Traditionally, businesses used to pay each other for products and services through money orders or cheques. But now, with modern technology, Business to Business (B2B) payment processors are the preferred method.
However, this can be a tricky process as the methods are more complex than Business to Customer (B2C) and Person to Person (P2P) payments. This can lead to a fair amount of confusion.
For instance, you may be confused regarding which payment methods to choose. Or, you might wonder whether it will be an expensive endeavour.
But there’s no need to feel overwhelmed. In this post, we shed some light on B2B payment processors to help you find out important things you should know about this modern processing method.
A Comprehensive Guide to B2B Payment Processors
We have put together this guide that covers important things you should know about B2B payment processors and transactions.
What are B2B payments?
In simple terms, B2B payment refers to the transfer of value denomination in the form of currency from a buyer to a seller for services and goods. B2B payments can either be a one-time or recurring transaction. This depends on the contractual agreement made between the seller and buyer. This type of transaction only happens between businesses, such as wholesalers, retailers, startups, or corporations.
This payment method tends to be more complex than B2C and P2P. This is because it requires more time to settle and approve transactions, which typically take days or even weeks. On the other hand, B2C payment processing can be completed on the spot.
Owing to recent innovations and demands in payment technologies, there are certain shifts being seen in business payment systems on a global scale. Now, systems must contain the different steps needed to support the company’s entire payment cycle. Along with other features, the gateways are now designed to manage a wide range of transactions, including B2B payment processing.
How do B2B and B2C payments differ?
As mentioned, B2B payments are those made between businesses while B2C payments are those made between a business and customer. While they may either be a one-time or ongoing agreement, they have a plethora of challenges and factors that don’t affect the B2C world in the same way.
For instance, the volume of B2B transactions in any industry is in the trillions while the B2C industry generally sits on billions. Plus, business deals of any kind require contracts that need to be signed by both parties. Since most deals require recurring transactions, the payments come with their own set of challenges, like dealing with a backlog of invoices.
On the other hand, payment delays are a hurdle that affects the operations and overhead of mid-sized and small businesses. However, since B2C transactions can be settled on the spot, there is no question of delays in the payment cycle which can lead to frustration and increased overall cost to internal teams.
Lastly, B2B payments have to pass through many hands during the payment cycle, including accounts payable, accounts receivable, and other parties on the sales and billing teams. Most of the time, payments are made through cheques. However, B2C payments are mainly done in cash.
What are the different B2B payment methods?
Business owners should fully understand the different types of B2B payment processors that they can use to understand which one will be most suitable. If you require an invoice from a supplier, there are certain methods they may accept, and these are some of the most common ways to settle accounts:
- Cash
When looking for ways to pay for a product or service, businesses generally choose to transfer money either by credit card, checking account, or through money transfer. Hence, it can be said that paying cash electronically is the closest to paying with physical cash to another business.
For this, there are different money transfer systems, like PayPal, that are used and are great at replicating the traditional means of money or cash order payments. This makes things easier as it can be difficult to manage cash payments if the client is located in another city or country. Plus, it can be hard to track if anything goes wrong in the fund exchange.
- Cheque
Making payments via cheque remains one of the most commonly used and accepted forms of payment across the world as it’s relatively easy to use compared to other methods.
However, it’s a time-consuming process. It generally takes a few days for the cheque to reach its destination, but business owners have the advantage of stretching their cash limit further. Plus, since almost everybody across the world accepts it, it’s one of the preferred options.
However, there are downsides. For instance, we are living in a digital age where everything is available instantly, and even in times like these, cheques still need to be mailed. And, while making payments might be easy, it’s a difficult method to keep track of on both sides of the balance sheet. Additionally, there’s a risk of misplacing them, and you cannot know when it might be cashed once received by the other party.
But owing to its ease of use and wide acceptance, the bulk of B2B payments are made using this method.
- Wire Transfers
Also referred to as credit or remittance transfers, this is a fast and reliable payment method that can be conducted on a global scale with ease. It directly connects bank accounts across various businesses and allows them to manage recurring changes across borders.
However, while they’re fast and convenient, they can be an expensive B2B payment processor, making them suitable for transfers that don’t have a large number of businesses to pay.
- Automated Clearing House (ACH)
This electronic network is specifically used for financial transactions and can transfer funds from a business’s checking account directly to a client’s. It requires some paperwork to be filled out by both parties; the one making the payment and the one receiving it. And, it’s more likely to be used by businesses that need to make regular payments to the same business.
Since there’s paperwork involved, most businesses looking to make one-time payments rarely use this method. Once the paperwork is completed, it can take up to three days for the payment processing to be completed. The fees for the transfer may also vary but are generally more reasonable than what businesses need to pay for wire transfers.
For more information on B2B business processors, please click on Part II of this blog. We have provided a list of a few more payment methods and how they can be beneficial for your business.