traditional methods of sending paper payments, ACH transactions are processed electronically and can be used to transfer funds from one entity to another using a routing number or a bank account.

• The primary advantage of using this digital method is the speed and convenience it offers, while also providing cost savings compared to other forms of payment.
• Organizations that regularly make B2B payments can benefit immensely from using ACH payments as their primary transaction type. Not only does it reduce the amount of time taken for manual processing, but also has a positive impact on cash flow when used for recurring payments.
• Tracking and monitoring these payments is much easier than with paper checks; results are immediately visible on the month-end statement, and they can easily integrate into enterprise resource planning (ERP) systems and other applications.
• ACH transactions are highly secure, meaning sensitive financial information stays safe throughout the entire process. Since most financial institutions offer these services at no additional cost, organizations can save money by switching from paper check transactions to ACH.
• Furthermore, since payment amounts are predetermined prior to settlement, businesses have greater control over their finances without having to wait for a certain date every month before making any payments or receiving funds.
• ACH can only be used within the United States.
• Due to its batch processing system, there is a daily cut-off time for ACH payments, so businesses must make sure to submit their transactions before this deadline in order to have them processed that day.

Bank Transfers/Wire Transfers: Pros and Cons

Wire transfers are a popular and convenient payment method for businesses to send and receive secure payments. As an electronic form of payment, this form of payment offers real-time transactions with quick access to funds.

• Online payments can be sent from one account to another, with no need for physical cash. In addition, bank transfers are a viable payment service for companies that make global payments.
• Compared to the Automated Clearing House (ACH) system, wire payments have the advantage of not using batches and having a faster turnaround time. When companies require funds in a hurry, they often find that wire payments have the best terms and timing.
• There are two types of wire transfers: cash-based and digital. Cash-based transfers involve sending funds to a cash office where they can be collected by the recipient. Digital transfers involve sending funds electronically between banks or other financial institutions.
• To ensure the successful delivery of funds via a wire transfer, it’s important for businesses to provide accurate information about the sender and recipient accounts as well as any applicable transaction fees or taxes associated with the transfer.
• Businesses should understand the regulations in their country related to sending international payments and any costs associated with foreign exchange rates if applicable.
• Some wire transfers may still have daily cutoff times.

Checks or E-Checks: Pros and Cons

Despite the significant decrease in recent years, many companies are still using checks to make B2B payments due to the need for additional security measures and data exchange.

Paper Checks

• With paper checks, businesses can better manage their cash flow and inventory, since they create an audit trail.
• Paper checks offer different security than digital payments. This type of security is more important to some companies than others.

E-Checks

An e-check is an electronic version of a traditional paper check. It is used to make payments online, typically via an automated clearing house (ACH transaction). Instead of writing out a paper check and sending it through the mail, the user provides their bank account information, which is then electronically sent to the recipient's bank.

• E-check digital payments make transactions faster and more secure than using cash or a paper check.
• E-checks will clear faster than paper checks and typically cannot be "held," i.e., the payee can't decide to delay depositing the check at the payer's request.

Cash: Pros and Cons

Does it seem weird to have cash on this list when talking about a B2B payment method? Like checks, it's not used nearly as much as many of the other methods, but cash still has its place in B2B eCommerce.

• Cash payments are often preferred by business clients since they provide instant confirmation of payment, as some businesses will need payment immediately and don't have the time for certain payment methods to be verified.
• Cash payments eliminate the need to pay transaction fees associated with other payment methods, such as credit cards or wire transfers.
• Some businesses are run by an old-fashioned owner who simply loves the feeling of carrying around cash and making a large deposit at the bank.
• There's also the darker side of cash flow, as some business owners use it as a way to hide illegal activity or avoid paying taxes.

Direct Debit: Pros and Cons

Much like an e-check, direct debit involves funds being removed from a checking account. Direct debit is a payment method where funds are directly withdrawn from a payer's account and transferred to the recipient's account.

• Direct debit is typically used for recurring payments, such as for bills or subscriptions.
• It eliminates the need for paper checks, cash payments, or manual processing of card payments.
• Direct debit also ensures that payments are made promptly and securely, reducing the risk of late or missed payments.

How COVID Negatively Affected Electronic Payments

This trend has been disrupted by the global COVID-19 pandemic. According to McKinsey’s 2020 Global Payments Report, global payments revenues were down by 7% in 2020 compared to 2019.

This decrease is felt across all payment types, but especially so for cash payments. In the U.S., cash usage dropped by 7% during the pandemic, according to data from the Federal Reserve Bank of San Francisco. This is a far higher rate than the 1 or 2 percent annual average decline we’ve seen in recent years due to the increasing adoption of digital payment methods.

How COVID Positively Affected Electronic Payments

Despite this setback, COVID-19 may likely have long-term effects on the B2B payments market that could accelerate its growth. As consumers become used to contactless and digital payment solutions, they may be more likely to continue using them even after restrictions were lifted.

This could lead to an increased demand for these solutions beyond what would normally be expected. Also, as more countries make moves towards digitizing their financial systems, we could soon see a surge in demand for digital paying solutions from both consumers and businesses alike.

Fewer Paper Checks

The use of paper checks for payments is on the decline due to newer, faster payment forms like credit cards and digital platforms. Even though their usage has dropped significantly since 2012, with 22.5 billion checks written compared to 16 billion in 2018, the rate of decline has slowed from 1.54 percent between 2015-2018 to 1.02 percent between 2018-2020.

With this trend continuing, it looks likely that businesses will almost completely phase out these slow manual processes in favor of quicker digital solutions over the next decade.

Mobile Payments in Business to Business

The convenience of using mobile devices for B2C transactions has started to become popular in the B2B world as well. Examples of businesses that could benefit from this are transportation and food supply, where a driver can accept an order and payment outside of their regular standing order.

By having access to mobile wallets and payment portals, companies can gain more flexibility and automation in their processes. As demand continues to grow, more companies will introduce these capabilities, allowing businesses to make use of the autonomy that comes with it.

(Even) Faster Processing

The trend for real-time payments is growing, with the development and deployment of immediate B2B payment processing systems and infrastructures being seen in many countries. Companies are becoming more reliant on speed, ease, convenience, security, and uninterrupted processing when it comes to their payments, leading to an increase in innovation and disruption within the industry.

Better Cash Flow

One of the primary issues that leads to failed businesses is cash flow mismanagement. To ensure a more reliable and profitable outcome, streamlining processes and automating B2B payments can help avoid any cash flow issues.

Businesses should always consider how easy it is for customers to pay them. Payment portals are available that allow merchants to securely accept payments online via credit card or ACH/bank transfer without having to wait for checks or other paper transactions to arrive in the mail.

These solutions not only save time but also make it easier to track payments, maximize profits, and improve customer experience by providing a seamless payment process.

Simpler Accounting

A comprehensive B2B payment solution is an effective way to streamline accounts payable and accounts receivable, eliminating manual labor and reducing the risk of errors. By implementing this software with B2B payment features, check payments can be scanned, recorded, and stored automatically with no need for human intervention.

In addition to delivering convenience and accuracy, this type of payment solution can also integrate with popular enterprise resource planning (ERP), accounting, or bookkeeping programs.

A B2B payment system also helps businesses manage their finances more effectively by providing visibility into cash flow and tracking where money is coming in and out of the organization.

Save Time

Adopting B2B payment solutions is a great way to save resources such as time, money, and effort for businesses and customers alike. Instead of having to write and deliver checks manually, merchants can now utilize digital systems which automate the entire process.

By leveraging AI-driven automation solutions, you can also free up your team’s valuable time and direct their efforts toward critical core products and services.

In addition to saving time and money, B2B payment hubs also help streamline tracking payments from customers as well as keep an accurate record of all transactions made. This allows for better transparency in business operations along with more efficient reconciliation processes which reduce the need for manual labor that would otherwise take too much time and energy.

Security

Digital payments involve the exchange of sensitive financial data, and thus must be secured to protect against cyber-attacks and fraudulent activities. Specialized encryption measures, such as two-factor authentication, should be employed to ensure that customer data remains secure.

Compliance

Governments and other organizations regularly update their rules and regulations regarding digital payments, requiring businesses to keep up with the changing landscape in order to remain compliant. Failure to do so can result in costly fines and penalties for non-compliance.

User Interface

The user experience of payment portals should be simple and straightforward in order to maximize adoption by customers. If you don't, they are likely to switch to competing services that offer a better experience.

Costs

Implementing digital payment systems requires an investment of capital, including costs associated with technology, infrastructure upgrades, security measures, personnel training, and more. All of these add up quickly for businesses on a tight budget, so it's important to find a payment portal that isn't expensive in the first place and offers ways to avoid fees associated with electronic funds transfers.

Integration

When switching from one digital payment system to another (e.g., from cash registers to eCommerce), businesses need smooth integration between existing databases and software processes in order for the transition to occur without disruption. This process may require technical expertise or help from software engineers in order to integrate the new system into the existing architecture properly.

Fees

One of the biggest downsides of accepting digital payments is associated fees, which can cut into businesses' profits if not managed properly. Transaction fees, processing fees, and merchant services fees can all add up quickly, eroding any potential profits that may have otherwise been achieved through digital payments.

Some services, such as mobile and eCommerce payments, are typically more expensive than traditional payment methods like cash or check, which puts them at a disadvantage when competing for customers.