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6 Problems with B2B Payments and the Companies That Use Them

Topics: Finance, Credit & Payments, Management, Accounts Receivable

Most companies admit that their B2B payment processes are a little less than efficient and need some attention. 

Managing B2B payments is a common pain point for many businesses, but it is also one that can end up costing companies more than what they are willing to admit.

Let's address the most significant risks associated with B2B payments, and how to implement a payments solution and system that guarantees faster payments.

The Risks

So, if customers are paying on time—or close to on time—what’s the big deal? 

The truth is that it may be taking longer for B2B payments to hit your bank account than they really should, which can add up over time.

Here are the top six risks with B2B payments:

  1. Capital and Speed. Most businesses overlook capital and speed. The majority of companies see on-time payments as successful transactions. After all, they did pay, right? However, most often do not recognize or are aware of the benefits of receiving money sooner, and how that can reduce overall costs.

  2. Paper Based. Many businesses are still primarily focused on paper processes, which can be costly, disorganized, and inefficient. Furthermore, companies that keep hard copies of customer credit applications may also be breaching security compliances, depending on the business and industry. This could become a recipe for disaster.

  3. Overhead. Although many consumer markets have moved to outsourcing to third-party creditors, many B2B companies still keep credit processes in-house, which increases overhead.

  4. Collections Communication. Open communication among internal teams and external customers is great, but multiple communication touch points in regards to getting customers to pay is an added cost to your payment process.

  5. Sales. Unfortunately, many salespeople end up becoming bill collectors to try and get customers to pay. Not only is this unproductive for salespeople, but it is also outside of their roles, responsibilities, and work scope which could be responsible for declining new sales from each sales employee.

  6. Double the Doubts. Many B2B companies deal with risky customers. Many businesses often have doubtful accounts, knowing that some customers will never pay. Although this process is a standard process for B2B companies, it also shows that B2B businesses are acting like banks. They are taking a gamble on which payment will be paid, a practice that the majority of B2C companies outsourced with credit cards yet B2B businesses still traditionally keep in-house.


Calculating The Cost of Capital

Before you can improve your business’ B2B payment systems and finances, the first thing you need to understand is how to calculate the cost of capital. For example, the Weighted average cost of capital (WACC) calculates the equity and debt in a business. In simpler terms, the WACC calculation basically shows the amount of money a company must make on their capital investments in order to generate a profit.

For accounts receivables, sure, customers might be paying on time—or relatively on time—but it’s important to remember that every day that the customer goes without paying means that it is another day that the business cannot invest their money elsewhere. Over time, this can add up to a significant loss. In addition to calculating the cost of capital, companies also need to understand another number: the DBT (Days Beyond Terms). This number can differ per industry, but it ultimately calculates the length of time it takes for accounts receivables to turnover and be recorded on the books. This number is expressed as a ratio, and it is used to determine the average amount of time it takes a business to collect receivables. When the number of receivables is multiplied by the WACC, then a company can determine the minimum dollar amount that is needed to remain profitable. 


Doubtful Accounts

It’s essential for businesses to remember that accounts receivables are never guaranteed. In fact, some customers or accounts quickly become notorious for unpaid invoices. For example, a business’ customers may be from different industries that are more competitive. Some customers may be startups or small businesses and are still working out the kinks in their own cash flow, and they are struggling to pay their debts. 

Average write-off for businesses

Payment Costs

Yes, every form of payment becomes a cost to a business. Depending on the technology, payment system or payment solution, or the financing option available to customers, different B2B payment methods come with different costs. Here are some of the most common B2B payment methods that are still in use and accepted today:

  • Checks - This traditional yet effect B2B payment method is still a viable method. It is free to transfer money; however, it can take up to three to five days of “float” time for the payment to post and clear. According to an AFP payment survey, this amount of time ends up totaling to approximately $3 per check transaction.

  • ACH (Automated Clearing House) - ACH is a network that electronically transmits B2B payments. Although this B2B payment method requires less manual labor than checks, it comes with a small processing fee of up to 50 cents per transaction.

  • Debit Card - Debit cards transfer money in between banks, but the transaction fees are relatively high. Each average transaction costs approximately 1.5 percent of the transaction amount.

  • Credit Card - Credit cards and debit cards share technology and processing fees. However, most transactions are financed by banks and then the interest rates carry over to the customer or the buyer. Because credit cards offer a different layer of financing, processing fees are often higher than debit cards.

  • Wires - Wires are often used to transfer funds for large purchases or even international purchases. The fees for wire transfers can vary and typically depend on the origin in which they are sent and the receiving institution. Some wire transfers can cost up to $14 per transaction! 


The Rewards

It is clear that businesses have many B2B payment methods available to them, and all at varying costs. However, it’s crucial for companies to understand the risks and costs associated with each B2B payment method, as well as what doubtful accounts, capital, and accounts receivables all end up costing the business. For businesses that are looking to improve and streamline their B2B payment methods, Apruve offers a new application that serves as a fast payment solution. Our application not only helps businesses manage their accounts receivables, but it also shows them the speed at which their customers pay, and even how slowly cash moves from customer accounts to your business’ accounts after each purchase and transaction.

Net terms accounts receivable

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Apruve enables large enterprises to automate long-tail credit and A/R so you can stop spending 80% of your time and resources on 20% of your revenue. We partner with each of our customers to solve their unique credit, payment, and accounts receivable challenges and build the right credit solutions for your markets, customers, and goals. 

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