Online B2B Payment Methods VS Early Payment Discounts

Need to Improving B2B Cash Flow? Here Are the Pros and Cons of Early Payment Discounts and an Alternative Most Businesses Overlook

It is impossible to overstate the importance of strong cash flow to the health of a B2B business. In fact, one study found that cash flow was a factor in 82% of businesses that failed.¹ One useful method that has traditionally been employed to address this issue is early payment discounts. However, digital payment methods can also accelerate B2B payments and improve cash flow.

In this article, we’ll compare the pros and cons of using early payment discounts and online B2B payment methods to accelerate cash flow – and explore how these two methods can work together.

Pros and Cons of Early Payment Discounts

Early payment discounts have long been deployed as a method to accelerate cash flow. By offering clients a lower price in exchange for faster payment, these discounts can be very helpful in optimizing the collection of accounts receivable.

Pros of Early Payment Discounts Include:

• Early payment discounts are well understood by virtue of their simplicity and long-term usage
• Terms are flexible, so you can offer bigger discounts to your best customers – and no discount to those that generate lower profit margins
• Their use can reduce the risk of late payment or non-payment

Cons for This Approach Include:

• Offering a discount means less revenue and a cut in profit margin
• Many customer systems are simply unable to process early payment discounts (16% in one study in the UK)²
• In some cases, businesses report that customers take the discount and continue to pay slowly anyway
• Managing the receipt and tracking of discounted payments adds an extra layer of complexity for your financial team

Using Online B2B Payments to Improve Cash Flow

Online payments can be an alternative or addition to early payment discounts. They can make it easier for clients to pay and can shorten the time it takes to receive funds.  Options including bank transfers utilizing real-time payment rails and the ability to accept credit cards and digital wallets online.

How Online Payments Improve Cash Flow:

• Accepting Credit Cards and Bank Transfers online makes it easier for clients to pay and may eliminate the time-consuming step of submitting requests to an accounts payable department that pays on a set schedule
• Accepting B2B real-time payments, such as Faster Payments in the UK, SEPA Instant Payment in Europe or UPI in India, can reduce the amount of time it takes your business to receive funds
• As workforces become more distributed, employees have a greater need to make payments to vendors and suppliers online

Just like with early payment discounts, there are pros and cons to consider.

Pros of Online B2B Payments:

• Utilizes digital payment methods that are often favored by international businesses
• Delivers the freedom to accept and make payments using local payment methods anywhere that you do business
• Can simplify cross-border ecommerce transactions, particularly if you work with a partner that provides managed compliance and fraud monitoring services

Cons to Consider Include:

• You may need to educate clients about new payment processes
• Integrating multiple payment methods can be difficult and time-consuming – it’s important to use a solution that can offer all the methods you need for online B2B payments through a single integration
• Care should be taken to ensure that local regulations, KYC and AML requirements are followed

Making Payments and Discounts Work Together

Online payment options and early payment discounts don’t have to be an “either/or” proposition. Each method has its own particular strengths and should be utilized when and where they make the most sense. For example, the addition of online payments can increase the effectiveness of discounts, making it easier for customers to take advantage of the offer and increasing cash flow at the same time.

Omni-Channel B2B eCommerce Payment Systems as a Path to Accelerated Cash Flow

Offering more convenient, online B2B ecommerce payment methods can make it easier to get paid and provide customers with a better experience at the same time. To be successful, you need a B2B payments solution that can provide both the right payment methods for your customers no matter where they are located, and simplified compliance and security so that you can stay focused on your core business.

Sources:

1. https://www.businessinsider.com/why-small-businesses-fail-infographic-2017-8?r=US&IR=T

2. https://www.pymnts.com/news/b2b-payments/2019/barclaycard-early-pay-discount/