The Ultimate Guide to B2B Payment Processing
The business-to-business (B2B) payment processing infrastructure has evolved so rapidly that defining a solid, consistent, and secure payment strategy appears overwhelming. There are too many options, especially as digital payments continue to rise.
However, optimizing your payments workflow is one of the best investments you can make in your business. An efficient B2B payments system frees up cash flow, decreases late payments, and saves time for your accounts receivables (AR) team. It can also boost your customer satisfaction.
In this comprehensive guide, we'll cover everything you need to know for a well-oiled payment system, including:
- How to setup B2B payments
- Processing time
- Current popular payment methods
- Selecting a B2B payment platform
- B2B payment strategies to consider
- Payment processors, gateways, and terminals
- The cost of B2B payment processing
- And more
How Does the B2B Buying Process Begin (and What Does This Have to Do With Processing?)
Every buying process begins with realizing you have a problem. But, the B2B procurement and purchasing process often requires more review and consideration. After all, your customers have their deadlines, budgets, and security requirements. They have their own payment terms, invoice processing workflow, and expectations.
In today's market, many B2B businesses want flexibility, dependability, and security from their third-party vendors.
The fact is, the invoicing process is essential to your customer's understanding of your company. A secure and seamless payment system that provides customers flexibility in their procurement journey is a competitive advantage.
How do I Set Up B2B Payments?
Setting up B2B payments is far easier than it used to be. In the age of integrations and one-click payments, merchants and small business owners can leverage powerful technology to improve their revenue stream.
There are only a few steps to setting up a B2B payment process:
- Select your payment solution
- Integrate with an ERP or manually add your business data
- Customize your payment flow
- Train your team
- Activate your new payment method
What Are the Most Common B2B Payment Methods?
Over the past two decades, the payments landscape has shifted dramatically. While payment cards remain a top choice, using checks has plummeted. And just as the consumer market accepts digital, bank-to-bank transfers, businesses are beginning to leverage the same technology for faster payments.
For example, between 2018 and 2021, noncash transfers, primarily Automated Clearing House (ACH) and credit card payments rose three times as quickly as the entire 18-year period from 2000 to 2018. Meanwhile, businesses using checks decreased from 51% in 2019 to 31% in 2022.
In order of most popular to least, common B2B payment options are:
How Long do B2B Payments Take to Process?
The length of time that it takes a business payment to process entirely depends on the payment method and your industry.
ACH and bank transfers can take as little as two days or as long as 14. However, credit card charges may take longer to settle.
Some companies can take up to 90 days to complete their payment.
What are Typical B2B Payment Terms?
Business-to-business payment terms differ industry-wise, but there are three typical options:
These terms signify when a customer should pay an invoice. Many AR teams implement an early payment discount to accelerate payments.
What is a B2B Payment Platform?
A B2B payments platform combines multiple payment processes in one system to streamline accounts receivable or accounts payable processes. These systems typically plug into your ERP or accounting software, enabling your team to keep track of records easily.
Are B2B Payment Systems Secure?
Each B2B payment platform has its security features. They should comply with industry security standards, such as PCI-DSS, SOC 2, or SSL. Typically, most will have established basic encryption for transactions.
However, it's best to leave nothing to chance when regarding security. The sensitive data you are storing and transmitting is incredibly valuable, and any breach can harm your reputation—even if it's your payment system in control of the information flow.
Some additional security measures to look for are tokenization, 3-D secure technology, and blockchain.
A tokenized transaction goes further than encryption, although they are often used together. This security method replaces sensitive data with random letters and numbers, making the information unreadable to hackers.
3-D Secure payment protocols are for online payments. Customers will be prompted to enter a password or code, usually sent to their email, phone number, or an authenticator app. This approach adds some friction to the customer experience but adds another layer of security.
Finally, blockchain technology safeguards data as well. First, data cannot be changed once entered into the blockchain. This prevents potential internal fraud attempts. Paystand also uses blockchain to verify transactions without transmitting private information in a process known as Anonymous State Pinning (ASP).
What Should I Look for in a B2B Payment System?
Every B2B payment system is built a little differently, but the following features ensure that your new system is streamlined, scalable, and secure:
Multiple Payment Options
The core feature of any business payment system is its payment method options. The more options you have, the more convenient it is for customers to pay. The ideal payment platform should include the following:
- Credit and debit cards
- Wire transfers
- Digital payments
Invoice reconciliation is often a time-consuming process for the AR team. A best-in-class system will automate this process, leaving only a few exceptions for processing. When integrated with your ERP, keeping a clean ledger is a cinch.
Another essential feature is self-service options for customers. A simple payment portal enables customers to fulfill an invoice, save their preferred payment method, and pay multiple or partial invoices.
Enhanced Payment Analytics
The best way to figure out if your payment strategy is working is to measure it. But that's only possible if you have clean, quality data. A sound B2B payments platform should collect detailed data about each transaction and generate reports.
Your finance team is most likely using a platform like Netsuite, Sage, or another ERP or accounting software. You should be able to integrate your payment software without your current infrastructure effortlessly. This reduces the learning curve for your employees and ensures that all your records are synced.
The accounts receivables team wastes valuable time contacting customers and reminding them of outstanding invoices. Creating an automated workflow enables your AR processionals to spend this time on other, more pressing tasks.
Custom Fee and Discount Tools
A vital aspect of any payment strategy is influencing customer payment behaviors. Typically, there are two ways to do this: discounts or fees.
For example, you may pass on a credit card processing fee to the customer as a convenience fee. At the same time, you can absorb the fee for ACH or bank transfer payments. Additionally, you may add an early payment discount to encourage customers to pay earlier.
Accepting payments translates into handling sensitive customer data. As a result, your B2B payment platform needs to be compliant with PCI-DSS standards and additional codes. But you may want to take it a step further.
Programs like Paystand use tokenization to hide customer data and secure it.
The ability to accurately verify a transaction is vital for both recordkeeping and identifying potential fraud. For most firms, manually notarizing transactions would be impossible, especially at scale. Digital notarizations, however, can confirm transactions without slowing down your process.
For example, we use blockchain technology to validate transactions and provide a notarized receipt. Not only does this rapidly indicate the status of every transaction, but it becomes set in stone. As a result, it's challenging to forge numbers or cook the books.
Extensive Bank Network
The post-pandemic environment spawned the popularity of touchless payments. And this has crossed over to B2B payments as well. Working with a payment platform that has a developed bank network makes this process more efficient and secure.
3 Goals for Your B2B Payments Strategy
Your payment strategy is essential to selecting the best payment platform for your business. When it comes to optimizing your accounts receivable process, there are generally three immediate goals:
The labor it takes to create invoices and follow-up adds up fast. Adding interchange fees and other payment processing costs further strains the AR budget and takes money away from potential growth initiatives. Choosing a cost-effective platform is only the start of optimizing spend.
Many companies transfer the burden of credit card processing fees to their customers as a convenience fee or surcharge. These fees are largely unpopular with customers, but you can offset them by creating "zero-fee" options. Let customers know that payment methods such as ACH or bank transfers have no fee attached. You would shoulder this fee, but when you compare $0.20 for an ACH transaction versus 2.5% of the total, you can save substantial revenue.
The AR team often wastes valuable time on manual data entry, reconciliation, and follow-ups. Automating these processes allows AR professionals only to spend time on the exceptions, usually problem accounts or suspicious transactions. As a result, they can spend more time strategizing and preventing fraud.
Reducing Late Payments
The bane of any accounts receivables team is collecting late payments. The back-and-forth and failed communication attempts weaken customer relationships and create cash flow bottlenecks.
Automating collection follow-ups is one piece of the puzzle. But there are additional strategies your finance team can use.
For example, payment portals make it easier than ever for customers to pay. With Paystand's solution, your customer would receive an email with a link to pay their invoice. From here, they can save their preferred payment information, pay multiple invoices, and partially pay an invoice.
The easier the payment process is for your customers, the easier it is for them to pay on time.
Next: Digging Into Payment Processing
One of the first payment methods most businesses want to accept are credit and debit cards, simply because they are convenient and most customers use them.
As a result, it's easier to figure out your B2B payment strategy when you understand how payment processing works—and the other software or hardware involved in accepting payments.
The best payment platforms usually include a payment processor and other related tools. We'll cover them all below.
What are Payment Processors?
Payment processors are third-party services that enable businesses to accept customer payments. Essentially, a processor is an intermediary between banks and payment methods. This service is usually referenced concerning debit or credit card payments. In this case, the processor would communicate with the banks and the credit card issuer, such as Visa, Mastercard, or American Express.
If you plan to accept payment cards, investing in a payment processor is mandatory.
What are Examples of Payment Processors?
Some popular examples of payment processors are:
How do Payment Processors Work?
Payment processors act as intermediaries between the following parties:
- Your business' bank that processes the transaction is known as the acquiring bank
- Your customer's bank, known as the issuer
- Your merchant account, where your funds are deposited
- Card associations, such as Visa, Mastercard, and Discover
When it comes to credit card and debit card processing, there are three steps:
- Authorization: When a customer uses their credit card, a merchant's payment processor will submit a request for authorization to the relevant card association and the issuing bank.
- Settlement: At this point, the issuing bank either approves or denies the transaction.
- Payment: If the transaction is approved, the merchant is paid, and the funds, post-interchange fee, are deposited into their merchant account.
How do Payment Processors Make Money?
Payment processors have three different payment models:
- Flat-rate pricing: A flat rate offers the most stability for most businesses. In this structure, you pay the same flat rate for every transaction. Even if you accept credit card transactions, you will still be charged the regular fee instead of the interchange rate. This structure is usually a percentage of the transaction plus a fixed amount, i.e., 3% and 25 cents.
- Interchange pricing: This pricing is common for payment processors that only accept credit card or debit card payments. Processors with interchange pricing will charge you the interchange fee and a markup price—usually a percentage or fixed fee, sometimes both. Since this method depends entirely on your sales volume, the amount you pay will change monthly.
- Tier pricing: A tiered pricing structure creates multiple payment levels, usually based on transaction volume and type. For example, a card-present payment fee costs less than an online, card-not-present (CNP) payment. These tiers may use both an interchange rate and a flat rate to determine pricing.
What are the Benefits of a Processor?
Payment processors provide several benefits that speed up the payment process and increase security. Some of the advantages include:
- Efficiency: Payment processors reduce the time it takes to get paid. This is partly because you rely on sluggish (and expensive) payment methods like checks or wire transfers. But it's also because the processor communicates with all parties to ensure a timely transaction time.
- Security: Handling sensitive customer data like credit card numbers and account numbers can expose your business to threats like cyber attacks and fraud. A payment processor must comply with safety and compliance standards, so you don't have to worry about taking on these responsibilities.
- Customer experience: Your customers are likely familiar with a payment processor over a manual process unique to your business. Using a processor or payment platform makes the experience much easier and more familiar to your customers—leading to greater trust and satisfaction.
- Compliance: As with security, compliance is expensive and time-consuming, but it's also mandatory. Without a professor, you would be soldering the direct and indirect costs of investing in PCI-DSS and additional regional compliance requirements.
- Analytics: Another key benefit of using a payment processor is access to payment analytics. A sound payment platform provides enhanced data to help you better pinpoint areas for improvement.
- Reduce costs: The reason that most businesses turn to outsourcing payments is to reduce overall expenses. Not only do you not need to worry about infrastructure, maintenance, security, or compliance, but a payment platform also streamlines payments. This saves you both time and money.
Credit Card Processors vs. Payment Gateways
A payment processor makes it possible for you to accept credit card payments. Many, however, may offer a payment gateway as part of their services.
Unlike a payment processor, payment gateways are far more flexible and extensive. They typically enable businesses to accept payments through various methods, such as online, in-store, and over the phone. A gateway may accept multiple payment types—not just credit cards—and will integrate with your accounting or ERP system.
Are Point-of-Sale Systems and Virtual Terminals the Same as a Processor?
Point-of-sale (POS) systems and virtual terminals are similar to credit card processors. In fact, many processors offer POS or virtual terminals with their services. However, they are not the same.
POS systems use card readers to process payment information. A virtual terminal works the same way, except it enables businesses to accept online transactions. Typically, these options offer debit and credit card processing options and ACH payments.
POS systems are generally used for in-person transactions, while virtual terminals are used for online payments.
What are Merchant Accounts?
A merchant account is a bank account that enables businesses to accept online customer payments. It is not a payment processor itself.
While you can deposit funds from a credit card payment into your merchant account, a payment processor must first settle these transactions.
How Much Does a Payment Processor Cost?
Each payment processor has its fee structure. Usually, it is a percentage of the transaction plus a flat fee.
Credit Card Processing Fees
|Processor||In-store/Swipe fee||CNP/online fee|
|Paypal||2.99% + $0.49||3.49% + $0.49|
|Stripe||2.7% + $0.05||2.9% + $0.30|
|Square||2.6% + $0.10||2.9% + $0.30|
|Helcim||0.4% + $0.08||0.5% + $0.25|
|Shopify||2.7% + $0.00||2.9% + $0.30|
|Payline||0.4% + $0.10 + $10 per month||0.75% + $0.20 + $20 per month|
Credit Network Fees
Credit card fees can get expensive before we consider payment processors. Each card network has its fees that vary based on transaction volume.
|Card Network||Interchange Fee||Assessment Fee|
ACH and e-Check Fees
The cost of ACH and e-checks differs from platform to platform. Generally, these payments can cost $0.20 to $1.50 per transaction—significantly lower than credit card processing fees.
Like ACH payments, bank-to-bank payments are often lower than credit card processing fees. Platforms like Paystand can cost as little as $0.00-$0.20 per transaction.
Will You Need to Pay a Termination Fee if You Stop Using a Processor?
If you plan to change processors, you should know the termination fee. Many payment processing services have a cancellation fee, which should be clearly defined in your contract. There are a few different types of termination fees you may encounter:
- Flat fees: This termination fee will stay the same regardless of the length of your contract and when you decide to cancel.
- Prorated fees: This fee type decreases over time. For example, the termination fee may be $500 during your first year. In the following year, it could drop to $425.
- Damages: A termination fee based on damages requires the merchant to pay based on lost profits. This is often the most expensive termination fee.
Before signing a contract with a payment processor, it's essential to determine potential termination fees. Working with a payment processor offering month-to-month contract options is best.
Get Started with Paystand
As the Venmo of B2B payments, Paystand makes it easy for merchants to implement their payment strategy. Our frictionless payment portal, combined with sophisticated security, enhanced analytics, an extensive bank network, and automation, enables businesses to improve their cash flow and decrease late payments.
Discover how seamless payments can be, and book a custom demo with us today.