What are the Preferred B2B Payment Methods?

[OldFaithful]

As the title suggests, what have you found to be the best Business to Business payment/receivable methods?

My company operates in the B2B world, and will be supplying a manufactured good to other companies. There are typically 1 time charges for engineering/setup/tooling and per part charges for product delivered, as well as per part charges for prototypes.

I'll admit that I'm a bit fuzzy on the process, so if you've got experience here, I'd really appreciate reading your explanation of how the transactions take place and what I need to setup. My previous roles in engineering have been segmented from the accounts receivable and purchasing departments...but now I need to learn how this works.

What type of checks should one use, if checks at all? Are some perceived as more professional?
Do B2B transactions use ACH, and if so, is it simply setup thru one's bank?
Which service would you recommend for accepting credit cards?
What is the process of sending invoices, bills, checks, etc?
How and when does one perform a credit check on a potential customer?
How does the net 30, net 60, etc. process work? Are there reasons to prefer one over the other?

There are a myriad of other questions I might ask, and many more that I don't know to ask. Thanks for your help!

 

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[OldFaithful]

Wow, it's been 2 weeks. Crickets. Ok, I'll try to followup this thread at some later date after I've figured it out.

Keep Grinding.

 

[Duane]

All of my B2B transactions are via checks atm. I email them an invoice at the end of the month for the services I provided and they mail me a check.

The checks I personally use are the fancy one's my bank makes for me, I don't care what other businesses checks look like as long as they cash. I don't use ACH personally, so can't comment on it.

When I sign on with a new business or even a client, I set up an account with them. We sign contracts, I give them copies of my insurance/licenses and any information they may need on the services we perform. In that contact they put down their preferred payment method. It can be mailing a check/cash or I can charge a credit card they authorize me to charge. I use payeezy for credit card transactions, but I also have a credit card machine I carry on me (clover).

For sending them the invoice, I have my own invoice templates that I made through excel. I type in the services with prices for that month, export them as PDF's and email them out from there. In the future I may switch to quickbooks whenever I want to integrate people being able to log on and make payment themselves online.

I never do credit checks on anyone, but for jobs over $500 with new clients I don't know or aren't credible, we have their information on hand before we do the job and we require half the payment be made before the job is started and the rest be paid upon the job being completed. I've had a few people screw me over before, but it's been for small amounts like $50. It happens, but it's negligible and you should plan for that to happen on occasions.

I've had people go 3 months before making their payment in the past, I just would send them an invoice for the services every month and call them letting them know the bill is due. If they don't pay it after 3 months, I will notify them it will be going up to collections. That normally gets them to pay, so I've never had to actually put a lien on someone's credit before.

 

[Denim Chicken]

Probably depends on the price point but checks are usually the safest. Credit card is next from a collection standpoint. Invoices have a higher percentage of nonpayment and things like credit and net terms is up to you to make a decision on whether or not you think they will pay. You will always lead with product and manufacturing before they pay so unless it's a large account that you trust I dont know that I'd give just anyone net terms.

 

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[OldFaithful]

Thanks @Duane for your input, I appreciate it. Rep+

 

[lowtek]

I use quickbooks for invoicing and book keeping. It makes life pretty simple

 

[illmasterj]

What region is this in @OldFaithful ? I think you'll find that will make a difference.

North America, checks & credit card (points).
Asia/Pacific, wire transfers (T/T) & credit card (points).
Europe, SEPA transfers.

But then you also have other methods depending on trust... escrow, PayPal, etc.

 

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[CareCPA]

I was in accounts payable and receivable about 4 years ago. The below answers assume you are in the US (according to your profile location):

What type of checks should one use, if checks at all? Are some perceived as more professional?
Use the three-part checks that you run through a printer (these are the ones that are the size of an entire page, divided into three sections - one section is the check, one is remittance to the vendor, and one is kept for your records). It looks more professional than hand-written, and if you are paying more than one invoice at a time, you can list them all on the second part of the check.

Do B2B transactions use ACH, and if so, is it simply setup thru one's bank?
They do, but they are rare. It would be faster to just run AP checks once a week/every other week, instead of having two different processes.

Which service would you recommend for accepting credit cards?
If you go with an accounting service like Quickbooks (see below) as mentioned by a previous answer, you can accept credit card payments and bank transfers by a secure link in the emailed invoice. There are other services that offer this, but I have not found a significant price advantage in any of them - it's mostly personal preference.

What is the process of sending invoices, bills, checks, etc?
I use Quickbooks online (which is less robust than Quickbooks desktop, but works for my business). You can do all of this through QB, including printing three-part checks. Other accounting softwares have similar capabilities.

How and when does one perform a credit check on a potential customer?
I probably wouldn't bother unless they are a major account - small business will not have a significant credit report available. Price credit risk into your pricing structure, because you will run into customers who won't pay. For large companies, you can use a service like Dun & Bradstreet.

How does the net 30, net 60, etc. process work? Are there reasons to prefer one over the other?
Most business will not pay until the last day they have to, so if you give net 30, they will print the check and mail on day 30. For very large companies, they will completely ignore your terms, and just pay on what their process says. I've worked at companies who paid on day 45 no matter what the invoice said.

 

[amp0193]

To add something new to the thread:

One of the options for payment my freight forwarder gives me is to make a counter deposit into their Wells Fargo bank account. Seems kind of weird to me, but that's how I usually pay them. They don't take credit cards. Their rates are lower than many, I wonder if reducing payment fees is a part of that equation.

 

[LibertyForMe]

When it comes to credit cards, it depends on how much volume you are doing. If you accepting 10k a month or more in business card volume you need to look for a processor who can enrich your data.

Basically, the more data you provide at the transaction, the cheaper rate the card brands will give you per transaction. There really isn't a flat rate for CCs, there are over 600 card pricing categories the banks come up with. It's called Interchange.

So you can get a processor who automatically adds more data to each CC transaction, and you'll get a cheaper rate. This is called Level 2 and Level 3 Pricing. Level 3 pricing gets you the absolute cheapest rate per transaction.

A good processor will do pass through pricing, which is taking the Interchange rate and adding a flat markup to the top of that.

Just some things to keep in mind if you are accepting business cards.

 

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[Mumtaz]

Paypal invoice ? So Paypal business

 

[MidwestLandlord]

1. We pay our wholesale suppliers through ACH. In my industry, this is actually through a system of Bill of Lading matching. Once the BOL has been matched at both the wholesaler's office and the third party distribution point, than the supplier initiates the transaction and charges my account. As taxes are collected at the wholesale level, there is actually government involvement in this process too.

2. Our wholesale customers pay by ACH as well. We invoice them via email or fax (fax for the old-schoolers), and duplicate that invoice by mailing. We only accept pre-payment for our wholesale orders, so once the cash has been verified as received, we call our carrier and send the order. So no credit checks, cash is king here. We have a 24 hour acceptance window. They accept the order within 24 hours, or it is cancelled and the price must be re-negotiated. I expect payment within 72 hours.

Example: Our invoice says: "Acceptance of order REQUIRED TODAY 5/3/17. Offer VOID after 5pm 5/3/17. PAYMENT IN FULL REQUIRED BY END OF DAY 5/5/17 OR ORDER WILL BE CANCELLED." (it's essentially a quote rather than an invoice, but it works)

3. We pay almost all other vendors via check in the mail.

4. I do not accept credit cards on the business side of things, only the retail side. My average wholesale order right now is running about $25,000 per order, no way I'm paying fee's to the bankers on that.

5. I run a net-zero account(s) for the ACH's. Meaning, if I owe $100,000 to suppliers that get paid by ACH, I ONLY fund the account with that amount. Several instances of suppliers punching in the wrong amount and hitting my account for more than I owe taught me that lesson. (I run my payroll account the same way to reduce fraud risk)

6. Simple paperwork at the bank for ACH's, not a big deal at all. Signed agreements by all parties as well. It's usually just part of the contracts I sign with my suppliers.

7. If you do large volume of credit cards, the fee that processor's put on top (called a "swipe fee") is negotiable, whether they say it is or not. Also, chargeback fees are negotiable as well, whether they say it is or not. (paypal and the like are the exceptions to this)

Hope that helps.

 

[U2ForNow]

Same here. We do ACH and a lot of wire transfers.

 

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[OldFaithful]

Thank you @CareCPA for your response. Very helpful. Rep +
Sounds like Quickbooks Desktop might be the way to go.

Thank you too @MidwestLandlord for sharing your experience. Rep +
I'll admit that I don't know what your wholesale business might be, and I don't need to know. I've just never heard of Net 0 before...giving the customer 1 day to pay, or re-quote. That is new to me.

 

[MidwestLandlord]

I think you might be over-thinking this though. Asking for the money is the easy part, it's getting paid that can be hard.

As @Andy Black says "The money can't be in two places at once" (or something like that haha)

It's your "job" to be a good wholesaler and send them quality goods as agreed, it's their "job" to be a good client and PAY YOU.

Before I went prepay on wholesales, I often had customers get behind on payment and when I cut them off they would say:

"But...I'm one of your best customers!"

My response: "My best customers pay me"

Part of the process is setting expectations. Part of those expectations is getting paid as agreed. Just remember, if they don't pay...they aren't really a customer and you aren't really in business.

Thank you too @MidwestLandlord for sharing your experience. Rep +
I'll admit that I don't know what your wholesale business might be, and I don't need to know. I've just never heard of Net 0 before...giving the customer 1 day to pay, or re-quote. That is new to me.

Thanks for the reps.

1 day to accept, then I allocate their order to them from our supply and consider it sold at it's current cost basis. 3 days to pay because it takes that long to ACH sometimes.

My industry has price changes at the wholesale level, not only DAILY, but several times a day usually.

 

[CareCPA]

Thanks for the rep.
The accounting software you use would depend on your needs, so don't jump right to Quickbooks desktop since I know nothing about your operations. Either do the research yourself or consult with someone who knows your business/industry. Other free/cheap solutions include Freshbooks and Xero (and Wave, but I wasn't personally a fan of it). Obviously if you want something much more powerful for ERP reasons you'll end up spending more.
Even if you go the Desktop route, you can still use a hosted solution to be able to access it from anywhere there is internet - just another thought.

 

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[Sinjen]

I use Intuit Payment Services (previously Intuit Merchant Services) for my slow lane biz. Fees are reasonable, integrates with QB seamlessly and has a solid company behind it. All of my clients are on annuals service agreements...clients that pay by credit card get auto-charged. ACH payers need to be done manually which sucks, but it is what it is.

 

[OldFaithful]

These are some great responses, thank you.

I'll admit that I'm new to this process, and I'd just like to get a grasp of what to do so that I don't look like such a noob in my customer's eyes. I'll let you all know how things progress!

 

[CareCPA]

Hopefully I'm not breaking any rules here, but if you need any help on the accounting side feel free to PM me.

 

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[Andy Black]

I use Freshbooks and Stripe for automated invoicing and payments for clients. Some pay the Freshbooks invoice by bank transfer.

For my online course, it's setup to use Stripe or PayPal.

 

[OldFaithful]

Hopefully I'm not breaking any rules here, but if you need any help on the accounting side feel free to PM me.

Thank you, I'll keep that in mind. I'm sure I'll run into a roadblock or 2.