B2B Payment Processing & Existing Options for Merchants
An understanding of B2B payment processing will help businesses pinpoint best business practices and current trends and know how to implement them. The movement towards using digital options in B2B transactions makes this more important than ever.
Business payment solutions will vary depending on the needs and nature of each business. Keeping up with the latest innovations will help your business streamline its operations and allow you to process as many transactions as possible.
What Are B2B Payments?
B2B—or business to business—is a commonly used term to refer to businesses that provide goods or services to other businesses. This is different from B2C businesses that transact with customers, or individual members of the public.
“B2B payments” therefore refers to the payment processes between two businesses. In many cases, the way companies do business with each other differs from how companies transact with consumers.
Example
Take a company that provides another business with their company car. The car company in this case would be considered a B2B merchant and transactions between the two companies would typically be monthly or annual. This type of B2B payment is straightforward because the car company would send an invoice and receive its monthly or annual payment in the agreed timeframe.
Contrast this with a company that provides IT support to other businesses. Though this type of business is also considered B2B, the nature of its business means that the amount it bills each month can change drastically. If it has a contract, the terms could change regularly. In this case, the business would have more specific and intricate invoicing needs than the car company. This is where tailored B2B payment solutions are especially important.
B2B vs B2C Payments
B2B businesses commonly have longer payment cycles with their clients—often 30 or 90 days long. As a result, their relationships tend to focus on long-term and recurring business. Longer payment cycles mean that slower payment processes have often been used.
This is very different from the typical B2C experience. B2C relies on fast payment processing that transacts on the spot. These transactions are conducted at the point of sale (POS) both in e-commerce or in-store. Many B2C businesses offer their customers a range of alternative payment methods or digital payment methods such as mobile payments in addition to debit and credit cards for their convenience.
Top B2B Payment Methods
While customers in B2C transactions usually make debit or credit card payments or other electronic payments like contactless payments on a phone at the point of sale, business-to-business payments can differ a lot from company to company. There are several payment methods that businesses can use:
B2B Credit Cards
Credit cards are the standard bearer of payments in the modern world. However, not all B2B businesses accept them. This is because there are transaction fees for the business accepting the payment.
Businesses with B2B cards can often benefit from certain advantages. These include reward schemes and low interest rates offered by card issuers like Visa and Mastercard.
For merchants that qualify for level 2 and level 3 card processing, B2B cards can come with lower processing rates. These levels require the merchant to provide more transactional data but can significantly reduce your credit card processing fees.
Payment Gateway
Payment gateways are often used for services purchased online. For this reason, they’re popular with online retailers and B2B customers who wish to make electronic payments.
Customers typically receive a link to complete a transaction. This link takes them to the gateway where they can choose to pay by credit card, Paypal, or other online payment methods. An API-integrated global payment gateway has several advantages:
- Customers stay on your website to pay.
- A wide range of international cards and electronic bank transfers are often accepted.
- You can process different currencies, opening up your business to new markets.
- You can integrate the gateway with other software you already use, such as Salesforce.
The Importance of an End-to-End Payment Processor
Choosing end-to-end payment processing can offer merchants many benefits. This is because end-to-end payment processing is an all-inclusive payment solution that covers everything from POS terminals to online payments. Modern businesses with national and international customers benefit from being able to offer multiple sales channels, but this can become complicated when using several different providers.
Working with an end-to-end payment processor allows your business to benefit from services like fraud protection, billing management, opening a dedicated merchant services account, recurring billing and subscription management, and sales reporting and analytics. Having all of these services and more in one place and controllable from a central dashboard can save you time and money. Your payment processor will also be able to tailor its services to your business’s needs.
Wire Transfer
Wire transfers are a convenient but expensive option for international payments. Services like SWIFT enable fast electronic transfers. However, the sender and receiver may both incur hefty fees.
Paper Cheques
In the digital age, paper cheques still have a place in the U.S., but not so much in Europe. Indeed, paper cheques, money remittances, and some other payment methods considered together only made up 2% of payments in the second half of 2022 in Europe.
The lack of enthusiasm for the cheque in Europe may come down to its inefficiency and the burden on the receiver. This is because the receiver will have to wait for the cheque to arrive through the post and then go to the bank in person to cash it.
The advantage for the business making the payment is that sending a cheque may help them buy time to make sure money is available in the account. However, if the funds aren’t available in the company’s bank account when the receiver cashes the cheque, the cheque will bounce. This incurs bank fees and a possible late fee from the business that is owed.
ACH Payments: For U.S.-Based Businesses
Companies make ACH payments via an Automated Clearing House that acts as a middleman between the two bank accounts to complete bank transfers. This type of transfer is favoured by many American businesses as it’s a contractual payment method and requires both parties to submit paperwork for the transfer to go ahead. This makes the transfer more secure.
Because the transaction fees are capped, it can also be a cost-effective payment method. ACH payments typically cost around 1% of the transaction amount with a $10 cap.
Businesses that make recurring payments often favour ACH payments. However, other payment methods might be better suited to one-time transactions.
European businesses should note that ACH payments don’t exist in the E.U. The closest alternative is SEPA payments.
How to Choose a B2B Payment Method
When choosing a B2B payment method, businesses should look for speed and simplicity. Speed is of great importance to many businesses because delayed payments can cause huge problems. Indeed, delayed payments are one of the main causes of insolvency and bankruptcy among European businesses, highlighting the need for all businesses to adopt modern business practices and update their payment systems.
Remember that payment processing isn’t only about getting money into your account. The payment options you choose can affect your invoicing, tracking, and accounting. It can also impact your mid and long-term growth and scalability. Also, keep in mind that digital payments are constantly evolving; choose a solution that covers your current requirements at the same time as forecasting your future needs.
Advantages and Disadvantages of Different Payment Methods
| PAYMENT METHOD | PROS | CONS |
| PAYMENT GATEWAY | – Streamlines your payment cycle
– Easily integrated with other software |
– Some payment processors charge excessively high or hidden fees |
| WIRE TRANSFER | – Fast processing time | – High transfer fees
– Inconvenient for the customer: details must be entered manually – Risk of human error – Can be subject to delays |
| CREDIT CARDS | – Convenient
– Credit lines provide access to extra funds – Transaction records are easy to find (this is good for bookkeeping) – Reduced risk of cybercrime |
– Can be costly
– Not necessarily the best option for recurring billing or subscription-based businesses |
| SEPA PAYMENTS | – Lowers the cost of making and receiving cross-border payments in Euros
– Fast payment: better cash flow management – Access to a wider market: quick and cheap way to receive payments from EU clients |
– Can be more complex than domestic transfers
– Have to meet Europe-wide compliance regulations |
| ACH PAYMENTS | – Cost-effective and few associated fees
– Easy to track cash flow – ACH payments can be integrated into ERP systems |
– Only for U.S. businesses |
Tips for B2B Payment Processing in the Modern World
Juniper Research predicts a growth in the global transaction value of B2B payments of 26% between 2022 and 2027, taking its value to over €103.2 trillion. These enormous sums logically require a complex infrastructure to support them. Payment processing therefore involves a huge number of parties working to combat fraud and incorporate the necessary software, systems, and approval processes.
Deciding where your business stands in such a huge network can be overwhelming, but payment processing for your business doesn’t have to be complicated. Look out for the following when choosing a payment processing provider:
Initial and Monthly Fees
Many payment processing options for small businesses will incur an initial set-up fee and then a monthly fee. Know the terms of your contract by reading the small print and understand how much you will pay each month.
Some payment processors may charge a sizeable fee upfront but no monthly fees beyond transaction fees. Do some calculations to work out what’s best for your business.
Transaction Fees
Payment processors function by taking a small cut of every electronic payment. The fees can vary from provider to provider. Choosing the right payment gateway for your business depends on your business’s sales.
Different transaction fee options include:
- Charging a flat fee per transaction
- Charging according to the number of sales you make
- Charging a variable rate depending on your transactions’ value
A Subscription Structure Can Work for Some Businesses
Committing to a payment processor long-term can be intimidating. Some payment processors offer month-to-month arrangements as an alternative to long-term contracts.
Recurring Charges
Make sure your payment processor can store financial information and provide recurring billing for customers. This is particularly important for businesses that offer monthly subscriptions or memberships.
Wide Range of Cards Allowed
Most payment processors will handle common cards like Visa or Mastercard but many don’t accept smaller cards. If you’re looking to appeal to an international market or your potential customers use cards other than Visa or Mastercard, being able to accept a wide range of cards will be important for sales.
Currencies Permitted
A good use of social media and digital marketing can open up your business to international orders. You need to be able to seamlessly process different currencies if you welcome international transactions.
Great Customer Service
Choose a payment processor that provides great customer service. This includes choosing one that understands small businesses and the industries they serve. Having open channels of communication means issues can be resolved quickly.
Security
You need to guarantee your customers’ security as well as your own. Choose a PCI Level 1-compliant provider that can protect you against fraud and chargebacks, and will guarantee no leaks or breaches of data.
Third-Party Integration
You may want to integrate data from payment processing with other software. Make sure your payment processor can integrate with other systems you use to take advantage of the data collected.
If you’re not tech-savvy, this is also where great customer service comes into play. Make sure you have access to help when integrating services.
Choose a Tailor-Made Payment Processor
The best option for your business is one that understands your specific needs. However, if you want your business to take electronic payments, the worst step you can make is not having one at all.
Take time to know what you’re looking for in a payment processor and shop around for the best option for you and your business, taking into account your short and long-term needs.
Look for Value, Flexibility, and Personalisation
Though businesses in the modern-day landscape can differ radically in nature and operations, the need to make and receive payments is something all businesses share. Streamlining your transactions and having the capability to accept different payment types is important for running a dynamic business.
When selecting a payment processor, choose one that offers the complete suite of merchant services, payment method flexibility and complexity, and can craft an arrangement that is tailor-made to your business’s needs. A reliable payment processor that understands your industry and can provide support as your business grows takes your business a step closer to profitability and success.
