When you buy goods and services online, you pay using an electronic medium. This method of payment, which does not include the use of cash or checks, is known as an e-commerce payment system, and it is often referred to as an online or electronic payment system. With the increased usage of internet-based banking and shopping, many e-commerce payment systems have grown, and technology has been developed to increase, improve, and enable secure e-payment transactions.

Paperless e-commerce payments have transformed payment processing by lowering paperwork, transaction expenses, and personnel costs. The technologies are user-friendly, take less time than manual processing, and assist firms in expanding their market reach.

Electronic payments, often known as e-payments, are a method of conducting transactions or paying bills online or through electronic media that does not require the use of real cheques or currency. Credit cards, debit cards, virtual cards, and ACH (direct deposit, direct debit, and electronic checks) are the most commonly used electronic payment methods.

For example, if a vendor delivers a service for your company and sends an invoice electronically, the process of paying the vendor with a credit card, debit card, or other electronic payment method is termed an electronic payment. Most electronic payment solutions eliminate the hard costs and fees associated with traditional B2B payments such as checks, such as paper, postage, and manual labor.

Electronic payments and e-payment systems are highly beneficial to both businesses and their suppliers. In the context of accounts payable, e-payments are a win-win in that they reduce costs, improve relationships, increase visibility, and provide enhanced security when compared to traditional checks. Here’s how:

• Lowered Processing Costs: The more payments a business can process electronically, the less they spend on paper and postage, along with the time required to print, sign, stuff, and mail checks. In fact, shifting to a holistic e-payments strategy can reduce payment processing costs up to 80 percent.
• Strengthened Supplier Relationships: Businesses can improve vendor relations by facilitating quicker, more secure payments that include rich remittance data for easier reconciliation.
• Increased Payment Security: Electronic payments are inherently more secure than paper checks, and specific methods like virtual cards offer even greater protection against fraud. On top of that, best-in-class e-payment systems include additional features and controls to help secure the payment process.
• Enhanced Visibility: E-payment systems provide your business with greater visibility into payment statuses, financial metrics, and accurate audit trails. They additionally reduce the costs and probability of data entry mistakes.

While there are many different types of electronic payments, here are the most common categories that make up the majority of e-payments.

1. Credit Cards

Modern cards date to 1950 with the introduction of the Diners Club card. The primary intention was for business travel and entertainment expenses, where the cardholders would pay for charges incurred that month. These charge cards are also referred to as non-revolving credit cards because the balance would have to be paid in full at the end of each billing period.

Today, credit cards from providers like Visa, Mastercard, and American Express function in a variety of ways for businesses. In comparison to charge cards, credit cards have revolving credit lines where cardholders have the option to pay the balance in full at the end of each billing cycle. That is, based upon the card issuer’s terms.

Merchant accounts and payment gateways function as the traditional one-two punch for business credit payments. First, money arrives in the merchant account, a holding zone where money sits before being disbursed to individual bank accounts. Payment gateways connect businesses with these merchant accounts. 

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There are also all-in-one tools, such as PayPal, that combine merchant accounts and payment gateways. Simplified processing tools such as Stripe offer competitive rates and generally no setup or monthly fees, with easy enrollment.

• Pros

A 2021 survey report by Stampli and Treasury Webinars, “How & Why Companies Choose Payment Types” looked at different payment options. The survey found that credit cards were the most popular way for companies to pay their suppliers.

Cards are convenient, allowing companies to process payments by means of credit, and often include debit card functions. Credit cards sometimes offer cash-back incentives, depending on the financial institution and the particular card. In addition, cards can be useful for optimizing cash flow and providing a quick means of financing, which can be especially helpful for small businesses.

• Cons

Credit cards have drawbacks when it comes to making purchases on credit. Perhaps the main drawback for B2B purchases is that credit cards will charge the merchant a fee. Swipe fees have increased over the years, with the National Retail Federation noting these fees were around $20 billion annually in 2001 compared to $137.8 billion in 2021.

Sometimes, the fees get passed on to customers, either directly with a surcharge at checkout or indirectly by raising prices. This, in turn, can generate customer frustration toward companies and business owners.

The fees aren’t half of the problem with credit cards. The bigger issue is that cards are a major risk for fraud, with the same numbers able to be used for payment over and over again – whether these payments are authorized or not. Companies need safer ways to pay. 

Next, we’ll examine an emerging method that’s more secure than credit cards.

Businesses it’s right for: Companies that want to keep cash freed up and that have vendors that don’t mind accepting the credit card processing fees.

2. Virtual Payment Cards

In Stampli and Treasury Webinars’ payments study, just 4% of companies preferred to pay their suppliers with virtual cards for business or ghost cards. All the same, for those in the know, this form of payment is a great way to pay suppliers.

• Pros

Virtual payment solutions, such Stampli Card, allow businesses to print cards with customizable numbers and set amounts that can be spent. An unlimited amount of custom numbers can be generated, and businesses have control over which specific users have access to each Stampli Card.

As a result of these factors, virtual payment cards can be far less susceptible to fraudulent use than credit cards. This form of payment also helps companies control their spending and reduces the risk of unauthorized spending.

• Cons

Not every supplier has heard of virtual payment cards, so it might take some work to get some of them onboard with being paid in this method. Smaller companies might not have the capacity to perform the education needed to bring suppliers up to speed (though virtual payment solution providers such as Stampli can help in this arena.)

Businesses it’s right for: Any company that believes a B2B payment doesn’t have to just be made by check, credit card, or ACH.

3. Bank Transfers

It’s gotten easier for customers to pay by means of bank transfers thanks to the internet. At the time of payment, they simply provide their bank routing and account numbers, which allows sufficient funds to be withdrawn from their accounts.

The procedure for businesses to do this on a customer’s behalf is straightforward, with the business providing the bank with a reference number that is then factored into the transaction. Sometimes, the business will have a different bank than their customer. In these instances, the transaction is processed through a clearing house. Bank transfers can include any sort of electronic transfer, be it ACH, wire, and so on. It’s a versatile and secure means of payment.

• Pros

Perhaps the best thing about processing a payment through a bank transfer is the assurance that funds are available. Vendors can receive an almost immediate notification that they will be receiving a payment.

• Cons

With the assurance of a smooth transaction comes the knowledge that it might take a little longer than other payment solutions. While the processing time might only be a few business days, which is a fraction of the time it can take for an invoice to be approved, that still will not be quick enough for certain vendors who need their money immediately.

There are an increasing number of payment providers willing to front their customers their money sooner for a nominal fee, typically 1 percent up to a certain amount. But that’s still money out of a vendor’s pocket. As with credit card transactions, vendors might charge their customers a fee or raise their rates in order to recoup the money.

Businesses it’s right for: Companies that have anxious vendors who need assurance that their money is coming.

4. eChecks via the Automated Clearing House, or ACH

People might be familiar with the Automated Clearing House, or ACH as the method for direct deposit of paychecks, with more than 90 percent of workers preferring to get paid this way. However, employee direct deposit is not the only use for ACH.

These days, electronic checks, or eChecks, also use ACH to get funds where they need to go. With the help of the clearing house, eChecks process safely, securely, and quickly, generally via the internet, but also sometimes via telephone or fax.

Using eChecks requires finding an eCheck provider, and businesses will recognize some benefits from using eChecks.

• Pros 

Many vendors still want to be paid via check and for those that do, eChecks are quicker and safer than their paper counterparts. No one ever has to worry about an eCheck going missing in the mail or taking three weeks to get wherever it’s supposed to go.

The cost to process an eCheck is also much lower than a paper check, reportedly half as much. Processing costs for eChecks are generally a fraction of the cost for credit card transactions, which can run 3-4 percent.

• Cons

Like most types of payment, eChecks carry a risk of fraud. They can leave businesses vulnerable to fraudsters with their banking information exposed. When data breaches occur, eChecks can also be passed off by unscrupulous third parties as coming from legitimate businesses. It’s a mess.

Processing times can also be slower with checks, even electronic ones, than other means of payment, though NACHA has developed some same-day payment processing options. Regardless, for vendors who need payment as quickly as possible, eChecks might not be the best option.

Businesses it’s right for: Companies that have a large number of vendors who still like to be paid with checks.

5. Digital Wallet

Digital wallets are becoming ubiquitous, with nearly 30 billion payments made with eWallets in a recent year. There are several reasons for the number of payments made via eWallet. As Merchant Maverick notes, “Digital wallet is a broad term covering software that electronically stores credit card numbers, debit card numbers, loyalty card numbers, etc. on your laptop, tablet, phone, or the cloud.”

eWallet offers an array of functionality, including the ability to pay at stores; make peer-to-peer payments; make online payments; hold funds, coupons, and loyalty cards; and store IDs and transit tickets.

• Pros

Already extremely popular, digital wallet use should continue to increase with further broadband availability in rural and developing areas. The bustling Internet of Things, or IoT revolution currently underway in America also means that more payment devices will likely come online in years to come. 

What this means for accounts payable is that businesses will likely have vendors willing to accept payment from them from just about any device or payment method that works for them.

• Cons

Digital wallets don’t always allow easy point-of-sale, or POS transactions. “If you operate an online store or sell through a mobile app, then you can take digital wallet payments, but likely it will take a little work because you must add new code to your web store or your app,” Merchant Maverick notes. “If you can’t handle coding yourself, you’ll need to hire a developer to implement these payment options.”

It’s worth noting that digital wallets are working on this problem and aiming for the opposite, trying to make it easy for people to pay by opening their phone and pressing a button. Businesses such as gas stations aren’t restricted to having to purchase clunky POS systems. They can opt for systems that work with an array of digital wallets.

Businesses it’s right for: Companies with vendors that are currently using or open to accepting payment through digital wallets. 

Final Words

The costs of processing and paying invoices are constantly underestimated. While the direct costs, such as paper, ink, and postage that go into check payments can run as high as $5 per check, ACH transfers cost a fraction of that.

Not only do electronic payments reduce costs for businesses, but electronic credit card payments actually earn rebates. For example, a business that pays $10 million in vendor payments on its credit card could earn a 2% rebate, generating $200,000 in returns. Finance teams can strategically re-invest this cashback into their business to run more effectively and efficiently.