A Guide to B2B Payments: Methods and Trends

B2B payments play a role in every business, regardless of size or industry. Whether a company is paying rent on office space or receiving client payment for raw materials, these transactions keep both businesses and the economy at large alive and thriving.

For any B2B payment, the right payment method is vital to ensuring a seamless transaction. New payment innovations enable companies to navigate the complexities of B2B transactions with greater confidence. By understanding key differences in B2B payment methods, you can capitalize on opportunities to implement efficient, flexible and secure payment processes that drive growth for your business. 

What are B2B Payments?

Business-to-business payments, or B2B payments, are a transfer of funds from one business to another in exchange for goods or services. B2B payments are typically more complex than business-to-consumer (B2C) payments because they involve larger amounts, multiple stakeholders and longer processing times. A streamlined B2B payment process helps businesses maintain healthy cash flow, avoid payment delays and develop strong relationships with customers and suppliers.

How do B2B Payments Work?

The specific process for B2B payments can vary depending on payment type, contract terms between buyers and sellers, and other factors. However, most processes include a few basic steps:

1. The buyer issues a purchase order (PO) to the seller, detailing the requested goods or services.
2. After receiving the PO, the seller generates an invoice. The invoice outlines transaction details like total cost, payment terms, and payment instructions.
3. Once goods or services are delivered and confirmed satisfactory, the buyer approves the invoice and provides payment using the agreed-upon method.
4. Both the buyer and the seller reconcile the payment in their own financial records to confirm the transaction is accurately reflected.

Top B2B Payment Methods

No matter how your business handles B2B payments, choosing the right payment method is key to optimizing speed, efficiency and security, ultimately driving business growth.

Cash

Cash payments require an exchange of physical currency between two businesses. While some businesses still accept cash payments from other businesses, these transactions are less common due to logistical barriers, security concerns and tracking challenges that prevent accurate cash flow monitoring. 

Paper Checks

Despite many digital alternatives, paper checks are still widely used in B2B payments. Check payments leave a physical paper trail but require manual processing and must be mailed or delivered in person, which can cause delays or inefficiencies. Paper checks also take several days to clear and require additional expenses like bank fees, labor costs and postage. 

Wire Transfers

A wire transfer is an electronic transfer of funds that allows businesses to send money directly from one bank account to another. They are often used for large payments and international transactions due to their speed and security. Wire transfers are available for businesses to send online through their bank, but often have higher associated fees and cannot be reversed once initiated. 

Credit Cards

Credit cards process transactions immediately, making them convenient for online and phone purchases. However, not all businesses accept credit cards for B2B payments. While businesses may use credit cards for smaller recurring purchases or employee spending, credit card payments are typically less common for high-value B2B transactions.

ACH Payments

ACH payments are electronic payments made through the Automated Clearing House network that facilitates transactions between U.S. banks. In B2B transactions, ACH payments function by debiting the payer’s account and crediting the receiving business’s account. ACH payments are typically processed in 1-2 business days and have lower fees than credit cards or wire transfers. Since ACH transactions require sharing sensitive banking information, choosing a processor with strong security and fraud protection is vital. 

Virtual Cards

Virtual cards are digital credit cards typically used for online transactions. Compared to regular credit cards, they offer enhanced security and fraud protection by allowing businesses to set spend limits, restrict merchant usage, or issue single-use virtual cards for specific transactions. Virtual cards are typically linked to a centralized platform for greater visibility into spending activity.

Digital Platforms

Businesses can use digital platforms to send and receive payments seamlessly in real time without sharing sensitive banking details. These platforms typically support domestic and international payments and may also provide services like automatic billing and account management.

Challenges Associated with Traditional B2B Payment Methods

Traditional B2B payment methods like cash or paper checks can pose operational and security challenges for businesses. There are a few potential pitfalls to watch for:

Security 

B2B payments are often fraud targets because they involve large transaction amounts. Traditional payment methods can heighten security risks because they lack encryption and rely on manual processes. For example, paper checks can be lost, intercepted or altered, resulting in stolen funds.

Transaction Fees

Payment processors and other financial entities often charge fees to cover the cost of the technology, expertise, and infrastructure needed to move transactions through the complex payments ecosystem. Businesses can reduce fees by adopting a more streamlined and customizable payment solution.

Processing Times

Traditional payment methods often have longer processing times due to manual handling and verification. For example, paper checks can take multiple days to clear. These lags can delay payment cycles and disrupt business operations.

Payment Delays

Manual errors and slow processing speeds can impact the timeliness of B2B payments. For example, a paper check that takes several weeks to clear may cause delays that affect cash flow or vendor relationships.

Poor Transparency

Payment methods like cash and paper checks pose challenges with payment tracking and reconciliation due to the lack of a traceable digital trail. This limited transparency can create issues for accounts payable and receivable teams due to insufficient remittance data.

Benefits Associated with Modern B2B Payment Methods

Today’s businesses don’t have to get bogged down in the downsides of outdated payment types. Modern B2B payment methods like virtual cards and digital platforms can improve efficiency, security, and cost management.

Lower Costs

The use of modern B2B payment methods can help businesses reduce costs from processing inefficiencies. Solutions like digital platforms eliminate expenses related to physical check handling while simplifying the management and resolution of payment errors. 

Speed and Security

Modern B2B payment methods offer faster processing speeds and enhanced fraud protection. For example, virtual cards enable real-time transactions and generate unique tokens for each transaction to prevent unauthorized use. Using an advanced payment processor for ACH and EFT can also help secure your transactions with top-tier fraud protection. 

Improved Customer Experience

Payment by digital platform or virtual card can minimize friction in a B2B transaction. By offering digital payment options, businesses can provide greater convenience, control, and flexibility for customers during the payment process. 

Efficient Accounts Payable Process

Modern payment methods can improve the accounts payable process by reducing inefficiencies from manual or paper-based procedures. Digital payments create instant transaction records, helping minimize errors and delays from manual data entry while improving visibility of payment status and history.

Streamlined Accounts Receivable Process

Payment methods that offer real-time payment tracking and automatic reconciliation streamline the accounts receivable process. Digital platforms and virtual cards provide detailed remittance data to facilitate accurate payment and invoice tracking while reducing the need for manual follow-up. 

B2B Payments Trends

The B2B payments landscape is constantly evolving. Keeping up with the latest innovations can help you take advantage of new opportunities to streamline processes, control costs and ultimately expand your business. 

Buy Now, Pay Later (BNPL)

Buy Now, Pay Later allows buyers to pay for purchases in installments over a designated period of time. Originally used for B2C transactions, BNPL is gaining popularity in B2B purchases, enabling businesses to improve cash flow by paying for goods and services in increments instead of upfront. Compared to B2C transactions, BNPL for B2B usually involves additional requirements—like more in-depth credit checks and transaction fees for buyers—due to the size and complexity of transactions. 

Pay Your Way

New flexible payment options are empowering businesses to eliminate the inefficiencies of traditional B2B payments. For example, a service like Plastiq Accept allows vendors to pay with a credit card while the business receives funds via ACH or wire transfer. This helps businesses execute faster transactions, reduce merchant fees and improve reconciliation while maximizing convenience for customers. 

Digital Payment Options

The rise of digital payment options has enabled faster processing, enhanced security and more robust data management in B2B payments. Digital payments support real-time transactions and often streamline international payments, improving efficiency for businesses. 

Marketplaces

B2B marketplaces are digital platforms that facilitate e-commerce transactions between businesses. Marketplaces oversee all aspects of payment processing, integrating with payment providers to offer flexible payment options and monitor transaction security. 

1-Click Payments

1-click payments allow businesses to make purchases instantly using pre-saved payment information. While more common in business-to-consumer (B2C) transactions, 1-click payments are gaining traction in B2B payments for their ability to expedite processing and streamline recurring orders. 

AR and AP Automation

More businesses are implementing AR and AP automation to minimize manual errors and enhance their B2B payments. AR automation accelerates invoicing and payment tracking to improve cash flow visibility. AP automation solutions help ensure on-time outgoing payments and strengthen vendor relationships. Both types of automation enable businesses to lower operational costs, reduce processing times, and ensure consistency across accounting processes. 

Streamline B2B Payments With Priority

An effective B2B payment process is crucial to a business’s financial health and growth. By considering new B2B payment trends and methods, businesses can better facilitate secure, accurate, and on-time transactions. 

Priority’s suite of payables solutions is here to help, offering integrated tools for automation and flexible payments to streamline your payables process.