What are B2B Payments?

What are B2B Payments? 

B2B, or business-to-business payments, are transactions between businesses for the exchange of services, products, or information. Contrary to customer-related payments, B2B payments have prolonged terms for payment and are larger in sums. They involve purchase orders, invoices, or electronic transfer of funds. B2B payments are inter-business transactions that excludes customers and are solely among businesses. 

Based on a study, the worth of B2B payments will increase by 40% by 2028 and reach $124 trillion on a global scale. As businesses grow and thrive, transactions become complicated at rising stakes. These transactions involve complex contracts and multiple stakeholders, adding additional approval layers that can slow down B2B payment processes. The security protocols add to the complexities of this type of payment. 

B2B payments vary from B2C payments as the steps in the payment process go beyond the traditional B2C where the customer is involved. Here are some components that differentiate B2B vs. B2C payments. 

Volume 

B2B payments are larger in volume than B2C payments, often constituting a substantial amount of money. The value of B2B transactions exceeds consumer transactions. This is due to the nature of business dealings that often involve bulk purchases, wholesale transactions, and high-value services. 

Type of contract 

B2B payments often involve more formalities of regulation adherence as they are between businesses. These types of B2B payments are more regulated than B2C payments. There are more rules that state when and how payments must be made and what payment method must be utilized. Whether through contractual terms or federal regulations, these rules create the necessity for increased process standardization that would not be present in business-to-consumer payments. 

Method of Payment 

The payment method employed for B2B payments is more sensitive than that used for customer-business payments. In case of a B2B payment failure, it shows that the purchasing company is likely to lose a crucial part of the business landscape. These payments are more variable where contracts shape payment terms. Having complete know-how about this type of payment can help you know how to go about your business strategies. 

What are the most popular B2B payment methods? 

Among the most popular B2B payment methods are ACH (Automated Clearing House) payments, wire transfers, and digital wallets. However, some other methods can also be used, such as checks or cash payments. Here is an elaborated explanation for better understanding: 

Automated Clearing House Payments 

ACH payments are a form of electronic fund transfers, and in a B2B setup, ACH is used for recurring charges, i.e., monthly payments to a retainer or a consultant. It is an affordable mode of payment for many businesses, requiring low fees or no fees at all for customers and merchants. In case of error, payments can be canceled or refunded by the sender or the recipient. 

Some main features of these payments are 

• They are convenient and eliminate friction for recurring payments, which increases customer retention.
• ACH processing fees are lower than those of card or wire transfers.
• They are a secure choice, as the ACH network is governed under stringent rules.

Interestingly, they have their downsides, such as 

• Although international ACH is possible, not all banks provide it.
• The processing times for ACH are slow e. they may take up to 3 days.
• ACH payments can be limited on a daily, weekly, or monthly basis depending on the financial institutions.

Wire transfers 

They offer a mechanism of electronic payment transfers to the merchant’s bank. Wire transfers can be helpful for international businesses as they rely on the international SWIFT network and are quicker. 

However, apart from the benefits, they have fees involved, thus making them suited to high-value and infrequent purchases in the B2B landscape. This can include purchasing large volumes of raw materials, machinery, and equipment. 

These take a day or two to clear and are accepted globally. Moreover, they are safe as they are guarded by international rules. However, they have their cons too, such as they are not easily trackable, causing uncertainty for merchants, they can cost $20-50 per transaction, and are slower than digital modes of payment. 

Credit Cards 

They are among the most widely used forms of payment for B2B transactions. Business credit cards are common in the UK, Netherlands, US, Australia, and Singapore. Credit card payments also translate to big processing fees for businesses. Even with the large fees, however, over 75% of companies accept business customers’ credit card payments, a global survey by Statista finds. Visa, American Express, and Mastercard are the most used business credit cards. 

Cash payments 

Cash payments are easy to make, as no processing fee is involved; moreover, no electronic complexities have to be dealt with. However, they are the least reliable method for B2B payments; keeping track of these can be challenging, and they are vulnerable to loss or theft. Cash payments also require manual handling, recording, and reconciliation, making them prone to errors. Thus, they are not a safe method for B2B transactions, especially when larger amounts are involved. 

Checks 

Checks might seem typical, but there are companies that still take them as payment. Although this is a safe and simple-to-trace payment option, checks do take a lot of time to clear. There is also more room for error with handwritten paper checks because of poor handwriting and the absence of an electronic paper trail. 

 This form of physical payment also involves the risk of logistical issues as well. They need to be delivered in person or mailed to the other business, both of which add a layer of overhead to an already complicated process. 

Payment Gateways 

They are among the popular B2B payment methods, as they offer financial facilitation of transfers, thus making transactions more secure. They allow online payment acceptance, automated payment processing, and reduced administrative burden. Moreover, they often help in streamlining operations and enhancing workflows and operational processes, thereby easing manual hustle and burden on the team. However, their drawback is that they apply charges, such as transaction fees, that can eat up profit margins. 

What are some popular online payment gateways for B2B and e-commerce transactions? 

The most common methods of B2B payment collection for businesses are Stripe, Adyen, PayPal, Square, Google Pay, and others. Each of these methods is designed to facilitate secure transactions between businesses. Given is the detail of each mode of B2B payment: 

Stripe 

Stripe is among the trending B2B payment processors. It offers easy-to-connect integrations and an open API, thereby easing payment processes by eliminating any complexities. It is nominal, and its functionality involves billings, payment gateways, and merchant accounts. Although it is robust, businesses require additional integrations for using some subscription management tools. 

Recurly 

It is also a subscription management tool that offers five different billing modes to mold the pricing plan as per the product being sold. It offers tiered pricing and processes monthly basis payments over revenue percentage. Its drawback includes its need for integration with a merchant account and third-party payment gateway. Moreover, it can be heavy on the pocket and make your billings complex. 

Chargebee 

It is an ideal solution for medium-sized enterprises as it manages complex pricing structures and renders effective recurring payment features. One notable feature of this type of payment mode is that it offers freemium tiers for businesses at $250,000 in cumulative billing, after this threshold, a 0.75% overage fee applies. 

NetSuite:  

It is an accounting platform with an inventory handling toolkit and a CRM. It suits businesses that require regular reports on customer data and behavior analytics. Despite its favorable features for thriving businesses, NetSuite lacks merchant account or payment gateway integrations. However, it offers full-fledged accounting functionalities to ace payment workflows and more. 

Zuora 

It is another famous subscription platform that is designed to customize options for digital payment experiences. It renders a variety of different products to build customized payment plans and manage complex subscription models, thus making it popular for businesses with varying revenue streams. Although learning and training are consistently required for using Zuora for business payments, its benefits outweigh the efforts. 

Paddle 

Another favorable B2B business payments solution, it facilitates online billing and selling. It manages sales tax calculations, collections, remittance, and more, thus relieving businesses. It also handles chargeback disputes and associated costs. Moreover, it caters to fraudulent activity detection and mitigation, thus easing businesses from fiscal risks. 

Braintree 

It is designed for SaaS firms as they focus on subscriptions with emphasis on flexibility. It offers a pay-as-you-go model and charges accordingly per transaction. It allows payment gateway, merchant account, and subscription management. Moreover, Braintree offers a wide array of payment methods for international transactions. Moreover, it easily integrates with third-party apps. However, it is crucial to consider the rising fee that can add up as your business grows. 

What are the benefits of automated B2B payments? 

B2B payments have a broad range of benefits for businesses involving secure and safe transactions, minimized costs, enhanced cash flows, and elevated customer journeys. It offers a reliable method of reducing manual work and increasing business operational efficiency. 

Given are the details of each of the benefits: 

Security of Payments 

B2B payments are safe if automated, as the processes are end-to-end encrypted and streamlined, thus minimizing flawed processes. Payments are forwarded after undergoing keen evaluation, mitigating the risk for errors or fraud in the business cycle. 

Global Footprint 

B2B payment automation enables speed and efficiency of business transactions, thus benefiting both businesses involved. It proves to be valuable for international-level business transactions as it eases payment handling and execution. 

Financial Forecasts 

Advanced payments processing helps to expedite the financial side of any business and eases its delivery of products and operations. When payments are expedited, businesses can gauge forecasts and handle operations efficiently. 

Increased cash cashflows 

As payments are made in no time, funds are readily available to handle tasks, perform sale purchase operations, and manage financial aspects. Firms that receive instant payments can manage monetary tasks with ease, and those transactions are irreversible. 

Improved Supplier Relationships: 

Automated B2B payments enable businesses to make timely payments to suppliers, thus nurturing stronger relationships and potentially leading to better terms, discounts, or priority access to goods and services. This, in turn, can increase supply chain efficiency and overall business performance. 

What are the challenges in B2B automated payments? 

There are numerous challenges that B2B automated payments incur, such as security leakages, complexities of global regulations, systematic errors, high transaction fees, compliance, and uncertain global events. They are explained as follows: 

Security Leakages 

These are incidents of fraud where confidential business data is leaked or becomes vulnerable. It begins as protected data is exposed to unauthorized environments. This can be a side effect of human error, technical incompetencies, or threats or malicious errors in the payment infrastructure. 

Complexities of global rules 

Paying across borders is a slow and exasperating experience, with money transfers having difficulty getting through different legal and regulatory hurdles without a delay. Rules like anti-money laundering (AML) can also slow down payments significantly, particularly as they are usually based on very time-consuming manual procedures. As delays are already a significant pain point for domestic B2B payments, it only adds to business frustration to have additional causes of friction for international payments. It is also exacerbated by the slow speed and high cost that often come with currency exchange for international payments. 

Systematic errors 

Weak systematic processes such as typing wrong data in the wrong field, transposing numbers, and misplacing decimals are common human errors that can cripple the B2B payment processes. Moreover, inaccurate data can make payment reconciliation challenging. Also, correcting errors can incur costs and increase manual burden. Implementation of a robust validation and verification process is important for the credibility of payment and reliable transactions. 

Increased transaction fees 

Hefty transaction fees, mainly interchange fees for card payments, can impact costs for suppliers. Moreover, it can pose burdens on business owners, as firms often have high transaction volumes and require reconciliation of fees into the prices and profit margins.  This in turn increases financial costs and the burden of processing B2B payments.