Published 14th June, 2022
Last updated 3rd January, 2024
An overview of B2B payments
With more and more B2B transactions taking place online, the B2B payments landscape is changing, catering to the needs of businesses and their business buyers. The shift towards digital B2B payments can partly be explained by the predicted value of B2B e-commerce, with the European market expected to reach $1.8 trillion by 2025.
The development of B2B payment technology is late to the party, however, compared to its B2C counterpart. Unlike B2C payments (between Amazon and a consumer for example) B2B payments are inherently more complex.
Differences between B2B and B2C sales like higher order value and longer sales cycles make B2B payments more challenging. B2B buyers also tend to have more specific requirements than their B2C counterparts and often include additional stakeholders in the purchasing decision.
However, B2B payment technology has come a long way. Newer solutions like B2B buy now, pay later (BNPL) now offer sellers a host of advantages compared to traditional B2B payment methods like embedded finance, payment reconciliation, and the offloading of credit and fraud risk.
And yet many businesses still rely on traditional B2B payment methods that don’t meet their, or their buyer’s needs. For example, 33% of B2B payments are still made via paper cheque in the US and Canada.
But it’s not for lack of want. 59% of American businesses believe that B2B transactions will benefit the most from faster and real-time payments. And the truth of it is, while the use of paper cheques is still surprisingly high, there’s been a drop of 9% since 2019.
The importance of fixing B2B payments also shouldn’t be understated. The European Commission believes that solving B2B payments will create about 6.5 million jobs in the EU zone alone. To put it another way - jobs, livelihoods, and legacies are at serious risk.
Types of B2B payment methods
Before we go any further, let’s do a quick sense check (no pun intended) of the most common types of B2B payments. We’ll be looking at how popular they are, as well as some of the challenges.
Credit card
For businesses, credit cards have been a popular way of making B2B purchases. Given they offer access to capital, they ease cash flow and make it easier to buy. But they can be expensive for larger orders. Especially when compared to wire transfer or ACH payments. Deloitte, for example, found that 35% of businesses say high processing costs is a major challenge when dealing with traditional payment methods.
More recently, virtual cards have risen in popularity. In fact, the international B2B virtual card payment market is expected to reach $553B by 2024. Offering a more secure payment method with lower processing or transactional fees has the potential to solve a lot of the pain points of traditional cards for B2B payments.
Paper cheques
Paying with cheque for B2B transactions has been on a slow decline over the past decade. Surprisingly though, 91% of fintech leaders say their organisations still receive cheque payments from their customers. In order to make a payment by cheque in the B2B sector:
- An invoice is typically required. Once the invoice is received, it’s passed on to the accounts payable (AP) department of the buyer.
- The AP team then needs to use a pre-filled paper cheque book that contains their bank details to write the appropriate amount and send the cheque to your business by post.
- Your accounting team would then deposit the paper cheque at the bank or use a mobile app.
- Once the check is processed, the issuing bank of the buyer will release the payment into your merchant account.
You can see, given that process, why cheques have declined in popularity.
Wire transfer
Wire transfers move money electronically from one business bank account to another. Interestingly, wire transfers represent less than 1% of the total number of B2B payments, but make up 93% of the total amount since they are often high-value payment transactions
The primary benefit of processing B2B payments through a wire transfer is the speedy arrival of funds, typically on the same day. However, there is some risk of human error since it is the buyer's responsibility to enter the payment information accurately and make the payment before the invoice due date.
Electronic funds transfer (EFT)
Electronic funds payment is a broad term that can also include direct debits, mobile pay, and digital wallets. For B2B though, EFT payments also include wire transfers, Accounts Clearing House (ACH) payments and SEPA (Single Euro Payment Area) payments.
ACH payments in B2B have been on a steady growth rate since 2013 and in 2022, $5.94 billion was processed. Based in the USA, this payment type typically takes longer than wire transfer to send (4 to 5 days), but businesses often schedule payments to arrive when the recipient expects it.
Digital payment platforms
Fuelled primarily by COVID-19, more and more businesses have started using digital payment platforms as a means of sending and receiving payments. These include ewallets, online payment solutions, and buy now pay later (BNPL) services.
While BNPL services are far more developed in the B2C world, using BNPL for B2B payments has exploded in popularity recently leading to huge innovation.
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