B2B payments part 1: Overview of B2B payments solutions

In the days before ecommerce, making B2B payments meant handing over cash, writing checks, or invoicing and collecting funds. As consumers became more comfortable with online payment methods, businesses began to follow suit.

According to a report by McKinsey & Company, two-thirds of corporate buyers rely on digital and remote channels as part of their purchasing processes.

All this to say, B2B sellers need to adapt to the future of business payment methods. But knowing how to properly set up B2B payments in a digital space can be challenging. In this blog post, we’ll cover some of the foundational elements, including:

1. What are B2B payments?
2. Common types of B2B payments
3. Considerations for B2B payment solutions
4. B2B payment solutions for online businesses
5. Alternative online payments for B2B ecommerce
6. Benefits of using B2B payment solutions
7. Are online payments right for your B2B company?

At a basic level, a B2B payment is any transaction between two merchants. However, there are a lot of factors that determine how B2B payments are made, making them significantly more complicated than consumer payments.

For example, B2B transactions may include one-time purchases, subscription services, recurring orders, or pass-through transactions. How payments are made can vary for different businesses and depend on a variety of factors, including business type, tax exemption considerations, invoicing processes, business locations, and more.

Six of the most common types of B2B payments are:

• Cash, typically for smaller businesses and transactions
• Checks, either electronic or paper
• Wire transfers directly between business bank accounts
• Electronic bank transfers that go through an automated clearing house (ACH)
• Credit cards or lines of credit
• Online payment platforms

Each method has benefits and disadvantages, with digital payment processes becoming a clear choice for security — though not entirely without risk of their own. Additionally, as business trends follow consumer trends, digital payments are becoming more and more popular for their convenience and speed.

When choosing which payment systems to implement for your business, it’s important to balance several factors, such as:

• What products you’re selling
  
  Different products create different payment expectations. For instance, people tend to be more comfortable paying for physical goods upfront, but like to see the quality or benefit of services before signing a check (figuratively or literally).
  
  The price tag of your products can also influence how people expect to pay for them, with big-ticket items more prone to longer-term payment plans.
  
  In some cases, regulations on the product itself may determine how payments are made. For example, because marijuana is still illegal at the federal level, banks are barred from processing payments, so they’re handled strictly in cash.
  
  
• Whether you can extend credit
  
  If you plan on invoicing your buyers, you’ll need to determine how to operate with a delay in payment. If you’re paying for labor, materials, hosting, or shipping on products, setting up a net 30 or net 60 payment plan means a significant delay before you can recoup your costs.
  
  You’ll also need to factor in the time and expense of managing payments: sending invoices, reconciling debts, and collecting on late payments. The narrower your margins, the trickier it can be to stay afloat when issuing credit to your buyers.
  
  
• Who your buyers are
  How you set up payments for your customers may in fact depend on who it is you're selling to:

○ If each of your sales tends to be a one-time purchase, you may need something faster and shorter term than if you sell to more long-standing clients.

○ Smaller businesses may be more flexible with their transaction processes than enterprises with established payment methods, accounts payable departments, or procurement departments.

○ You may also have special considerations and requirements if you sell to nonprofits, manufacturers, or government agencies.

• Where you do business
  You may have to consider different payment options, depending on whether you sell to only local businesses, if you transact across state lines, or if you work with international customers.
  
  After all, cash payments or invoicing may be fine for a merchant down the road, but sales get infinitely tricker when dealing with foreign currencies.
  
  
• What channels you sell through
  
  You may need different payment options depending on whether you travel to where your customers are, if they come to your storefront, if you run an ecommerce store, or if you have a combination of sales channels.

There are myriad options for collecting payments for ecommerce transactions[1] . Which option, or options, you choose depends on:

• The type of ecommerce business you have
  

○ Marketplaces like Amazon, Etsy, and Walmart usually include their own in-built payment system.

○ Template sites like Squarespace, Wix, or Shopify usually offer a variety of plug-ins from common payment platforms or their own proprietary system.

○ Custom-built ecommerce sites can include bespoke payment options or plug-ins from PayPal, Apple Pay, Stripe, Square, and more.

• The sales channels you use

○ If you only sell through your website, you can choose whichever payment option makes that process easier.

○ If you have a multichannel or omnichannel sales strategy, you need to determine which payment option works best for your entire retail ecosystem.

• Where you sell

○ If you sell internationally, you’ll need a system that can process payments and manage cross-border taxes as well.

You’ll also need to consider the impact certain factors will have on sales tax compliance. For instance:

• Selling online often means selling across county, state, and even country borders. When you sell into other tax jurisdictions, you may create tax obligations to register, file, and remit in those locations.
• Different online properties can create different obligations. Some marketplaces are responsible for collecting and remitting sales tax on behalf of merchants while others aren’t.
• Some online payment systems include tax calculation, some offer it for an additional fee, and others require you to implement a sales tax solution.

The way we pay is changing on the ecommerce frontier, for both B2C and B2B companies. Buyers prefer more agile digital payment solutions, with options like Apple Pay, Amazon Pay, and PayPal becoming increasingly popular.

Mobile wallets, third-party financing, and cryptocurrency are three online B2B payment options[1]  companies should keep an eye on to stay competitive in the coming years.

In the world of online shopping, convenience is often as important a consideration as price or customer service. Finding the right solution for your business and your customers can help you in four key ways:

1. Improving customer experience
Vendors offering B2B buyers payment options beyond credit cards can improve the business relationship. In addition to adding online payments, look for ways to offer custom packages that allow customers to pay the way they want — and choose packages they can afford.

2. Supporting business growth
Using the right payment systems is more than a nice-to-have feature; it’s a growth strategy — when you make it easier for companies to pay, you make more sales. Not sure what payment options your customers want? Create a survey using a mobile form to ask customers and prospects what payment options they’re most comfortable using.

3. Saving time and money
The B2B payment process is complex — between invoices, credit checks, and mountains of paperwork, it can take weeks for some businesses to process payments. Using mobile wallets, digital payments, or even third-party financing can allow businesses to close sales and get access to cash much faster.

4. Generating better insights
You can't fix what you don't track. From digital payments to invoicing, machine learning tools are providing companies with access to far more accurate data about inventory, creditworthiness, and payments. This data speeds up the payment process, but it also offers companies access to far more data, which they can use to segment their audience. 

Is it worth spending time to figure out if offering online payment options like cryptocurrency is the right move for your B2B business?

It depends.

The reality is, the online payment industry is changing, and the disruption has the potential to create opportunities for B2B businesses that are paying attention. But not every payment option, traditional or digital, is the right fit for all B2B companies — or their customers.

There are several factors to consider before deciding what payment methods make the most sense for your business. Before you decide, consider these three questions:

1. What are the payment fees and expenses? 
   Take an in-depth look at the expenses and transaction fees associated with your chosen platform before signing up. Most payment platforms charge a percentage fee, but they may tack on monthly or processing fees, or even charge different rates for small versus larger payments. 
   
   
2. Does it work with other tools your customers use?
   As more of the business world goes digital, there’s an increased need for tools that integrate — data analytics programs, CMS, ecommerce tools, and a variety of other programs must all work in sync. Make sure the payment processor you add to your ecommerce platform works with the systems most of your customers use.
   
   
3. Are your current payment options working?
   Before you invest time and money to add a new online payment trend, take the time to ask what benefits you’re hoping to see. Do customers want a new payment option? What features are lacking? These answers will help you decide which online payment platform is right for you. 

As more and more businesses become more reliant on technology and automation, companies must find ways to keep up with changing trends.

Online payments, mobile wallets, cryptocurrency, and other electronic payments are no longer just plots in sci-fi novels — they’re fast becoming legitimate options for B2B companies in a variety of industries, including tech, manufacturing, and health care.

Companies that aren't willing to adapt to the changes in payment technologies are unlikely to survive. Those willing to adapt will find it easier than ever to turn prospects into long-term customers.

This is the first in a three-part series on B2B payments. Check back in with the Avalara Tax Desk for

B2B payments part 2: Accepting online payments

B2B payments part 3: Your guide to ecommerce payment processing