In today's ultra-competitive business landscape, corporations are constantly searching for ways to optimize their operations and gain a competitive advantage.
One such opportunity has emerged in the payments arena in the form of real-time payments.
This advancement in technology is reshaping the way companies pay and conduct financial transactions. The most obvious benefit is improved cashflow that comes from not having to wait to receive funds and it can also act as a vehicle for growth.
This article will venture into what business-to-business real-time payments are, and the advantages and disadvantages of using them. We'll also explain why it makes sense for larger corporations to integrate them into their business model.
What are real-time payments?
A real-time payment (RTP) refers to any payment system that facilitates an immediate transfer of funds. Payments can be transferred electronically worldwide 24/7.
These real time payments are typically completed within seconds; this makes them ideal for any time-sensitive transactions, for example loan disbursement.
But it's not just the speed of real time payments that is important. With RTP, there is also two-way messaging functionality. This can automatically generate requests for payments from buyers to sellers, reducing the need for manual processes.
As well as real time payments, you may have also heard of Faster Payments. They sound similar but Faster Payments is a broader category that includes services that may look like real-time payments but may still take hours or even days for settlement to take place.
Real-time payments literally settle in real-time. These instant payments are becoming an increasingly popular payment option, with 64 million real-time payment transactions totaling $34 million processed in quarter 3 of 2023 alone.
Popular B2B payment methods
Business to business (B2B) payments take place because of the exchange of goods and services at a pre-determined value in a particular currency. These payments can be recurring or single transactions, depending on the terms agreed between the business and their buyer.
Digital B2B real-time payment solutions are an effective B2B tool as it accelerates the issuing, receiving, and processing of payments. When receiving funds in this way, instant payments positively impact the cashflow of a business.
However, many businesses have yet to discover real time payment services. Instead, they are using legacy methods, including the following:
Credit cards
Credit cards are one of the main methods for making B2B payments; providing a convenient and inexpensive way to facilitate transactions. In the world of B2B payments, a credit card is often referred to as a company card or corporate card.
Although a credit card will incur interest if not paid off each month, it can give businesses access to additional funds when the revolving balance is paid in a timely manner.
Credit card issuers can also offer virtual cards with unique numbers for one-time use as a risk management technique to avoid cybercrime. This can help mitigate fraud as after the first transaction, the credit card number becomes null and void.
Automated Clearing House (ACH) payments
Automated Clearing House (ACH) payments are electronic payments made from one financial institution to another, rather than using a routing number and bank accounts. Thanks to their simplicity, they work extremely well for B2B recurring payments.
ACH payments are a popular way to facilitate cash flow and settle accounts as they are easy to track and appear on a monthly bank statement. These payments can also be integrated into business models through their enterprise resource planning (ERP) system.
It is important to note that Automated Clearing House is a U.S. service that is generally used to make transfers within America although some outgoing remittances to other countries may be possible.
Wire transfers
Unlike ACH payments, wire transfers are a digital payment method that can be used to facilitate business-to-business transactions globally. They are not instant payments as they can take anywhere between several minutes to 24 hours or more before the money is in the recipient's account.
There are two types of transfers: cash and digital. A cash-based wire transfer involves funds being sent to a cash office for a recipient to collect in person. However, in a digital wire transfer, the money is sent electronically from one bank account to another.
Companies often choose this method as it offers a balance between the quick arrival of funds and reasonable costs for doing so.
Fintech solutions
If you are looking for a real time payment infrastructure, you are not limited to choosing the services of traditional financial institutions. In fact, more modern payment options are available from fintechs that use the latest technology to deliver real time payment solutions.
Popular payment options, like PayPal and Venmo, electronically transfer money from one account to another. This is done between the two entities and cuts out the need to use slow and expensive bank payment networks.
However, one of the biggest drawbacks to this payment methods are the copious fees involved with these transactions. In most cases, costs are much higher than other digital payment methods.
Advantages of B2B real-time payments
Using real-time payments delivers a number of benefits - the most obvious are immediate availability of funds and instant confirmation. But there are others which are enabled by integrating information flows to solve business challenges.
Efficiency
Legacy paper invoice-based payments often involve hours of tedious administration time and resources. Sellers had to issue invoices, follow up payments, and manually reconcile customers’ accounts.
Real-time payments speed up the process with automated requests for payment as well as saving time and money upon collection.
Improved cash flow
As there is no need to wait around for days for payments to clear, funds are visible in real time, making cash flow management much easier.
Unlike traditional payments, organizations that receive instant payments can be confident the money is theirs, as those transactions cannot be reversed.
Enhanced security
Real-time payment networks are secure due to their streamlined end-to-end process, minimizing manual errors. Payments are only sent after thorough checks, reducing fraud risk.
Global reach
Real-time payments benefit both parties involved in the B2B transactions due to the speed and convenience it offers. This is especially valuable when doing business globally as overseas transactions are easy to set up and execute.
Better communication
Two-way communication is built into many RTP systems, allowing the payer and recipient to attach any additional relevant details regarding the transaction. This can be useful for reconciliation and checking order details to avoid potential misunderstandings and customer friction in future.
Financial management and forecasting
53% of respondents stated that real-time payments help to improve their financial management. When payments are made faster, businesses can forecast and manage operations far more effectively.
Disadvantages of B2B real-time payments
Although the benefits to real-time payment services are extensive, there are a few challenges to consider.
Instant settlement and immediate access means there is no opportunity to fix any errors by the buyer when paying the seller.
Banks and payment service providers also have little time to detect and prevent fraudulent activities.
Correcting any errors after the money has been received may be extremely time-consuming for both the seller and the buyer.
The importance of real-time B2B payments to large companies
Financial institutions note the rising adoption of real-time B2B payments among merchants, with 81% of large retailers deeming this method crucial for transactions. The same research also found that 91% of manufacturers say real-time payments has created better B2B relationships.
Many large firms also value real-time payments’ reliability and security features.
Immediate payments enhance transparency and consumer confidence in business transactions, streamlining the process for managing financial transactions.
Conclusion
The speed of payments settlement has come a long way in the last few years.
The UK recorded 3.4 billion real-time transactions back in 2021, estimating in cost savings of around £750 billion for both businesses and consumers.
Reductions in cost isn’t the only important impact that real-time payments have on large businesses:
- The ability to make payments in seconds, without having to wait days or even weeks, is ideal for businesses as it offers immediate access to money for wages, stock, and various other overheads.
- Instant B2B payments improve the supply chain and reduce any disputes, this is especially helpful for corporations that rely on stock and deliveries.
- High-speed payments assist in paying salaries, bonuses, and expenses on time, allowing for a smoother payroll.
- Being able to send instant refunds improves satisfaction and reduces the risk of charge backs.
- Getting funds faster enables businesses to make informed decisions with real-time payment data. This aids in identifying trends, refining planning, and forecasting, positively impacting company growth and expansion.
Real-time payments are delivering significant benefits, changing the way B2B organizations operate around the world. They are helping to improve efficiency, reduce costs, and enhance customer satisfaction.
As adoption continues, the payments industry can expect to see more use cases and innovation to emerge.
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