The business sector underpins the world’s economy. It’s estimated to make up 72% of the OECD’s total GDP.
Businesses fall into one of two categories based on what type of market they serve.
Businesses that sell goods or services to consumers are known as B2C. On the other hand, those that sell to other businesses are known as B2B.
The B2B eCommerce market is predicted to grow between 19.7% between 2022 and 2030.
This is all made possible by B2B payments.
But what exactly are B2B payments? Is it a single, easily defined category? How does it differ from consumer payments? Are its users the same?
Let’s take a closer look at these questions and more.
B2B payments definition
Business-to-business (B2B) payments are monetary transactions to fund the exchanges of goods or services between businesses.
They take place within and across all industries between wholesalers, manufacturers, retailers and service providers, small businesses, and enterprises.
They also use multiple payment methods, from cash to credit cards, and payment cycles, from one-time payments to subscriptions.
So, in short, B2B payments aren’t a single category. However, they do have one thing in common: payments between businesses.
Despite this, ‘B2B payments’ is still a useful phrase. This is because there are certain features that B2B payments tend to have in common, especially vs. Business-to-consumer (B2C) payments (see below, ‘B2B vs. B2C payments’).
How do B2B payments work?
The B2B payment process technically begins when invoices are issued and processed.
B2B payments are often paid using checks or bank transfers, including via automated clearing house, which can take a few days to clear.
Collections of these payments are relatively slow (though there are B2B collections best practices businesses can follow).
Firstly, late invoice payments are common. In the UK, for example, the average SME is chasing after five outstanding invoices at any given time, which amounts to a value of GBP £8,500.
Secondly, buyers typically need to offer net terms or financing options (see below, ‘B2B financing’) in order to gain sales.
Directly offering financing effectively amounts to sellers giving buyers interest-free loans in exchange for risk, additional administrative costs, and a negative impact on their own cash flow.
Sellers can overcome this in one of two ways: by taking out a business loan/financing for themselves or working with a third party to offer customers financing.
B2B payments with a provider
Using a third-party B2B payment solution gives businesses lower administrative costs, reduces risk, and – most importantly – increases cash flow.
It also enables them to improve their payment options by offering payment processing and financing capabilities.
Providers may charge setup and transaction fees, but these costs should be outweighed by the increased sales and order volumes that usually follow.
Specialist B2B providers also offer experience and expertise around best practices and the business payments landscape more broadly.
B2B Vs. B2C payments
B2B payments are easier to understand compared to business-to-consumer (B2C) payments.
B2C payments are typically straightforward: a consumer makes a direct payment for a set price using a debit or credit card online.
Behind the scenes, an acquirer will process the online payment and deposit funds in the account of the business.
The B2B payment process, on the other hand, is different in a number of ways.
1. Lead period
B2B payments differ from B2C payments in the period leading up to a B2B transaction or potential transaction.
Number of decision-makers
In B2C payments, the only real decision maker is the individual consumer.
In B2B, two entities are decision-makers: the buyer and the seller. Areas around payments – such as methods, terms, financing offers, etc. – often need to be agreed upon by both sides.
Furthermore, on the buyer’s end, a typical B2B purchase involves 6 – 10 decision-makers. On the seller’s end, businesses need to carry out a verification process.
Buyer time spent in-market for sale
Research by the B2B Institute found that 95% of the time, B2B buyers are not in the market looking to make a purchase.
This means that, although B2B buyers are in the market, B2B sellers must recognize they are not ready to buy at that time. So, B2B sellers must make their offering memorable.
This means matching competitors on the:
- Number of payment methods available.
- Speed and efficiency of the onboarding process.
- Net terms offered.
- Financing options.
2. Types of products or services
A small number of exceptions aside, the types of products and services available in the B2B and B2C markets are usually totally different.
This is further reflected in the fact that they are also usually sold on separate channels and platforms. This is often the case even when both are being sold by the same seller.
3. Payment methods
B2B payment methods have long favored payment solutions that are now rarely used in the B2C market.
Research we conducted with PYMNTS in 2020 found that 80% of all B2B payments are still made by check. ACH payments, wire transfers and bank transfers are also popular.
These methods are, by their nature, slower to process than B2C payments, which often rely solely on debit and credit card payments.
4. Payment terms
Unlike B2C payments, which are usually immediate, one-off purchases, B2B payments are often made with Net30, 60, or 90 terms.
Without them, many businesses simply won’t have the capital to make purchases.
5. Invoice processing & collections
Invoice processing takes time and resources. Our research also found that the average invoice takes 14 days to process.
It involves multiple steps, including verification, approval, recording in the general ledger and more.
It can be made more efficient (with less likelihood of mistakes) with automation.
The B2B payments landscape today
B2B transactions have traditionally been unique for the reasons outlined above.
However, all B2B buyers are B2C buyers, too. Our research found that 80% of B2B buyers admit their buying experiences elsewhere impact their expectations for business purchases.
Most B2B payments, therefore, aspire to be frictionless and simple experiences. In other words: as close to a B2C payment experience as possible.
But overall, this is not what B2B buyers are currently getting…
According to one study, 52% of B2B firms experience frustration with B2B online buying, and 74% of buyers would switch to a competitor if their B2B eCommerce store couldn’t keep up with their purchasing expectations.
B2B payments trends
This means there is a big opportunity for suppliers who get ahead on this front.
Though the below trends all point in the same direction, they are worth considering one by one.
B2B payment options
Digital payments are increasingly important in B2B. Our research found that 50% of all B2B buyers think vendors should offer more B2B payment options.
Point of sale (POS) integration is a great way to add consistency to your payment methods across platforms and locations.
Cross border payments also matter. Being able to accommodate the payment methods of different countries may be the only barrier to sales in many cases and the cause of multiple abandoned carts.
B2B marketplaces are digital platforms that specialize in serving multiple vendors and buyers.
From the vendors’ perspective, joining a B2B marketplace can be an effective source of qualified leads.
For buyers, it offers a convenient platform that – unlike B2C platforms – is structured to process B2B transactions.
Depending on the platform, this could include features such as cross-border payments, net terms, bulk buying discounts, automated stock replenishment, etc.
Embedded B2B payments
Embedded payments generally refer to payment options embedded into online platforms and business processes such as apps and websites.
They are essentially the ‘buy now’ buttons popularised by eCommerce platforms such as Amazon, which can be set up quickly and then used with a single click thereafter.
As embedded payments have proliferated online channels, B2B buyers – like everyone else – have come to expect it.
Millennials and Gen Z are two groups seen by many as ‘digitally native’. They are now estimated to make up 60% and 2% of all B2B tech buyers, respectively.
Gen X and Baby Boomers shouldn’t be forgotten either: they make up 32% and 6% of B2B tech buyers. Also, according to research, the latter group has increased its online usage and spending in recent years.
Whatever way you look at it, B2B buyers are increasingly likely to expect embedded payments.
Here, we are talking about the ability of businesses to offer B2B financing to their (business) customers.
B2B financing is a unique field inextricably linked to B2B payments. Like financing, more generally, when it works well, it increases conversion rates and order values.
Common types of B2B financing include:
- Bank loans.
- Venture debt.
- Accounts receivable financing.
- Invoice factoring.
- Credit lines.
Businesses generally have a choice between going to traditional banks or alternative lenders for financing.
Applying to banks can be more time-consuming and likely won’t come with the added expertise that a specialist B2B payment solution brings.
Embedded financing is financing offered at the point of sale, especially for online payments.
Being able to offer embedded financing is not unlike being able to receive payments on multiple platforms. If you can’t provide it, you might lose customers to another business.
Buy now, pay later (BNPL)
BNPL is a kind of short-term financing that enables buyers to pay for purchases in a number of installments.
It has gained popularity and created some controversy in the B2C world in recent years.
It is now increasingly being adopted in B2B, too, where some argue that it is fundamentally different.
For a start, B2C BNPL is effectively about encouraging unnecessary consumption. Critics argue that it disproportionately targets the young and encourages impulsive spending habits.
On the other hand, B2B BNPL is about preserving cash flow that can be re-invested into a business. Furthermore, its decision makers are experienced professionals, not teenagers or impulsive buyers.
The role of fraud protection in B2B payments
Security and fraud protection are key aspects of B2B payment processing. Respondents to a recent PwC survey reported losses of USD $42B in 2022.
Individuals from a business – rather than a business itself – make purchases on its behalf. This leaves B2B transactions open to exploitation by bad actors. It also makes trust an essential component of them.
After all, fulfilling orders to the scale many businesses require is expensive. Suppliers need to be sure that buyers can and will pay.
According to ‘The 2022 AFP® Payments Fraud and Control Survey’, fraud is currently at its lowest level since 2014.
However, this fact must be put in context: the same survey also found that 71% percent of respondent organizations were targeted with payment fraud attacks or attempts.
Previously, trust could be established in the onboarding process by suppliers sending representatives to visit businesses’ premises in person, for example. But in today’s online business environment, this is less common.
Nowadays, verification is a digital process that can be carried out in seconds.
B2B payments cover a range of industries, different-sized businesses and payment methods. However, they are still distinct from B2C payments in many ways.
B2B payments are often characterized by slower lead times, preferred payment methods and terms and financing and collections processes.
Despite the differences between B2B and B2C, trends in the B2C market do filter through to the B2B experience. This includes specific payment options as well as more general trends. The move away from paper checks to digital payment is the clearest example of this.
Each payment method and financing option a business offers increases its likelihood of making a sale in the short timeframe in which the potential customers are in the market.
The same goes for B2B financing options, too, such as BNPL, which many argue is fundamentally different from its counterpart in B2C.
Business payments are the target of a large number of fraud attacks and attempts each year. Having a payments provider that is ahead in the ongoing war against these is essential.
Finding the optimal balance between security, choice and customer experience is quickly becoming just as important in the B2B payment experience as it has been in the consumer market for many years.