Business-to-business (B2B) payment automation is the process of using technology to manage and automate payments between businesses. This technology reduces the need for manual input, making the payment process faster and more accurate. A 2022 report found that 41% of UK businesses and 32% of US businesses surveyed planned to automate their accounts payable processes within the next 12 months.

Below, we’ll talk through how B2B payment automation works, how it’s used, and how it can improve operations. Here’s what you need to know.

What’s in this article?

• Types of B2B payments
  
• What is B2B payment automation and how does it work?
  
• Why is payment automation beneficial for B2B businesses?
  
• What processes can be improved with B2B payment automation?
  
• How to implement B2B payment automation in your organisation to drive growth
  

Types of B2B payments

Here’s a quick look at some of the most common payment methods used for B2B payments.

• Bank transfers: Wire transfers and Automated Clearing House (ACH) transfers, for example, are both frequently used for B2B payments. Wire transfers are direct bank-to-bank transactions that are typically used for large, urgent payments. These are irrevocable and often involve fees, especially for international transfers. ACH payments are a popular method for domestic transactions in the US and are less expensive than wire transfers, but they typically take a few days to process.

• Checks: Despite the shift toward digital solutions, many businesses still use checks for payments – especially smaller businesses or industries where digital adoption is slower. Checks are less expensive than some electronic methods, but they carry the risk of fraud and loss, and require longer processing times.

• Credit and debit cards: Businesses use credit and debit cards for their convenience and effective cash flow management. Cards also provide rewards, expense tracking, and fraud protection.

• Digital wallets and online payment platforms: Digital wallets and online platforms such as PayPal, Apple Pay, and Google Pay are increasingly accepted for B2B transactions. They allow businesses to electronically send and receive payments without sharing bank details. Some businesses are also starting to accept cryptocurrencies such as Bitcoin for their low transaction fees on international payments, but volatility remains a concern.

• Purchase orders and invoicing systems: Purchase order and invoicing systems are more traditional B2B payment methods where payments are triggered by invoicing after goods or services are delivered. Modern systems automate much of this process.

• Direct debit: Direct debits allow a business to withdraw funds directly from another company’s bank account. This requires prior authorisation and is typically used for recurring payments such as subscription services and regular supplier payments.

• Supply chain financing and factoring: Supply chain financing is a set of solutions that allow businesses to extend their payment terms to their suppliers while providing the option for their suppliers to get paid early. This is typically facilitated by a third-party provider. Factoring involves selling your invoices at a discount to a third party (known as a factor) for faster payment. This can improve cash flow, but it usually costs more than traditional financing.

• International trade: Letters of credit are guarantees from a bank that a buyer’s payment to a seller will be received on time and for the correct amount. They are often used in international trade, where the reliability of the contracted parties cannot be easily verified. Documentary collections are another process commonly used in international trade finance in which banks collect payment from the buyer on behalf of the seller, using the shipping documents as leverage.

What is B2B payment automation and how does it work?

B2B payment automation means using software and technology to automate the business-to-business payment process. Here’s a look at how it works.

Invoice processing

• Automated invoice capture: The system captures invoice data electronically over email or electronic data interchange (EDI). Advanced systems can also scan and extract data from paper invoices using optical character recognition (OCR) technology.

• Invoice matching and approval: Automated workflows match invoices against purchase orders and delivery receipts. The system then routes the invoices to the appropriate personnel for approval.

Executing payment

• Payment scheduling: Based on the agreed upon terms, the system schedules payments and selects the best payment method. Businesses can set up rules to optimise payment times to take advantage of early payment discounts or delay payments until they’re due for cash flow purposes.

• Payment processing: The system automatically executes payments as scheduled. Payment details are securely stored and managed to prevent unauthorised access.

Reconciliation and reporting

• Automatic reconciliation: After payments are made, the system automatically matches each payment with its corresponding invoice and records the transaction. This helps maintain accurate and up-to-date financial records.

• Reporting and analytics: The system creates detailed reports and analytics on payment activities, providing insights into spending patterns, supplier performance, and potential cash flow improvements.

Compliance and security

• Regulatory compliance: The system makes sure all payment processes comply with relevant regulations such as tax and Anti-Money Laundering (AML) laws.

• Fraud prevention: Advanced security measures, including encryption and multi-factor authentication (MFA), protect against fraud and keep transactions secure.

Why is payment automation beneficial for B2B businesses?

Payment automation can provide a wide range of benefits for B2B businesses. Let’s take a closer look at some of the potential advantages.

• Fewer human errors: Automation reduces the risk of human error, ensuring accurate data entry, calculations, and compliance while preventing costly mistakes.

• Faster payment processes: Automation accelerates payment cycles, reducing the time it takes to process invoices and make payments for faster collection and better money management.

• Less manual work: Automating tasks such as invoice processing, payment initiation, and reconciliation reduces the need for manual data entry and frees up staff for more strategic activities.

• Real-time tracking: Businesses can track payment status in real time for more visibility into cash flow and outstanding payments.

• Data-driven insights: Automated systems generate reports and analytics with valuable insights into spending patterns, supplier performance, and financial trends.

• Timely payments: Automated reminders and on-time payments help avoid late fees and maintain good relationships with suppliers. Some automation platforms can also take advantage of dynamic discounting.

• Transparent communication: Automated systems offer clear communication about payment status for better supplier relations.

• Adaptability: Automated systems can easily scale to accommodate changing needs and higher transaction volumes.

• Global reach: Automation facilitates cross-border payments, opening up new markets and opportunities for expansion.

• Fraud prevention: With payment automation, the system can detect and prevent fraudulent activities such as duplicate invoices or unauthorised payments.

• Compliance: These systems also help businesses adhere to regulatory requirements and industry standards, reducing the risk of penalties.

What processes can be improved with B2B payment automation?

B2B payment automation can transform several processes across your business, including:

• Procurement: Automation can optimise the procurement process from requisition to payment by generating purchase orders based on inventory levels, managing selected vendors, and processing electronic invoices. It also helps businesses get the best prices by comparing suppliers and managing negotiations through systematised workflows.

• Accounts payable and receivable: Automation can digitise invoices, automate matching invoices to purchase orders, schedule payments, and execute transactions. In accounts receivable (AR), automation facilitates timely billing and faster collection by sending reminders for payments and processing incoming payments.

• Customer relationship management (CRM): These tools can track customer interactions, analyse customer behaviour, and personalise communication – contacting customers at optimal times in their journey and providing instant customer service through chatbots. Automation can also maintain an updated database that helps predict customer needs and improve service delivery.

• Supply chain management: With automation, businesses can optimise logistics operations, track inventory in real time, and manage supplier relations by predicting inventory needs, initiating re-stock orders, and tracking shipments from departure to delivery.

• Compliance and risk management: Payment automation helps maintain compliance by keeping track of regulatory changes and adjusting internal processes accordingly. It can also analyse transaction patterns to detect and prevent potential fraud.

• Human resources (HR): HR processes from recruitment to payroll can benefit from automation. Automated systems can handle job postings, applicant tracking, employee onboarding, and payroll processing – saving time and keeping employee records and payments accurate.

• Reporting and analytics: Automated reporting tools can gather data from across business processes and generate comprehensive reports. This provides businesses with fast, actionable insights – allowing for agile decision-making and strategic planning.

• Contract management: Creating, executing, and analysing contracts can be fully automated in a secure environment. Automation keeps contracts consistent, up-to-date with legal standards, and manages them throughout their lifecycle.

• Marketing: Marketing automation tools can manage and optimise marketing campaigns across multiple channels, schedule and post content, segment audiences, personalise messaging, and track the effectiveness of campaigns. This helps make marketing efforts more efficient and increases the return on investment (ROI).

How to implement B2B payment automation in your organisation to drive growth

Implementing B2B payment automation is a multistep process that requires careful planning and strategy. When done correctly, automation can optimise operations, improve accuracy, and drive business growth. Here are a few best practices to get started with B2B payment automation.

• Start small: Begin by automating a few key processes and gradually expand as you gain confidence and experience.

• Communicate effectively: Keep all stakeholders informed throughout the process and promptly address concerns.

• Choose a scalable solution: Select a solution that can grow with your business and adapt as your needs change.

• Partner with a reliable provider: Choose a vendor with a proven track record and excellent customer support.

Here’s a closer look at the step-by-step process of implementing B2B payment automation in your business.

Assess your current processes

• Analyse your existing payment workflows to identify bottlenecks and areas that are prone to errors. Look for manual tasks that consume the most time and resources.

• Collect data on payment volume, transaction types, and average processing times to understand the scope of automation required.

Define your goals and objectives

• Determine what you want to achieve with payment automation. Is it reducing costs, making processes faster, improving accuracy, or all of the above?

• Identify the processes that would benefit most from automation and prioritise them based on their potential impact.

Choose the right solution

• Explore the B2B payment automation solutions on the market, considering factors such as their features, scalability, integration capabilities, and cost.

• Test different solutions to see how they might fit with your existing systems and workflows.

Develop an implementation plan

• Set a realistic schedule for implementation, allowing time for data migration, system integration, and staff training.

• Clearly define roles and responsibilities for each team member involved in the implementation process.

Implement the solution

• Customise the software to your specific needs and integrate it with your existing accounting or enterprise resource planning (ERP) systems.

• Transfer relevant data from your existing systems to the new platform.

• Thoroughly test the system for proper functioning and whether it meets your requirements.

Train your team

• Provide your staff with comprehensive training on the new system and processes.

• Be open to feedback and address any concerns or challenges during the transition.

Monitor and optimise

• Monitor key metrics such as processing times, error rates, and cost savings to measure the platform’s effectiveness.

• Regularly review and refine your processes based on data and feedback to improve performance.