By 2025, approximately 80% of B2B transactions are projected to occur digitally, according to Gartner’s predictions. This highlights the growing importance for B2B businesses to prioritize digital commerce as a strategic focus.
However, many businesses remain hesitant to adopt online sales, primarily due to concerns surrounding complex payment procedures, high transaction fees, and security issues.
In this article, we aim to debunk misconceptions surrounding B2B eCommerce payment processing while discussing various types, trends, and solutions for B2B payments. Whether you’re interested in expanding your online presence through digital B2B payment options or simply curious about the advantages of online payments, continue reading to gain further insights.
B2B payment, also known as business-to-business payments, pertains to the exchange of funds between two businesses in return for goods or services. The payment can be conducted using different approaches, including wire transfers, credit cards, and online payment platforms.
Within the realm of eCommerce, a B2B payment system plays a crucial role in the smooth functioning of any electronic business operation. Implementing effective B2B payment solutions can facilitate the optimization of financial processes, enhance cash flow, and strengthen business relationships.
In B2C retail, payment processing is relatively straightforward. Customers typically expect to pay immediately during the checkout process and are familiar with using credit cards. Moreover, eTailers can offer various payment options through payment gateway services, including Paypal, Apple Pay, Amazon Pay, and more.
On the other hand, B2B payment methods involve a different approach. Buyers in B2B transactions are accustomed to negotiating payment terms along with prices. It is common for options like net 30 and net 60 (allowing payment within 30 or 60 days) to be offered, often with discounts for early payment.
B2B customers prioritize long-term relationships and are not surprised when a credit check is conducted as part of the initial process of establishing such a relationship.
When it comes to B2B payment options, several considerations need to be taken into account. Buyers often prefer the convenience of paying for multiple invoices simultaneously. In specific industries like healthcare, it is essential to address HIPPA compliance concerns.
Since prices and payment terms can vary based on individual customers or contracts, flexibility is crucial when offering payment options. Here are the most prevalent traditional payment methods to consider.
Based on a survey conducted among financial professionals, paper checks remain the primary payment method utilized in B2B transactions, accounting for 51% of all B2B payments. In this process, the buyer issues a purchase order, and the seller subsequently issues an invoice. Unfortunately, this method is time-consuming, with the average B2B payment lifecycle in the US being 34 days.
However, even this traditional approach is susceptible to errors. According to Comdata, the error rate for B2B payments stands at 18%. Moreover, there are associated costs with using paper checks, ranging from $4 to $20 per check. Despite conducting business online, implementing a B2B eCommerce platform with a flexible workflow engine enables businesses to accommodate traditional billing methods and provides customers the option to pay via paper check.
ACH, the digital counterpart of a paper check, offers several advantages. It has become a widely utilized B2B e-payment method, with ACH transfers accounting for 69% of the total value of transactions in 2020.
ACH is preferred by buyers due to its convenience. Sellers, on the other hand, appreciate ACH because it allows them to access funds more quickly (often within a day) compared to paper checks, and the associated bank processing fees are typically lower. Both buyers and sellers can initiate ACH transactions, offering flexibility in payment initiation.
Similar to ACH, a wire transfer is a B2B payment method that facilitates the transfer of funds from one company’s bank account to another company’s bank account. It provides a high level of security comparable to physically delivering cash, but with the added advantage of practicality.
Unlike ACH transactions that are processed in groups, wire transfers are processed individually. Wire transfers are commonly utilized for significant transactions, but they do involve higher bank fees compared to paper checks or ACH transfers.
Millennial buyers are familiar with using credit cards for online purchases in their personal lives, which makes them more open to using credit cards for business transactions compared to Baby Boomers.
When it comes to higher-value invoices, the likelihood of settling them with a credit card decreases. However, some buyers still prefer using credit cards as it provides them with the flexibility to pay on their own terms. Moreover, digital advancements have made invoice financing and lines of credit available in a digital format.
In the face of modern commerce’s growing need for flexibility and responsiveness, the rapid expansion and distribution of supply chains have posed significant challenges in ensuring timely transaction completion. Consequently, for a B2B electronic payment system to achieve success, it must tackle some of the most pressing challenges present in B2B ePayments today.
Top-tier eCommerce platforms prioritize providing a seamless payment experience for their customers. While it is expected for them to handle standard credit cards and ACH payments, a reliable online payment service should also accommodate corporate and purchasing cards, commonly known as P-Cards, along with their specific requirements.
P-Cards are gaining significant importance in online B2B transactions, particularly as more businesses transition away from traditional paper-based methods. However, given that B2B purchases are typically larger and more frequent compared to consumer credit card transactions, businesses are actively seeking ways to qualify for the lowest Interchange rate. The Interchange rate refers to the fee charged by card issuers to process a transaction. To achieve favorable rates, buyers must input detailed information about their purchases, including product codes, descriptions, and tax amounts, in order to meet the Level 3 Interchange requirements that offer the most competitive rates.
Furthermore, it is crucial for online payment services to support other B2B payment methods, such as paper checks. Although their usage has significantly decreased (as previously mentioned), checks still play an integral role in the B2B landscape. Additionally, certain industries, such as medical and legal sectors, still prefer using checks over alternative payment options.
B2B sellers commonly offer credit options, volume-based pricing, and various discounts to their buyers, both offline and in their e-commerce stores. Consequently, online B2B payment services differ from their B2C counterparts, as they cannot solely rely on customers entering their payment information upon completing their shopping. Instead, these services should be capable of storing order details and generating invoices as necessary, even if it’s several months later.
Furthermore, the payment service needs to possess functionalities such as automated payment tracking, reminders, credit checks, and the ability to retroactively apply discounts to customer orders in certain cases. These features aim to provide B2B customers with a familiar experience, while also delivering the speed and convenience associated with online stores.
In B2B transactions, it has become increasingly common for multiple buyers to be involved in a single order. For instance, one employee may be responsible for initiating the order but must then transmit the information to another employee who has the authority to make the payment. In more complex scenarios, a seller may receive orders from multiple departments within a single company, each utilizing a different payment method. These situations can easily cause delays in the payment process and, in some cases, result in cart abandonment.
To address this issue, an effective online payment system should have the capability to track and store orders, while also providing customers with a secure means to transmit them across departments for payment approval. This functionality helps streamline the payment process, minimizing delays and ensuring a smoother transaction experience.
Lastly, ensuring data security is of utmost importance in the realm of online payments. This is particularly crucial in B2B e-commerce, where transactions occur frequently and any breaches could lead to the compromise of sensitive data belonging to both buyers and sellers. Therefore, it is essential for payment systems to prioritize safety and security measures.
One effective approach is to implement a tokenization solution, which involves encrypting sensitive payment data and substituting it with a token. This tokenized data is securely stored in a separate database, away from the online store. Not only does tokenization enhance security, but it also offers the advantage of enabling customers to make one-click orders without the need to repeatedly enter their payment information each time. Tokenization provides a robust safeguard for sensitive data while simultaneously offering a convenient and streamlined purchasing experience for customers.
In conclusion, the evolving landscape of B2B e-commerce payments demands the adoption of digital solutions to ensure competitiveness. Fortunately, there are existing platforms and readily available solutions like BigCommerce, Magento, and even Shopify that support the diverse range of payment options discussed.
Our Access Solutions’ team had successfully executed numerous projects in this domain, as showcased in our Portfolio section.
To navigate this transformative landscape effectively, we encourage you to reach out to our experienced experts for personalized advice and guidance. Embrace the possibilities of digital B2B payments and let our team help you unlock the full potential of your business.