How B2B Payment Processing Works

Whether running a startup or established organization, business owners have to contend with less than satisfactory payment methods at some point in their existence. The payment process will hinder a business to the point of losing revenue.

What these businesses need are B2B payment solutions that are relatively fast and convenient yet safe. While checks still lead the B2B payments chart at $12 trillion worth of transactions, as reported in Business Insider, they have lost their previous shine.

Although checks tick all the boxes, electronic transfers have improved convenience and offer versatility by the bucket load. That said, every business is unique, so there’s no one-size-fits-all solution for B2B payment processing.

Suppose you aim to improve your own B2B process. In that case, this guide dismantles every component of the payment process, comprehensively presenting how B2B payments work, helping you land the right payment solution.

What is B2B payment processing?

B2B or business to business payments refers to the payment transactions that take place between merchants. An example could be payments by a wholesaler to a manufacturer.

As you’ve probably guessed, these involve huge sums of cash, requiring additional steps that an ordinary customer does not have to deal with. This creates some friction in the system hence the need to create smooth B2B payment processing solutions.

An excellent payment process is crucial because it provides a seamless customer experience by removing obstacles to the purchase process, increasing sales.

Bank app internet transaction technology.

1. Credit cards

These have emerged as one of the primary channels for B2B payments because they are convenient, such as the one-time-use virtual credit cards. All transactions appear on the same statement for ease of reference.

Although business credit card payments usually have high-interest rate charges, such as the annual percentage rate (APR), it is economical to pay the balance as soon as possible. The lender will thus grant you favorable payment terms that are great for business.

2. Checks

Checks have faded over the years, but they still command the lion’s share of the B2B payments market. Paper checks and electronic checks are great because they have a paper trail, and you don’t need to deposit immediately.

3. ACH payments

These are payments made from one business checking account to another account in a different bank that could be either direct debit or credit transfers. The transaction utilizes the Automated Clearing House (ACH) payments system that uses bank accounts and routing numbers.

Both parties have to fill in the paperwork initially. Still, it is a cost-effective way of conducting transactions, and it can integrate into your payments software or enterprise resource planning (ERP) system.

The National Automated Clearing House Association (NACHA) runs the ACH, and it does so in multiple batches that run throughout the day. It usually takes a few days to fulfill a transaction. That said, ACH payments are great for recurring payments.

4. Wire transfers

They are similar to ACH transfers, although wire transfers are real-time payments, even if it’s an international payment. That’s because wire transfers don’t utilize the batch system.

Wire transfers could be cash or digital. In a cash wire transfer, funds are sent to a cash office, while digital wire transfers use electronic means to send funds from one account to another.

5. Digital payment platforms

You can also transact through an online platform hosted by a fintech company such as Google Pay and Dwolla. The platforms will make electronic payments transfers from one account to the other, although their transaction fees can be hefty.

6. Cash

Cash payments are not as popular in B2B payments considering the number of transactions between B2B businesses. Moreover, it’s impractical if the supplier is not local.

7. Payment gateway

While it’s typically used by retailers in B2C payments, these are payment platforms at the end of a checkout process provided by a payment processor. They use this information to charge your credit card provider.

Examples of B2B payment solutions

Considering how even small businesses are increasingly operating across borders, it makes sense to use payment solutions without local constraints, such as banking hours. That’s why the most popular B2B payment solutions mostly rely on automation. Here are the best examples:

a. PayPal

Ever since it started rolling out its services in 2003, PayPal has grown steadily in the P2P financial space, offering eCommerce, inventory tracking, online payments, online invoicing, and barcode scanning services.

You can create an invoice and send it to a buyer, who has the option to pay through a bank account, PayPal balance, or a credit or debit card. You can even accept installment payments. PayPal owns Venmo, a mobile payments app for making payments, just like Google Pay.

b. Skrill

The platform operates globally, transferring cash in 30 different currencies. Skrill is trusted in the B2B payment space, offering secure payment options in credit, cash, and email. You can withdraw cash from ATMs, although you have to pay a monthly fee to maintain your account.

c. Wise (formerly Transferwise)

The London-based company specializes in fast transfers of large amounts, in multiple currencies. Further, their processing fees are among the lowest in the entire industry. You can send, hold, or accept money with an account.

d. Stripe

They are a popular B2B payment system that even offers a nifty open API that you can use to customize and streamline payments. Stripe Connect works well with platform building and marketplace.

Stripe accepts B2B credit card processing for Mastercard and Visa. It also offers cash voucher payments and bank transfers and debits. Moreover, clients can buy and pay later.

e. Payoneer

Payoneer users enjoy cross-border payments, mass payout services, and free transactions using select currencies. The platform is MasterCard’s worldwide provider. You can use the platform or customize your own with the API integration.

f. QuickBooks

If you have the QuickBooks accounting software, it lets you utilize its B2B solution. It works like PayPal, so you can create invoices and allow payments by installments.

Payments are in sync with your statements, which makes bookkeeping and handling of taxes easier. Clients can pay through ACH or credit card.

Options for processing B2B payments

Choosing the right platform for completing the payment cycle is a troublesome undertaking. While the choice of payment solution will depend entirely on your unique needs, there are three main methods for B2B payments processing:

i) Accounts receivable team: your in-house team is a great way to approach it. The team will process and send invoices, and follow up on the payments.

ii) Automated B2B payment cycle: alternatively, you can automate the process for a hands-off system that creates the invoices and sends them to the concerned customers. The system will also resolve the billing and collections process without you having to lift a finger.

iii) Accounts receivable factoring: if you operate in an industry with notoriously slow payment cycles, invoice financing is a great way to get faster payments. Sell the invoices to a factoring company for instant cash. The bonus is they will follow up on payment too.

Challenges involved in B2B payment processing

Fraud is one of the biggest issues with any online transaction. A 2021 fraud survey by the Association for Financial Professionals (AFP) states that payment scammers targeted 74% of organizations.

While diversity is a good thing, there is such a thing as too many options. The industry suffers since there’s no industry-wide mode of payment. You will find some payment forms in one platform, yet other players in the same industry won’t offer the same. Some platforms may be available in some countries, yet they are banned in others.

High costs also come into play as most payment solutions will peg payments as a percentage of the transaction. That’s no issue for consumers as the sums involved are little, but that’s a major problem when factoring in the huge sums involved in B2B transactions.

Unlike P2P payments that are mainly instant, the payment cycle in the B2B space is much longer, with players typically offering net terms at an average of 45 days. This can cause cash flow challenges and friction in the payment process.

Boxes in a trolley with woman hands. Shopping online concept.

How to solve B2B payment processing challenges

Every new technology has its teething problems, and B2B payment solutions are no different, but you can solve them by:

  • Improving convenience: you will overwhelm customers with too many options. Narrow it down to the most widely used platforms, making sure to go for systems that cater to most forms of payments.
  • Reduce costs: a team that handles your accounts payable (AP) and accounts receivable (AR) will be costly and time-consuming; choose the right automated solution that does not have costly transfer charges to save you some cash.
  • Security: partner with a payment provider that actively monitors intrusions, since cybercriminals have increased their attacks. For instance, choose a credit card service provider that is PCI compliant.
  • Make the process faster: time is money, so the less time you take to process payments, the more cash you will make. Make the process less tedious for customers while freeing up time to concentrate on other important aspects of the business.
  • Better insights: the right B2B payments integration system will make scrutinizing and analyzing transactions much easier. Auditing becomes stress-free and you can make better management decisions, such as reducing spending and capitalizing on payment discounts.
  • Ease of use: providing B2B payment methods is one battle won–the other is making the entire process simple and pain-free. Consider a seamless checkout process with a handy payment gateway with only one click to initiate the payment process.

Why you need a B2B solution

Firstly, automating the B2B payment process should help improve cash flow as you can track the payments from one platform to another. The platform will also assist in sending invoices and payment reminders.

The software also generates reports that can help you keep a close eye on the AP and AR processes. What’s more, the software simplifies the process as clients can make payments with the click of a button.

Secondly, payment automation saves on resources, as you don’t need a legion of staff to process invoices and pursue payments. Neither do you need to draw checks or visit the bank to make payments.

In addition, there’s enhanced security because the entire process is electronic, creating a clear trail that you can track. That wouldn’t be possible with physical payments, such as cash or checks, that are at risk of fraud.

Finally, a robust payment solution will make the accounting process easier since the software will manage invoice preparation, sending, and payment reminders and processing. The solution will even scan and store copies of checks. This also makes filing taxes much easier.

Final words

While checks are still the most widely used form of B2B payment, they cause friction in the payment process, which is why their use is shrinking. In their place, digital payments have witnessed phenomenal growth.

Electronic transfers provide the flexibility to transact worldwide at reasonable prices. You can automate invoice creation, sending, and the payments processing using these platforms. However, these B2B payments processing software have flooded the market, making it difficult to choose a suitable platform.

If you are looking for a service provider that will service all your payment needs, try Resolve. They provide a class-leading net terms management solution, from smart checks to payment management—contact sales today for a demo of Resolve.

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