What Is B2B Payment Processing? Definition, Methods & Trends
This article is part of a larger series on Payments.
Business-to-business (B2B) payments refer to transactions between two companies, usually for the exchange of goods or services. They are often made through invoices and purchase orders and processed via check, ACH, or credit card.
How are B2B payments different from B2C payments? While B2B payments are the exchange of funds between businesses, B2C (business-to-consumer) payments are everyday transactions, like shopping online and in person or paying a bill. B2B payments are generally larger and happen after products are received or on a set schedule. We’ll cover more differences later in this article.
How B2B Payments Work
The exact mechanics of B2B payments depend on how you bill and how your customer pays. Requesting a B2B payment is most commonly done through an invoice sent to accounts payable (AP). The customer company processes this, gets the required approvals, and pays the invoice.
To receive payments quickly and accurately, you should have invoicing software that ties to your payment processor and accounting software. The best invoicing software lets you send electronic invoices, which include a link or button so the recipient can pay directly from the invoice itself. Some accounting software, like QuickBooks, have this feature, as do many payment processors Stripe.
Recurring payments are also better handled electronically so that payments can be requested automatically or even be set to autopay by connecting to a corporate card or account.
As far as processing is concerned, B2B and B2C transactions are similar. Your bank, which provided you with a merchant account (acquiring bank), communicates with your client’s bank (issuing bank) via the card network.
You will need an efficient payment processor to handle your B2B transactions. We discuss what to look for below. You can also read our picks for the best B2B payment solutions for small businesses.
B2B Payment Methods
Businesses have just as many choices for making B2B payments as consumers do. In fact, there is a growing percentage of businesses paying bills through peer-to-peer channels like PayPal or Venmo and even using cryptocurrency. We discuss the most common methods below.
It’s important to keep in mind that a business may use many different payment methods, from a corporate card for on-the-go expenses to wire transfers for large, one-time purchases. Cash, while decreasing in popularity, is still used for in-person purchases. Your business needs to be flexible in the kinds of payments you accept.
Non-monetary Payments: Not all payments between businesses are monetary. Sometimes, businesses negotiate for shared or traded services, advertising, and even equity in the other’s company. While we don’t cover those in this article, they do have an impact on payment collection and tracking.
A study by Gartner predicts that 80% of B2B “buyer-supplier” sales interactions will be digital by 2025. However, a 2022 report by the Association for Financial Professionals said that 86% of organizations still use checks for outgoing payments.
Paper checks take longer to process. First, checks usually need several approvers before they are issued. Second, they need to be snail-mailed, which can take two days to two weeks. Then, they must be approved. It takes two to five days for a paper check to clear the bank. However, businesses also use paper checks because they make an easy audit trail.
Further, paper checks can be used to “buy” time. If a business does not have the funds immediately, they may issue a check in anticipation of the funds being available when the check is cashed. They can even request you hold the check. This, of course, makes a problem for you if they time it wrong and the check bounces.
According to NACHA, it costs about $1 to $2 to receive and process a check when accounting for manpower and other costs. Other payment methods can be cheaper, depending on the amount of the invoice.
ACH payments are made through the Automated Clearing House and are essentially bank-to-bank transfers of cash. They work great for invoices and recurring payments. ACH payments are fast, often taking as little as 24 hours, and are more secure for several reasons:
- They require an American bank account, which gives identification for law enforcement in case of fraud.
- They have a guarantee of payment—no chargebacks.
- NACHA enforces rules and regulations while keeping numbers confidential.
Most payment processors can handle them, making it easy to include them in your invoices.
ACH payments generally cost about 1% of the transaction and often have a $10 cap. Some financial institutions don’t charge at all to process ACH transactions because they are more convenient. It’s expected that as companies move away from paper checks, this will become the most common B2B payment type. Already, the Association for Financial Professionals says that 87% of businesses use ACH Credit for payment transactions.
Research by Juniper found that by 2026, 80% of the overall transaction value of B2B cross-border payments will be by wire. They are most popular where ACH transfers don’t work: international payments and payments over $1 million per day.
Wire transfers can make funds available to you within 24 hours and generally cost around $15. One drawback of their use is that they don’t consistently include remittance information, which can be an issue for recordkeeping.
Credit Card Processing
Credit cards are a convenient way to pay for things, from gas or meals on a business trip to an invoice or recurring subscription to business software. However, they can be expensive for both the sender and the receiver. Nonetheless, card use is expected to experience a compound annual growth rate of 7.3% by 2026, according to Beroe.
Credit card processing costs an average of 2% to 4% per transaction, often with an additional flat fee of 5 to 35 cents. Any business can process a corporate credit card, but if you can qualify for Level 2 or Level 3 credit card processing and have a merchant account that offers the discounts associated with these levels, you can save up to 1% on your card processing fees. This is significant, especially with higher-value transactions.
Cryptocurrency is a growing B2B payment field. PYMNTS reported that over 37% of businesses say they are using blockchain and cryptocurrencies for cross-border transactions. Another 13% are considering adopting the technology for that purpose.
This payment method provides speed, predictability, and security—especially seen when dealing with international transactions which otherwise can involve exchange rates, multiple processors, and other hindrances. The disadvantage, of course, is the volatility of the cryptocurrency market.
Cryptocurrency exchanges charge up to 1.5% per trade. Many payment processing systems are also jumping into cryptocurrency processing.
Cash is most often used for businesses doing in-person transactions in the hundreds of dollars range or less. While it costs nothing to “process” a cash payment, you do need to be careful to record the details (amount, date received, etc.) as there is no other printed or electronic “paper trail” for tracking.
Benefits of Digitized B2B Payments
If you are working with a business, you are taking B2B payments. The real benefits come from digitizing B2B/B2G (business-to-government) payments. Per research by PYMNTS:
- 87% of companies that leverage accounts receivable (AR) automation have decreased processing times
- 79% improved their teams’ efficiency
- 75% reported superior customer experiences
- 72% saved operational costs
- 62% achieved days sales outstanding (DSO) improvement
- 60% reported headcount reduction.
Expand the sections below to see some of the most common benefits.
Paper checks take longer, may be issued with a future cash date, and have a danger of bouncing, which adds more time pursuing the company for payment (not to mention the bounce fees you’ll pay).
With digital payment processing, if the business cannot cover the payment, you are told immediately so you can request an alternate method or withhold a product or service.
With digital payment processing, customers can click a button—often on the invoice itself—to make the payment. This is automatically reconciled with their accounts, and the money is sent to you.
More Payment Methods
By digitizing your B2B payments processing, you can give your clients more choices in how they pay, which means they can pay you more easily and quickly. Most payment processing services allow you to accept credit card, ACH, and even cryptocurrency transactions. This, of course, can result in quicker payments, too, as your customer can pick the best method for them.
While there is always a risk of hacking, digitized B2B payments offer secure gateways and regulated platforms to keep your transactions safe. Plus, the transactions are immediate; no checks flying across the country that can be lost or stolen.
With digital payments, you can let the software handle the recording and filing of information. You can even integrate your payment or invoicing software with your accounting software. This saves hours of manpower and prevents mistakes that come from manually typing in information.
Reduced Accounting & Administrative Costs
You will need to invest in payment processing or invoicing software, but by digitizing your payments, the streamlining of information flow saves money in manhours and correcting mistakes and lets you avoid dealing with bounced checks and late payments.
According to FIS Global, manually handling B2B payments can cost $25 per transaction. Digitizing can result in significant savings. In fact, a report by Flywire states that 92% of businesses surveyed said that a better solution for accounts receivables would increase their earnings per share.
Reduced payment processing costs: By taking advantage of Level 2 and Level 3 payment processing rates, you can also save money on credit card transactions. Check out our article on what Level 2 and 3 payments are and how they work.
When payments are handled digitally, all the associated information is carried along with them. This makes it easier for you to analyze and report any information you need, whether tracking late payments, determining average pay time, or analyzing your customer base’s demographics.
B2B Payment Challenges
While taking B2B payments offers great advantages, there are still things to watch out for. In general, strong technology, well used, can help alleviate these issues.
Most small businesses are familiar with chasing payments. It’s an unfortunate reality of business. In fact, one analysis found that the average payment period lasts 34 days, despite expected terms of 27 days. The analysis found that one of the biggest contributing factors is that checks account for around 40% of B2B payments. Another is the remote workforce, which can delay approvals.
There is hope for this problem decreasing, however. According to Tipalti.com, 9% of AP teams are now fully automated, a marginal increase from the 8% reported in 2019. However, 41% of AP teams also expect complete automation in their department within one to three years.
According to a PYMNTS and TreviPay study, 98% of B2B businesses reported fraud attacks in 2021, losing 3.5% of their annual sales revenues on average. Unfortunately, many payment platforms don’t offer the security needed to protect your data and your customers’ data.
Upgrading to a more secure B2B payment processor will help mitigate the likelihood of falling victim to fraud, as does qualifying for Level 2 and 3 payment processing, which requires more payment information to decrease the chance of fraud.
Complexities can cost businesses 10% of their revenue, and almost half lose 4% to 5% of their monthly revenue to inefficiencies. Companies that do business internationally are twice as much at risk. Here are just a few complexities to watch out for:
- Companies may have their preferred way to pay. When an individual pays for a purchase, the company usually dictates what they will and won’t accept, the payment schedule, and the amount. With B2B payments, all of that can be up for negotiation, especially when the dollar figures are high.
- Software, done wrong, adds complexity. It’s vital that you ensure your software is set up correctly, integrates well with your payment processor and other programs that share information, and that employees are well-trained in using all the systems.
- Payment in kind. Businesses sometimes pay partially in money and the rest in free services, equity, and even advertising or recommendations to their other clients. All this needs to be carefully documented and monitored. Even more, should your customer business be late or fall short on one payment type, especially monetary payment, then you need to weigh the advantages of demanding that payment against the risks of them taking back the other payments.
What to Look for in a B2B Payment Processor
When choosing the best B2B payment processor, you want one that will help you maximize your benefits and minimize challenges. That means finding a processor that:
- Handles multiple payment types, especially credit or debit and ACH payments
- Includes invoicing software or integrates easily with your existing invoicing tools
- Allows businesses to pay directly from the electronic invoice
- Offers discounted rates for Level 2 and Level 3 payment processing
- Integrates with your accounting, POS, or other sales and CRM software
- Offers high-end security and chargeback protection that goes beyond simple PCI and SOC I and II security
B2B Payment Trends & Outlook
In general, businesses can expect to see an increase in B2B payments and a strong move toward digitization, especially with payments by ACH. Here are some particulars to consider:
- B2B payments are growing by a predicted CAGR of 10.2% through 2028, with over $100 trillion in payments expected by 2025.
- B2B payments are moving steadily toward digitization, with nearly half of surveyed businesses saying they intend to have their AP processes automated by 2026.
- While nearly 40% of payments are currently by check, that is expected to change with the growth of digitization and virtual card use. (Keep in mind that businesses usually pay in multiple ways, so this does not guarantee that you will be paid electronically.)
- As companies move away from paper checks, ACH payments are rising, having grown to 69.25% in 2020. These are usually more convenient and less expensive than card payments while providing the needed information for payment tracking. Wired payments, nonetheless, are looking into ways to provide better data to compete against ACH payments in the future.
See more in our article on B2B statistics.
B2B vs B2C Payments: What’s the Difference?
In addition to the differences we mentioned earlier in the article, B2B and B2C payment methods are also different. Whereas consumers like to pay by card, cash, or mobile wallet, B2B payments are usually via ACH or bank debit, check payments, wire transfers, and credit cards. Also, behind the scenes, B2B payments are different from B2C payments because they typically take longer to settle and process.
The table below summarizes the key differences between the two payment transaction types.
Sell products to other businesses
Sell products to consumers
Bulk purchase transactions with volume discounts
Small retail purchases
Seller website includes an account dashboard
Seller website is focused on marketing products
Payment is made through invoicing after goods are received
Payments are made at the point of sale
Post-sale is handled by an account manager
Post-sale is handled by customer service
B2B payments are often higher in value, and they’re increasing. After all, a consumer likely has a smaller personal budget and smaller needs than a business budget for a company. As such, B2B payments typically process higher amounts. Therefore, payment processing rates affect B2B and B2C businesses differently and should be a consideration when shopping around for your payment processor.
B2B Payments Frequently Asked Questions (FAQs)
Businesses sometimes purchase from me. Does that make me a B2B business?
B2B businesses primarily work with other businesses, so it’s really a matter of degree and practice. Learn more in our article on B2B sales.
B2G simply means business to government, where a government entity is your customer rather than a business. There aren’t any specific changes to how you handle payments as far as processing them.
Do I need a payment processor or merchant account to take B2B payments?
In general, yes. A payment processor will enable you to take credit, more easily process ACH payments, and may even handle crypto for you. If you only choose to take checks and cash, and will work with your bank for wire transfers and ACH, you can avoid getting a merchant account, but you are limiting your capabilities and making things more difficult for your staff, which could increase costs in the long run.
Who can accept B2B payments?
Any business working with another business as a customer accepts B2B payments by definition. However, if you take credit card payments from businesses, you may want to check with your merchant account or payment processor about qualifying for Level 2 or Level 3 card processing. These are B2B/B2G rates but require extra security and have transaction volume minimums.
Globally, B2B payments are growing. If you work with businesses, then understanding how to handle B2B payments will save you time and money. The key word is digitization.
Automating your accounts receivable process and invoicing, getting a payment processor experienced with B2B payments, and making sure your software can not only accept digital payments but also collect, share, and analyze the information associated with these payments will save you time, money, and headaches.