B2B Payments

What are B2B Payments?

B2B (business-to-business) payments are financial transactions between two companies. When one organization pays another, it does so using a credit/debit card, ACH payment, wire transfer, electronic funds transfer (EFT), physical check, or cash. Today, most B2B payments are made electronically.

Transactions between two businesses happen for a number of reasons:

• Purchasing goods or services
• Paying a supplier, vendor, or channel partner
• Disbursing commissions for affiliate sales
• Refunding a customer or partner
• Settling outstanding invoices or debts
• Subscriptions and recurring payments
• Licensing and royalties

These types of payments are different from consumer transactions, where individuals make purchases for their personal use. They’re generally much more complex due to larger transaction sizes and longer processing times.

Digital payment platforms that process B2B payments are an integral part of the global economy. Without the ability to process transactions swiftly and efficiently, global commerce simply could not exist as it does today.

Synonyms

• B2B transactions
• ACH payments
• Business-to-business payments
• Commercial payments

B2B Payment Trends

Gartner predicts that, by 2025, 80% of B2B transactions will take place online. In a McKinsey study on B2B ecommerce, the management consulting and market research firm found nearly three-quarters (71%) of today’s buyers would gladly spend more than $50,000 in one digital transaction (and many would spend $500,000+).

The growing personal interest in electronic payments is largely driven by the rise of remote work, which has accelerated digital transformation across industries. As for the transactions themselves, several innovative technologies are changing the way that businesses think about payments:

Real-Time Payments

Real-time payments (RTP) allow for instant transactions between two parties’ bank accounts. RTP eliminates the waiting time between transaction initiation and settlement, which can take several days with traditional payment methods.

Instant payments already make up close to one-fifth of today’s credit transfer volumes. But that figure is set to more than double by 2027, facilitated by digital wallet integration and favorable regulatory environments.

Digital Wallets and Embedded Finance

The adoption of digital wallets is expanding, supported by mobile infrastructure and regulatory initiatives promoting cashless economies. The rise of embedded finance, particularly in sectors like ecommerce, allows businesses to offer seamless financial services.

For instance, SaaS companies can offer a payment option directly within their software. Any time users want to change their subscription, they can make in-app changes, and the subscription management software will automatically handle the backend work.

Virtual Cards

In many cases, company cardholders don’t have to use a physical card to transact online anymore. Within their online banking app, they can generate a unique virtual card, complete with its own number, expiration date, and security code. This creates a secure, one-time-use account number and reduces the potential for fraud.

55% of CFOs already confirm their companies regularly transact using virtual cards. And, by 202, Juniper Research predicts the prevalence of virtual debit and credit card payments will exceed $121 billion — a 340% growth from 2022 figures.

Cross-Border Payments and Ecommerce

As B2B ecommerce flourishes, there’s a corresponding need for efficient, secure payment solutions, particularly for international transactions. Modern B2B payment platforms can handle price localization, VAT/taxation, compliance, and currency conversion without any input from either transacting party.

Open Banking

Open banking is a financial technology that enables third-party developers to build applications and services around banks’ data. The goal is to create better financial products for consumers and businesses alike.

For B2B payments, open banking introduces an unprecedented level of transparency and security into the process. Companies no longer have to share sensitive banking information with vendors or rely on manual reconciliation processes.

Instead, open banking allows for seamless, secure B2B transactions without the need for traditional financial intermediaries.

Blockchain and Stablecoins

Blockchain technology promises speed, security, cost savings, and transparency. And it’s increasingly being utilized for B2B cross-border payments, the value of which could total an estimated $1.7 billion by 2025.

Stablecoins, in particular, are becoming a preferred medium for these transactions due to their stability and growing market cap, offering a reliable alternative to volatile cryptocurrencies. And partnerships, like Visa’s collaboration with Circle’s USDC, eliminate the need to convert digital currency into fiat to make a transaction.

Cybersecurity and Fraud Prevention

The digital B2B payment sector faces challenges, such as persistent fraud, involuntary churn due to payment issues, and complexities in cross-border transactions. But today’s payment gateway and processing platforms are deploying sophisticated fraud detection systems, including:

• Artificial intelligence and machine learning algorithms that identify and alert companies to suspicious transactions in real-time
• Automation and API integration that makes it easier for businesses to manage invoices securely and reconcile payments
• Two-factor and multi-factor authentication that adds an extra layer of protection to B2B transactions
• Shifts towards more secure payment methods, such as tokenization and biometric payments

Comparatively, digital business transactions are much safer than their paper- or email-based counterparts. With encrypted, cloud-based software managing everything, there’s much less of a chance your sensitive information will end up in the wrong hands. 

Common B2B Payment Methods

B2B payments come in several forms, and the right one for your business depends on factors like transaction size, frequency, security needs, and regulatory environment.

Credit and Debit Cards

Credit and debit card payments account for most B2B transactions. And it makes sense why.

• They’re convenient.
• Everyone knows how to use them.
• Every payment processor accepts them.
• They offer strong fraud protection.
• They’re secure, at least for common transactions.
• You can earn points or cash back.
• You can issue employee cards for business expenses.
• The card company will issue chargebacks if you don’t get the goods or services you paid for.

They’re also great for cash flow. If you need to make a large, immediate purchase, you can use your credit card and pay it back when the money comes in. You’ll have at least a month before accruing any interest.

However, a high volume of card transactions makes it difficult to notice and manage payment disputes, potential fraud activities, and payment processing issues. And credit card processing fees can add up quickly.

Virtual Cards

Virtual cards, or single-use credit/debit cards, offer enhanced security for B2B card payments. They allow businesses to generate unique card numbers for each transaction, which limits fraud potential.

Virtual cards also offer greater control over transaction amounts and merchant categories, preventing unauthorized or incorrect charges. And they allow for easy reconciliation as all transactions are tied to a specific virtual card number.

You can’t use them for in-person transactions, though. For project-based businesses that need to expense physical purchases (e.g., an interior design or general contracting business), you won’t be able to rely on virtual cards.

ACH Transfers

ACH (Automated Clearing House) transfers are a popular alternative to credit and debit cards for B2B payments. These bank-to-bank transactions offer lower processing fees, greater control over when funds are transferred, and simplified reconciliation processes.

However, ACH transfers take longer to process than card payments (2-3 business days vs. a few seconds). And, you’ll need your vendor’s banking and routing information to initiate them unless you’re using subscription management or invoicing software.

Wire Transfers

Wire transfers involve electronically sending funds from one bank account to another. They’re faster than ACH transfers, usually taking only a few hours or less for domestic transactions.

Like ACH, wire transfers require the recipient’s banking information. And they’re not reversible once initiated. So, you have to make sure you’re sending the funds to the right place.

Wire transfers (especially international payments) are also more expensive than ACH transfers and credit card transactions due to additional fees from intermediary banks.

Digital Wallets

Digital wallets like PayPal, Venmo, or Zelle are becoming increasingly popular for B2B payments. You can fund them with credit/debit cards or bank accounts and use them to make online purchases or transfer funds to other digital wallets.

They offer fast, secure, and convenient transactions for businesses with smaller payment volumes. They’re also integrated with mobile and PoS systems, making them perfect for small businesses with physical locations.

Like credit/debit payments, fees add up quickly, though. And besides PayPal, most digital wallets only work within the country they’re based in. 

Cryptocurrencies

Cryptocurrencies, like Bitcoin or Ethereum, offer a decentralized and encrypted solution for B2B payments. They’re not subject to traditional banking regulations and can facilitate cross-border payments with ease.

However, due to their volatility (the value of a Bitcoin changes significantly throughout the day), they’re not practical for most businesses accepting B2B payments. But, stablecoins like Tether are pegged to a fiat currency’s value and offer more stability for businesses that want to use cryptocurrency without the risk.

Cash and Checks

They’re becoming less and less common, but cash and checks are still payment options for B2B transactions. Cash is usually only used for small, in-person payments, while checks involve a paper document sent through the mail or delivered in person.

Cash and checks are the least secure and hardest-to-account-for payment methods, as they leave no paper trail or protection against fraud. They’re also inconvenient and time-consuming for both parties.

Benefits of Modern B2B Payments

If it weren’t for the digital solutions above, conducting business at the speed and scale we do today would be practically impossible. The ability to send and receive funds across the country or world in seconds means you can generate revenue from anyone, anywhere, at any time.

And that’s just one of the many advantages of modern B2B payments. Let’s take a look at some others:

• Less revenue leakage with accurate, timely, and accounted-for transactions
• More visibility and control over expenses and cash flow
• Faster access to funds with electronic transfers
• Higher security and fraud protection with encryption and transaction monitoring
• Reduced manual labor and human error in the payment process
• Automated tracking and reconciliation
• Operational efficiency across sales, billing, and accounting functions

All these translate to significant cost savings for your business. You can invest the money you save into areas that promote growth and innovation while simultaneously improving the B2B buying experience for your customers.

Tips for Selecting a Global B2B Payment Solution

The #1 best practice to live by as a B2B business is to offer multiple payment options. #2 is to know which ones work the best for your customers and business.

Here are a few tips to help you select the right payment solutions for your global B2B transactions:

1. Understand your company’s unique needs.

Assess your business requirements:

• Transaction volume
• Frequency
• Currencies used
• Customers’ preferred payment methods
• Payment amount and type (one-time vs. recurring)
• Reconciliation process

Consider whether you need additional features like invoice automation. Also evaluate your tech stack, so you know what your chosen solution will have to integrate with.

2. Consider security and compliance.

These days, practically every payment solution has security features like encryption and fraud protection. Still, it’s essential to double-check that the one you choose complies with regulations (PCI DSS, GDPR, etc.) and your security standards.

3. Evaluate integration and compatibility.

When you start the procurement process, your first question should be: “How will this solution integrate with our current systems?”

Your B2B payment platform should either be included in or integrate with the following platforms in your tech stack:

• CPQ (configure, price, quote)
• CRM (customer relationship management)
• ERP (enterprise resource planning)
• Subscription management
• Accounting and billing systems
• Ecommerce systems and portals
• And, of course, your bank account(s)

 4. Assess payment methods and currencies.

Look for a payment solution with support for a wide range of payment methods and currencies, especially if you do business globally. It’s best to survey your customers on how they prefer to pay, then asking about those methods specifically.

5. Review Fees and Pricing Structure

Some payment solutions charge a flat fee per transaction, while others use a percentage-based model. For monthly subscription services, some platforms offer unlimited transactions for a flat fee, while others have different tiers based on the number of transactions or company users. Ask questions about the fees they charge, and consider how they’ll add up over time.

6. Check customer support and service level agreements (SLAs).

You want a software that guarantees uptime, quick customer service responses, and minimal disruptions. Look for payment solutions with high customer satisfaction ratings and strong SLAs.

7. Look for scalability and flexibility.

Even if you don’t have plans to grow or shrink, your business will definitely change over time. You need a solution that reflects your needs in the moment. It should be easy to add/remove users, change plans, change features, and integrate with other systems.

8. Read recommendations and reviews.

Sites like G2 and Capterra are full of unbiased reviews from real users. Take the time to read through them and see what other businesses in your industry have to say about the payment solutions you’re considering.

The Future of B2B Payments

While many of the most exciting innovations are already here, the tech world never stops advancing. There are still plenty of opportunities for improvement in B2B payments as far as security, speed, and ease of use are concerned.

Here’s a look at some of the most promising trends for the future:

• AI and machine learning technologies will further automate B2B payment processes and reduce human error.
• Increased adoption of blockchain technology will improve transparency, speed, and security in B2B transactions, particularly cross-border payments.
• The convergence of B2B and B2C payment experiences will continue, with B2B payment platforms adopting more user-friendly interfaces and consumer-like features.
• Open banking initiatives will enable greater data sharing and innovation in the B2B payments sector.
• Regulatory technology will become increasingly important in managing compliance as transactions become more global and complex.
• The shift towards sustainability will drive many companies to go paperless with their invoicing process.
• Artificial intelligence will automatically patch many of the cybersecurity issues businesses currently face with payment processes.

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