Payments Between Businesses as Seamless as Consumer Payments

The pandemic accelerated the digitization of the payments industry, with many businesses eschewing checks and cash in favor of electronic and contactless payments. Tomer Barel, chief operating officer at Melio, reflects on what that means in the B2B world in the PYMNTS eBook “Endemic Economics: 32 Payments Execs on the ‘Next Normal’ That Never Happened.”

Despite a 26x difference in market size, payments between businesses have historically received less attention than payments made by consumers — with few companies daring to create new technology that would challenge the status quo of paper checks and other antiquated payment methods.

Now, the tide has turned. The COVID-19 pandemic accelerated the digitization of the payments industry, with many businesses eschewing checks and cash in favor of electronic and contactless payments. Although 25% of businesses still prefer to pay their vendors with checks, the option to send and receive payments with digital tools has never been more attractive.

Particularly for the nation’s nearly 32 million small businesses, the business-to-business (B2B) payments industry has tremendous untapped potential — with innovators and financial institutions just beginning to scratch the surface. Even though small businesses are the growth engine of the nation’s economy, accounting for 44% of economic activity, they have historically been drastically underserved by the technology and financial sector — especially regarding payments.

According to a joint Melio and YouGov survey, 59% of small businesses have direct experience with late payments — a trend exacerbated by the use of outdated payments systems. Even more striking, more than half of America’s small businesses think that their larger clients are deliberately delaying payments even though they could afford to pay their invoices on time.

Fortunately, digital payment solutions allow small businesses to quickly and seamlessly transfer and receive payments — helping with cash flow needs, reducing or eliminating late payment costs and giving businesses back valuable time. Additionally, some platforms offer the benefit of more flexible payment methods. Even if a vendor requests paper checks, for example, businesses can make payments on credit cards and earn points to redeem rewards.

Historically, as other industries moved to free platforms for their users, the payments industry was slow to transition and lacked affordable, easily accessible options. But in the last few years, an increasing number of B2B payments tools have become available to businesses for a small fee or free of charge — removing cost as a hurdle for businesses interested in adopting digital payments solutions.

Businesses seeking to adopt online payment solutions can also rest assured that today’s platforms incorporate sophisticated capabilities — often developed inhouse — to prevent fraud, including identity theft.

Another welcome development in the B2B payments space is greater collaboration efforts between financial institutions, technology companies, and online marketplaces. For example, Melio’s partnership with Intuit’s QuickBooks provides an integrated accounts payable solution for small businesses, allowing users to pay their bills while seamlessly importing invoices from one platform into the other. Increased integration of payments infrastructure into the platforms already widely used by businesses is essential to improving the ease and accessibility of digital payments tools.

Investment in B2B payments will likely accelerate as businesses increasingly embrace digitization. As technology continues to evolve, it is my hope that moving money between businesses will become as seamless as B2C transactions.