During the 2020s, almost all businesses will have been looking at b2b payment processing solutions to meet changing consumer needs. Online and contactless adoption multiplied, and digital payments rose. Between 2019 and 2020, the number of U.S. consumers using two or more types of digital payments increased by 8%.
Consumers are increasingly gravitating towards quick and convenient payment methods such as contactless payments and mobile wallets when transacting with businesses. But what about in the business-to-business (B2B) sector?
Industry data shows that the B2B payments landscape is rather diverse. While wire transfers and checks are quite common, the corporate credit card market is projected to have a compound annual growth rate (CAGR) of 7.3% by 2026, so we’ll likely see more credit card use in the business sector.
All this to say that if your company transacts with other businesses, it’s worth supporting multiple B2B payment methods so you can cover your bases.
Not sure where to start? This post offers a primer on B2B payments to help you understand which methods and solutions work best for you and how to implement them.Learn More
What are B2B Payments?
Business to business or B2B, is a term that specifies with whom business is conducted. Business to business organizations provide services or goods to other companies, unlike business to consumer (B2C), which is when businesses transact with consumers (individuals).
Business to business payments, therefore, refer to the payment processes and activities between two businesses. In most cases, the way two businesses transact between themselves differs from how consumers transact with businesses.
Consider a company that provides office space to another business. This is a B2B merchant, and the kind of payment terms between these two companies would usually be monthly or annual. Transactions for such a deal are pretty straightforward. An invoice would be sent, and it would need to be paid within an agreed timeframe.
A business that provides IT support solutions to other companies is also considered B2B. But the nature of such services could mean that monthly invoices are always different and plan terms are regularly changed. This business would have more intricate invoicing needs than the office space provider.
B2B vs. B2C Payments
B2B businesses tend to have longer payment terms with their clients and relationships usually focus on long-term, recurring business. These longer payment cycles have historically lent themself to slow payment processes, like checks.
Business to consumer (B2C), by comparison, relies on speedy payment processing to transact on the spot. Most B2C transactions are performed at the point of sale (POS), whether it’s eCommerce or in-store checkout. B2B payments are mostly made through invoicing and then longer payment cycles.
What are the Most Common B2B Payment Methods?
Business-to-business payment terms can differ quite a bit depending on the business issuing the invoice. Unlike B2C, where most transactions are simply taken at the point of sale using a credit card, debit card, or mobile payments, the types of payments for B2B companies can differ. These are the most common:
1. ACH payments
ACH payments are made through an Automated Clearing House that acts as an intermediary between bank accounts to complete bank transfers. It’s popular with B2B businesses as it’s a contractual payment method, requiring both parties to complete paperwork. Thus, it’s more secure.
It’s also cost-effective. ACH payments take up to three days to process and cost around 1% of the transaction with a $10 cap.
ACH payments are suited to businesses making recurring payments. One-time transactions are more likely to be completed through one of the other methods below.
2. Credit cards/B2B credit cards
Credit cards are the staple of payments, but not every B2B business accepts them. Just about every business and consumer will prefer to pay with a credit card, but for the business accepting the payment, there are going to be transaction fees involved. If you’re making a payment with a B2B provider, you will need to check if they accept credit card payments.
For businesses looking at paying with a credit card, there are often reward schemes and low-interest rates designed to attract businesses with special B2B credit card solutions offered by Visa, Mastercard, and most other card issuers.
On the merchant side, B2B cards come with lower processing rates if you qualify for level 2 and level 3 card processing. These levels require you to provide more transactional data and when implemented properly, you can lower your credit card processing costs significantly. (Read the section B2B processing costs below to learn more.)
3. Paper checks
Checks still have a place in the U.S. B2B sector, but they are by far the least efficient means through which to pay and be paid. In most cases, checks are mailed, taking days to reach the receiver, and then the onus is on the receiver to take the check and cash it.
For the business making the payment, checks may help to buy time to ensure money is available in the accounts, but it is a burdensome process for the receiver.
What’s more, if the funds are not available at the time when the receiver tries to cash the check, it will bounce, and bank fees will need to be paid. They could also incur a late fee from the business owed if the money is unavailable.
The paper nature of checks makes it harder to cross-check transaction activity and manage cash flow.
4. Payment gateway
Payment gateways are commonly used when services are purchased online, such as with online retailers. But they’re also popular to provide a way for B2B customers to make electronic payments. Payments work by giving the payer a link to complete the transaction. This would take them to the gateway where they can pay by credit card, Paypal, or other payment options the payee wishes to add.
Most often, this link would be embedded in an electronic invoice. It’s a common payment solution offered by digital payment providers. Many CRMs or accounting software like Salesforce and Netsuite can integrate with payment gateways.
5. Wire transfer
Wire transfers are popular amongst consumers, with services like SWIFT enabling real-time electronic transfers. Despite its great convenience, it’s a challenging option for businesses as it attracts processing fees of up to $40 per transaction to send money and up to $15 to receive it. If transactions are being made internationally, those figures go up even higher.
Cash is still used, particularly at local B2B businesses within physical proximity. This applies mostly to B2B transactions that are in the $100s rather than $1000s. And in all cases, it is in dealings face to face.
It is never advisable to send cash by mail.
B2B vs. B2C Payment Credit Processing Costs
Business-to-consumer payments will usually be processed under level 1 data. Each transaction will include the standard details needed:
- address verification (billing address and zip code)
- card number; and
- card expiration date.
On the payment processing scale, level 1 is the default, but B2B business owners may find that they qualify for level 2 and level 3 processing, which come with lower payment processing rates. The business has to collect extra information from the payer to qualify for these levels. For B2B companies, this information is usually captured in standard processes, making higher data levels more accessible.
What exactly should a business collect to qualify for level 2 and level 3 card processing? That depends on the credit card brand, as companies like Visa, Mastercard, Amex have different requirements. But to give you a better idea of what to expect, here’s a quick rundown of Visa’s requirements:
- all level 1 data requirements
- sales tax
- customer code
- purchase ID
- all level 1 and level 2 data requirements
- destination country code
- shipping costs
- order data
- VAT information
- product code
- item description
Read more about how to lower processing rates with level 2 and level 3 processing.
Many commercial cards, including B2B credit cards and other corporate cards, will qualify for level 2 and level 3 rates. This is because business cards have more data registered against them; as such, they present less risk and credit card payment processors can offer better rates.
Any businesses accepting business cards from their clients should inquire about adding level 2 or 3 payment processing for better interchange fees. By working with a service provider like Stax, which offers a membership plus interchange pricing model, businesses can see a real impact from those lower interchange rates.
How to Choose a B2B Payment Processing Solution
The right B2B payment solution saves time, improves cash flow, simplifies bookkeeping and taxes, and increases payment security. Which option is best depends on the size of the business and its needs.
B2B businesses processing less than $500,000 each year may find solutions like PayPal and Square to be sufficient for invoicing and payment automation. However, those processing above $500,000 each year will want a payment provider like Stax that offers a full payment solution with transparent, low pricing and a huge range of integrations to boost the functionality according to the business’s needs. Plus, with an open Payments API, you can easily integrate Stax with your existing solutions to enhance your technology infrastructure.
B2B companies also appreciate our platform’s scalability. You can process payments from multiple locations or verticals and handle large and high-volume transactions easily and securely.
Its time payments software was streamlined, scalable, and secure.
Contact Stax to learn how.