What are B2B Payments? Definition, Methods, Transaction Systems

What are B2B Payments?

B2B payments are payments made from businesses to businesses for goods or services supplied. They can either be a one-time or recurring translation, depending on the agreement made between the two parties (buyer and supplier).

They are typically a more complex type of payment – compared to business-to-customer payments – as they require more time to approve and settle.

Wire Transfers

If a business needs to send an international payment, wire transfers are usually the desired option. They are a digital form of payment that happens in real-time, meaning that, once the funds land in the receiving account, they become immediately available.

Companies that are looking for a quick transfer find that wire transfers offer the best for their terms and timing. 

Cheques (or Checks)

Although they have almost disappeared from everyday use, cheques are still used for B2B payments. The reason being is that they help a business better track cash flow and inventory, as it provides a definitive audit trail – something which can’t always be achieved with digital payments. They offer an added layer of security and fraud protection to a translation too. 

ACH Payments (Automated Clearing House)

Many organisations opt for ACH as it’s extremely cost-effective. Essentially, the transaction happens using a routing number and bank accounts, meaning it’s a good way to manage cash flow and settle accounts.

However, Automated Clearing House is a U.S institution that can only be used within America.

Credit cards

Credit card payments are one of the most popular payment methods for business-to-business transactions. They provide a convenient and inexpensive way to facilitate the transaction, whilst also being easily trackable at the end of the month.

Although credit cards typically incur interest rates, if it’s treated more like a debit card and paid off each month, it’s a highly beneficial form of payment.

Cash

Some might think cash is outdated, but, for others, cash is king. Perhaps the biggest advantage is that there is never the need to pay annual fees like a line of credit. Although Carta Worldwide is an issuer processor, we recognise that paying with cash is the quickest way for some businesses to process and keep fees to a minimum.

One disadvantage of always paying with cash is it can produce a negative cash flow balance.

Digital payment platforms

Nowadays, there are several fintech platforms that can facilitate B2B payments on a company’s behalf. Large companies such as PayPal and Venmo, or smaller companies such as Loop andJeeves, can be used to electronically transfer money from one account to another. This helps to make the transaction much more seamless as most of the admin is completed for you.

There are a couple of downsides to outsourcing the payment: one being that some of these platforms are mobile payments that are only available on mobile apps, making it a little less accessible; and the second is that the fees they incur can be a lot higher than other types of digital payments. Although the fees involved might be larger, the ease of using the platforms to automate payments for businesses is often seen as a huge timesaver.

What are the most popular methods of B2B payments?

Every business is different. This means that the way B2B payments work for each business will be completely different to another – even if you offer the same services or products.

It’s important to weigh up the pros and cons of each method and evaluate how that will impact each business – right from the first point of contact, to the completion of the transaction.

The six methods described above are the most popular for business-to-business payments and all have their own benefits – below is an outline of them all. 

Wire transfers benefits: secure payments, offers audit trails, suitable for both local and cross-border payments and can facilitate high-value payments.

Checks benefits: accessible, widely accepted and offer great security features.

ACH Payments benefits: the ability to manage cash flow, fast and cost-effective and extremely easy to track.

Credit cards benefits: accessible, widely accepted, offer improved cash flow management and can be used for both local and international payments.

Cash benefits: accessible and fast settlement times.

Digital payment platforms benefits: secure, provide audit trails, great for both local and cross-border payments, good for low-value payments and speedy processing.

Benefits of using virtual B2B payment methods

As you can see from above, there are many benefits to using a virtual B2B payment method. In addition to the speed at which payments can be processed, facilitating payments virtually can offer an increased level of transparency and visibility for all parties involved. This means that, at the end of the month, it’s much easier to visualise and spot exactly where funds are.

Virtual payment methods have been around for several decades, but have been prominent within the B2C e-commerce arena. However, there are many benefits of an organisation going virtual with their B2B payments. Here are three ways in which it can be an advantage:

Streamlining cash flow. Virtual B2B payments are crucial for automating and streamlining the entire payment process. Rather than struggling to keep track of checks going back and forth, digital payment options can manage and record every single transaction.

Secured payment. Digital payments are proven to have less risk of human error or payment fraud. In fact, they make up only 3% of targeted payment fraud, compared with 74% of checks.
Improved client relationship. Completing payments on time is essential for forming and maintaining good client relationships. By facilitating an efficient and seamless transaction process, it can help to build trust and a long-lasting relationship.

Where do the opportunities lie in B2B?

A lot of the world is very behind the times when it comes to B2B, meaning that many businesses are underserved and underrepresented. With industries and jobs in existence that were not around 10 years ago, it has meant that business banking hasn’t caught up.

Technology today is significantly disrupting the B2B payments arena – and it is becoming increasingly urgent that it does. Just a short time ago, only the largest multinationals were concerned about challenges such as how to pay and get paid, which meant payment solutions were geared to the large multi-national corporations.

In our current, progressively globalized business landscape, every business of every size needs to be able to make and accept payments quickly, efficiently and securely. A lot of opportunity lies in the smaller SME-mid market-level businesses looking for corporate banking/payment solutions e.g banking cards or expense cards for their staff.

An opportunity also exists in the automation of the industry – to mimic what exists in the B2C space, B2B payments need to be made faster.

What are the challenges facing B2B payments?

One of the biggest problems that the landscape is faced with, is how there is no one-size-fits-all approach. Each business has different parameters and payment rules, with some offering credit, others needing full amounts upfront and so on.

This uncertainty means that there is a much higher level of financial instability as there are no standard requirements for which B2B payments provider that businesses should use. 

This also adds an increased risk of fraud – however, there are certain procedures that can be used to minimise the impact. For example, at Carta Worldwide, we have fraud alerts that are triggered when a card breaches the rules put in place for the business card.

To Conclude

B2B payments represent an enormous opportunity for payment vendors as the world continues to digitise and become more automated. Companies ought to be seeking out the best ways to facilitate the transaction, making it easier and more accessible than before.