Your customers are only half the equation. Other businesses will inevitably send and receive cash, too. This situation involves business-to-business (B2B) payments, which are a different kind of money movement.
Unlike small sales with everyday customers, B2B transactions tend to involve greater sums of money sent more regularly. They also sometimes involve issuing credit and invoices, which can leave you without upfront cash.
Let’s explore the nitty gritty details behind these complicated transactions.
What are B2B payments?
B2B payments are transactions that occur between two businesses for goods or services. This term differs from business-to-consumer (B2C) transactions, which are made directly with everyday individuals.
Let’s say you manufacture notepads. You oversee a factory and also run a storefront in a busy shopping center. If a major retail chain wants to purchase thousands of notepads from you to resell, then this situation would involve a business-to-business payment. There are several methods to receive your money, which are discussed below.
On the other hand, individuals walking into your storefront looking to buy holiday gifts involve business-to-consumer transactions. In this case, private citizens use their personal credit card or other payment method to conduct a one-time purchase. This interaction is more straightforward than B2B activities.
B2B activity typically involves larger sums and more complex processes. They’re a fundamental element of working with wholesalers, suppliers, and contractors.
How B2B payments differ from B2C payments
The distinction between B2B and B2C payments isn’t just about the type of customer — it also involves differences in payment amounts, transaction frequency, and payment methods.
| Criteria | B2B | B2C |
|---|---|---|
| Transaction size/volume | Larger amounts, often due to bulk orders or ongoing service contracts | Lower values that occur more frequently, driven by everyday retail or online consumer sales |
| Payment terms | Longer payment terms, such as Net 30 or Net 60, which involves delivering goods and services that are paid for at a later date | Instant or near-instant; consumers pay for goods or services upon purchase |
| Payment methods | In-house bank transfers, checks, wire transfers, Automated Clearing House (ACH) transactions, and digital credit card payments; involves fewer in-person payments than B2C | Consumer credit/debit cards, digital wallets (Venmo, Coinbase, etc.), and buy now, pay later services like Klarna; involve more in-person payments than B2B |
| Requirements | Sometimes involves manual vetting for larger orders or new clients with no history; Net 30 or Net 60 requires creditworthiness qualifications | Minimal security, like zip code or PIN entry for bank cards or counterfeit detection for cash |
| Example clients | Wholesalers, suppliers, contractors, service providers, non-profits, bulk orderers | Individuals, one-time organization purchasers (such as for special events or emergencies) |
Types of B2B payment methods
Knowing the various payment methods you can use in B2B transactions is crucial as a small business owner. Here are the hallmark ways of sending cash from businesses to other entities and consumers.
Checks
Traditional paper checks are still commonplace in the B2B sphere, especially for smaller entities or those not involved in high-tech industries. While these valuable notes offer a tangible record and greater control over the transaction, they have drawbacks, such as longer processing times and increased risk of fraud.
- Pros: Easy to issue and track
- Cons: Slow processing and potential for fraud if not properly secured
Wire transfers
Wire transfers are fast and secure, usually moving cash within hours. Given their speed and irreversibility, they’re ideal for international transactions. But they carry a premium. Indeed, they can be costly and charge much steeper fees than ACH payments.
- Pros: Speedy and secure, especially for international payments
- Cons: Higher transaction fees, making it less cost-effective for smaller payments
SEE: Best International Merchant Accounts
Credit and debit cards
Credit and debit cards boast flexibility and simplicity, but they’re prone to chargebacks and fraud. So, they’re better suited for smaller transactions. Once you’ve established a good history with another business, you can increase the amount you’re willing to charge via these pieces of plastic.
- Pros: Instant and trackable; can feature credit card cashback programs
- Cons: Incurs 2% to 3% transaction fees and meaningful risk of chargebacks and fraud
SEE: 6 Best Payment Processing Companies
ACH payments
Automated Clearing House payments are a common method of pushing money between bank accounts in the U.S. This approach is cost-effective and secure. It’s ideal for recurring and one-time transactions.
However, a sender must ensure sufficient cash in their bank account to start the process. This mandate makes it less flexible and advantageous than credit cards.
- Pros: Low transaction costs and reliability for recurring payments
- Cons: May take one- to three business days to process
SEE: Best ACH Payment Processing for Businesses
Digital wallets
Digital wallets like PayPal, Stripe, and Square allow for faster transactions, making them increasingly popular in B2B payments. They can handle both domestic and international payments, offering convenience for smaller transactions or global demands.
- Pros: Quick and easy; suitable for international payments
- Cons: Higher transaction fees compared to ACH payments or bank transfers; less anti-fraud protection
Trade credit and net terms
Trade credit is a form of B2B financing where one business buys goods or services with the promise to pay later. Unsurprisingly, you’ll need to establish solid trust before granting this convenient arrangement.
Many entities require upfront payment for the first transaction to start on the right foot. Then, later payments switch to trade credit up to a certain limit. If your client misses any payments, you’ll want to refrain from further business until the debt is resolved.
- Pros: Convenient; preserves clients’ working capital until payment is due
- Cons: Could lead to unpaid debts; requires trust and excess working capital on the supplier’s side
In business parlance, this type of B2B payment method is where invoicing, accounts receivable, and accounts payable come in and involve terms like net 30, net 60, and net 90.
Here’s a quick breakdown of common payment terms:
- Net 30: Payment due thirty days from the date of invoice. Most common B2B term.
- Net 60: Payment due sixty days from the date of invoice. Often used for larger transactions.
- Net 90: Payment due ninety days from the date of invoice. Often used for industries with slower-to-move inventory.
- 2/10 Net 30: A 2% discount if payment is made in 10 days, or 30 days from the date of invoice.
- End of month (EOM): Payment is due by the end of the month in which the invoice was issued.
- Cash on delivery (COD): Payment on delivery, upfront payment, zero terms.
SEE: What Is The Difference Between Accounts Receivable and Accounts Payable?
Key considerations for managing B2B payments
Here are several important factors to consider when transacting with other businesses.
Security and compliance
B2B payments often involve large sums, making them ripe for fraud. Using secure payment methods, verifying vendor information, and ensuring compliance with financial regulations like PCI-DSS can safeguard your operations.
Cash flow management
Efficient cash flow is vital to running a successful business. Keep track of payment terms, late payments, and outstanding invoices to maintain healthy cash flow. Consider using invoicing software or accounting tools that offer real-time visibility.
Automation and integration
Automating B2B payments slashes manual processing time and minimizes errors. These improvements speed up the overall payment cycle. Integration with your accounting software can streamline reconciliation and record-keeping.
Payment terms negotiation
Negotiating favorable payment terms can benefit your cash flow. For example, if a supplier offers a 2% discount for paying within 10 days (Net 10), you may want to take advantage of it, provided your cash flow allows.
International payments
If you move cash abroad, you’ll need to consider exchange rates, potential delays, and additional fees. Using specialized international payment services or banks with global capabilities can make the process smoother.
The role of technology in B2B payments
Technology is morphing what B2B payments look like. Here are some technological trends to watch for:
- Blockchain: This emerging technology delivers a secure and transparent way to record transactions, reducing fraud and simplifying reconciliation.
- Artificial intelligence (AI) and machine learning: AI tools can help detect anomalies, automate payment approvals, and optimize cash flow forecasting.
- Cloud-based accounting platforms: Storing data on cloud servers allows you and your staff to work simultaneously from anywhere.
- APIs for payment integration: APIs enable businesses to link different software systems, making B2B transactions faster and more automated.
How to choose the right B2B payment solution
When selecting a B2B payment solution for your business, consider the following factors:
- Cost: Evaluate transaction fees, subscription costs, and potential hidden fees.
- Level 2 and 3 data processing: Look for a provider that automatically detects B2B transactions and collects the necessary data to qualify each payment for discounted B2B payment processing rates.
- Ease of use: Choose a solution that is user-friendly and offers intuitive features.
- Integration capabilities: Ensure the solution integrates with your current systems like accounting software, CRM, or ERP.
- Security features: Look for solutions with robust security measures, including two-factor authentication and data encryption.
- Customer support: Responsive support is critical, especially when dealing with high-value transactions.
Some highly-rated platforms include:
- Stax: For large-volume subscription businesses (U.S. businesses only)
- Helcim: For wholesalers and healthcare B2B transaction
- Stripe: For custom online B2B transactions
For more recommendations, see: Best B2B Payment Processors
FAQs
What is an example of a B2B transaction?
An example of a B2B transaction is when a retail store purchases inventory from a wholesale supplier. Another example is a marketing agency providing services to a corporate client.
What are the most common B2B payment terms?
Some fundamental B2B payment terms are Net 30, Net 60, and Net 90. Each number indicates the amount of days a buyer has to make the payment. Another common phrase is “2/10 Net 30,” which grants a 2% discount if paid in 10 days or less.
What is the difference between B2B and B2C payments?
B2B payments involve transactions between two businesses, often with larger amounts and longer payment terms. B2C payments occur between a business and an individual consumer, usually involving smaller amounts and immediate payments.
How do B2B payment solutions help with cash flow?
B2B payment solutions offer features like automated invoicing, recurring payments, and real-time reporting, helping businesses manage cash flow more effectively and reduce late payments.
Are digital wallets used in B2B payments?
Yes, digital wallets like PayPal and Stripe are increasingly used in B2B transactions, especially for smaller payments or international transactions.
How can I secure B2B payments?
To secure B2B payments, use methods with strong encryption, verify vendor credentials, maintain compliance with financial regulations, and employ multi-factor authentication for payment approvals.
