What Is B2B Payment? Providers, Practices And Limitations

When a company invoices another it’s called Business to Business, or B2B transaction and can refer to any use of a payment system between two businesses. There are a variety of types to consider when planning to use B2B payments and while a large proportion of processes can be automated, there’s still hard copy options.

In this article, we'll discuss how B2B Payments differ from Person to Person (P2P) or Business to Customer (B2C) payments, various types available, providers of these services, the practices used to ensure smooth trading and the limitations of using B2B Payments.

The Various Kinds of B2B Payments

With the rise of digital data and autonomy, it’s never been easier to pay for services online. A large majority of B2B Payment methods are completed online, but we'll discuss physical forms of payment alongside more recent developments.

Credit cards are the most commonly used format for B2B payments. They’re convenient, widely accepted and inexpensive for the buyer, if managed correctly. Paying off the bill before interest rates activate makes a credit card act more like a debit card, ensuring fast and efficient payment without added fees.

Automated Clearing House (ACH) Payments is an America-exclusive form of automated payment that is preferred by many companies. Payments for goods and services move between specific bank accounts, can be integrated into business plans to visualise profits or expenditure and are summarised on monthly statements. A limitation for ACH payments is cut-off time; payments are made in batches through the day and as such, once the bank concludes their final batch, any further ACH payments have to wait for the following day.

Wire transfers are a direct movement of funds often used in international B2B payments and can be either digital (through accounts) or in cash (to a cash office) for collection. The money is immediately available, quick to send and convenient for all parties involved.

Digital platforms for the secure transfer of funds, such as PayPal, Venmo, and Google Pay, have the advantage of mobile device compatibility and can be used anywhere to transfer funds between their own accounts or other accounts with ease. It must be noted these also usually incur fees for the transfer, though they are usually a small cost for security.

Despite the digital forms of payment available, many businesses still use paper checks to conduct local business, simply because they are traceable, difficult to forge and don’t require bank accounts to access payment, nor need to be deposited immediately.

Finally, Cash remains the fastest way to secure goods and services in B2B Payment; instant gain of funds can encourage businesses to provide their products at a reduced price, there’s no fees involved and the exchange is instant. There are numerous drawbacks to paying in cash however: the paper trail ends at withdrawal, exchanging large amounts of physical money can be clumsy and leave a temporary negative cash flow balance for a quarter.

Benefits of B2B Payments

Mobility is huge, especially in the modern market. Being able to make business deals, transfer funds and complete transactions while commuting to and from work, travelling between other engagements all from a mobile device revolutionises the traditional, stale meeting scenario. Embracing motability is embracing fast business, and fast business makes fast money.

This flexibility leads to increased cash flow, which can make a business reliant on the profits from each transaction more stable. Financial advisers can also provide informed advice based on current income rather than making monthly projections, allowing costs to be quickly paid off.

Finally, companies stand to save time and money by reducing the need for repetitive deposition of checks and management. Employees can instead focus on other tasks and potentially add value to the company, rather than use their time on clerical tasks.

The Limitations of B2B Payment

Perhaps the biggest limitation in B2B Payments is the sheer variety of services available. If one company prefers PayPal while another uses Venmo, there’s an immediate incompatibility for the transfer of funds that can incur delays, fees and discontented customers. In these cases direct payments such as wire transfers can be used, but difficulty deciding on a payment method can cause companies to avoid dealing again in the future.

Transparency is also an issue. Businesses like to showcase their money and services, particularly to each other if they rely on B2B Payments. Maintaining digital transactions makes any business transactions harder for other companies to notice, reducing the reach of further transactions within an industry. It also makes public image hard to manage, as their finances and trade deals are not immediately available for scrutiny.

When relying on third party payments, there is always a risk of security breaches. Instances of cyber crime, data theft and identity theft have risen substantially in the last decade, with very few fail-safes or protective legislation in place should an account become compromised. A single error by a company or employee could see a company account wiped out and as such, many businesses are hesitant to commit to electronic and automated services.

Time is money in business, especially when it comes to B2B Payments. “Because the process can be complicated and require numerous exchanges of funds, some payments can get delayed. In this case, the ease of B2B Payments becomes a hindrance as customers and business owners alike wait on processing, usually for a fee, which can be discouraging in the future,” says Diana Oliver, a business writer at State Of Writing and Paperfellows.

The B2B Frontrunners

With so many providers available, it can be difficult to decide which e-commerce platform is right for you. Here we'll discuss prominent platforms, the services they provide and fees you may incur:

Paypal

A universal payment platform with a reputation for strong security and ethical practices.

Advantages: Worldwide acceptance, "Bill Me Later" Express Checkout and Card Reader, even on mobile.

Limitations: Not all online shops have integration and customer service can be poor, leaving funds held back for long periods without satisfactory cause. Business accounts start at $30 a month, with fees incurred if currency has to be converted or some payment methods.

Transferwise

A UK based money transfer platform that specialise in worldwide payment transfers, believing your money should have free movement for services.

Advantages: Easy to use, worldwide payment that can handle large fast, efficient transactions at an affordable rate, compared to competitors.

Limitations: Digital currency, such as Bitcoin, is not included, you need an account to receive funds and the user debit card isn't accepted in all countries.

Square

Designed primarily for easy money transfers with no long-term contracts, relying on single-use fees.

Advantages: The app and hardware are free, hooks to any mobile device, has no monthly fees and provides in-depth sales analysis of sales, profits and payments.

Disadvantages: Direct deposit fee is high compared to competitors, and this fee has been steadily rising. It's also difficult to switch accounts at multiple stores.

Conclusions: Shop Around For Success

"It's easier to commit to a contract than leave one. Be sure to thoroughly research each provider before investing time and money," recommends Kyle Taylor, a business writer at OXEssays and Essayroo.

The market is saturated with opportunities for digital and automated services to make B2B Payments and exchanging money for goods and services fast, secure and effortless. With so much variety in services and fees, it would be wise to investigate each avenue with care before deciding which service is right for your company.