B2B payment methods 101

People sometimes say, “Change is the only constant.” That certainly resonates in the financial world, where major shifts in buyer behavior, advances in technology and other sweeping factors shape what “normal” looks like for B2B — business-to-business — payments. Across the globe, from small businesses to large-scale corporations, merchants are adjusting their approaches to conducting business transactions.

Keeping up with those changes can be tough. But trends show it’s worth it (especially for smaller and mid-sized businesses). Companies moving from spreadsheets to automated B2B payment systems are enjoying smoother operations. They’re benefiting from better workflows, clearer reporting and stronger cash flow.

Wondering if it’s time to switch? Keep reading to learn more about B2B payments, upcoming trends, and how the right tools can streamline your processes and help you get paid faster. Let’s start by breaking down the differences between B2B and business-to-consumer (B2C) payments.

What are B2B payments vs B2C payments?

B2B transactions are basically businesses paying each other, unlike everyday B2C payments or when you split the dinner bill with friends. Now, picture this. In 2023, business payments hit around $80 trillion, and they’re on track to exceed $174 trillion by 2030. These transactions are in a league of their own, with larger amounts, detailed payment terms and a lot involving ecommerce — think buying without being face-to-face.

Now, with fintech on the rise and everyone wanting more, things are shaking up. Digital payments are on the rise, everything is shifting to the cloud and the tools we use are getting sleeker and smarter. So, while B2B payments might sound a bit dry, they’re actually on the frontline of some pretty exciting changes.

Common digital B2B payment methods

Credit cards: In business, credit cards and debit cards are becoming common payment methods due to their lightning-fast processing time. But keep in mind, they bring processing fees and may not be ideal for larger business transactions.

ACH/eCheck: ACH transfers, or echecks, move money electronically via the Automated Clearing House network. They’re the digital version of a paper check and process faster than paper checks do, helping to improve your cash flow.

Wire transfers: Wire transfers send money electronically across a network of financial institutions worldwide. While faster than ACH payments, wire transfers usually have higher transaction fees.

Digital wallets: A digital wallet keeps your payment methods in one secure, digital location, eliminating the need for physical cards. Popular digital wallets include: Paypal, Apple Pay, Venmo and Google Pay. The use of digital wallets is on the rise, with an expected annual growth rate of 22% leading up to 2023.

Trends shaping the future of B2B payment solutions

The drive to grow businesses while keeping customers happy is shining a light on the need for more streamlined operations, particularly in revenue collection, an area many businesses still navigate with outdated methods. Sometimes companies have a hard time spotting areas for improvement because money is still rolling in. But refining how they handle outstanding revenue can really open the floodgates: better cash flow, happier customers, clearer reporting and more time for the team to tackle forward-thinking projects.

In the realm of B2B, digital payments are gaining momentum, driven by the need to meet customer expectations and seize new business, all while cutting down on security risks. Remember how paper checks were always a go-to option for business payments? That’s all about to change.

Even though it’s taken a while for businesses to get on board with digital, we’re expecting a whopping 80% of B2B transactions will switch from paper to digital by 2025. That means quicker, smoother transactions for everyone.

Checks aren’t just slow —they’re a security risk. An AFP study found that 63% of businesses faced fraud through checks, with 44% unable to recover their losses. It’s clear: digital payment methods are not just the future; they’re the now, offering both speed and security.

B2B businesses are moving towards the faster, more secure payment options. Over 6.6 billion ACH B2B transactions were made in 2023, which was a 10.8% increase from 2022.

The push towards digital payment options

We are moving toward a world that prioritizes digitization, where technology is being used in a variety of ways to improve business processes. This trend was accelerated with the COVID-19 pandemic, causing businesses to adapt quickly in order to conduct business virtually and support a remote workforce. But with businesses opening back up, it is unlikely companies will switch back to traditional methods because digital payment options can be faster, easier and more secure.

Beyond the pandemic’s impact, the transition to a new generation of buyers and decision makers is set to reshape business practices in the future. By 2025, millennials, known as the first generation of digital natives, are projected to make up roughly 75% of the workforce, steering the direction of how business will be conducted in the years ahead.

Cristina Gomez, Managing Vice President of Gartner said,

Are you streamlining payments through automation?

Think of automation as a helpful tool for your business, especially when dealing with payments. Businesses that process payments manually often find themselves waiting longer to get their money — about 30% longer — compared to those using automation. This tech helps cut costs, reduce mistakes and increase cash flow. Without it, managing payments can get really tricky and time-consuming because of the chance for human error. Using automation means less hassle and faster access to your money.

• Level 2 and Level 3 data handling

  When you make a credit card payment, it gets put into one of three buckets: Level 1, Level 2 or Level 3. The idea is pretty straightforward — the more information you share about the sale and who’s buying, the more the credit card companies trust the transaction. It’s like giving them a clearer picture, so they worry less about payment fraud or chargebacks.

  To sweeten the deal, credit card companies often charge less in fees for transactions that are packed with Level 2 or Level 3 details. It’s their way of saying thanks for making their job easier in spotting any payment tricks. Think of each credit card payment as coming with its own mini-background check. The more details it carries, the smoother and safer the journey.

• Surcharge

  Surcharge can allow merchants to offset the cost of credit card processing fees by adding an additional charge for credit card payments.

  Keep in mind that surcharging is prohibited in certain states. Merchants should seek guidance from legal counsel to ensure they’re complying with applicable laws of the state and/or jurisdiction their business is located in.

• Recurring payments

  For business-to-business payments, it’s common to have returning customers who make recurring payments. To make this easier, once a business gets the payment details (like a credit card or bank information for ACH payments), they can set everything up so that money automatically gets sent over at the right time, every time.

Challenges in adopting digital B2B payment processing

With the rise in electronic payments, there is also a rise in payment fraud. The United States is the global leader in data breach costs for the 13th year in a row, reaching the highest cost of $9.48 million.

Payment security should be a top factor for companies evaluating a payments platform. Merchants accepting credit card payments are responsible for protecting the card data of their buyers. If a merchant falls victim to a data breach, they could be at risk of fines, higher processing costs and loss of future business.

When you change how work is done, your team might hesitate to accept it. Introducing new steps or tools can be especially challenging in bigger businesses. The trick is to make these changes without disrupting everyday tasks. It’s crucial to pick solutions that simplify work, not complicate it with the wrong tech.

Finding that solution and partnering with the right payment processor can help the transition to automated and digital B2B payments much easier.

Solving the challenges of B2B transactions

When selecting the right B2B payment processing solution, companies should evaluate how it will streamline processes not just for them, but also for their customers. They should approach this through the perspective of:

• Security: Payment providers leverage cutting-edge technologies such as encryption, tokenization, multi-factor authentication and cloud storage. These tools help secure payments and aid companies in reducing their risk exposure while also narrowing the scope of PCI compliance requirements.

• Flexibility: For businesses in the B2B space, it is important to consider a payment provider that has built functionality with B2B transactions in mind. B2B payment systems should support things like recurring customers, longer payment cycles, multiple payment options, hosted checkout pages and ecommerce extensions.

• Scalability: Merchants should think about how their payment solution can grow with their business. It’s important for a company to assess not only the features they require presently, but also those they may need down the line as they expand.

• Integration: Businesses should examine how payments work across various departments to enhance overall business insights. To tap into real-time data and improve financial understanding and decision-making, merchants should seek payment providers that offer seamless integration with their accounting software or ERP system, helping to streamline workflows, ease reconciliation and enhance operational efficiency.

Are you ready for the future of B2B transactions?

The direction of B2B transactions is being shaped by an increasing demand for enhanced efficiency, stronger security and better customer satisfaction. For companies looking to stay ahead and continue expanding, adjusting to these shifts is no longer a choice, but a necessity. Fintech firms are pivotal in easing this adaptation, providing businesses with solutions that are both simpler to implement and more secure. If you have questions about B2B payment solutions or are interested in understanding how Heartland can support your needs, don’t hesitate to drop us a line today.

Disclaimer: ©2024 Heartland, a Global Payments company. All trademarks and service marks contained herein are the sole and exclusive property of their respective owners. Apple Pay® is a trademark of Apple, Inc. Google Pay is a trademark of Google, Inc. All trademarks and service marks contained herein are the sole and exclusive property of their respective owners.

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Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us