Business-to-business (B2B) payments are often more complex than business-to-consumer (B2C) payments, involving longer payment cycles and a variety of payment methods. The international B2B payments market reached US$1.5 trillion in 2022 and is expected to surpass US$3.7 trillion by 2032, emphasising the growing importance of these transactions.

Below, we'll cover what businesses should know about the differences between B2B and B2C payments, the types of B2B payment methods and how to automate the B2B payment process.

What's in this article?

• How do B2B payments differ from consumer payments?
  
• The B2B payment cycle
  
• Types of B2B payment methods
  
• Electronic B2B payment processing
  
• Automating the B2B payment process
  
• Recurring online payment process
  
• Using Stripe for B2B payments
  

How do B2B payments differ from consumer payments?

B2B payments and consumer payments differ in several important ways, including their complexity, typical transaction values and payment methods, as well as the dynamics between parties. Although the evolution of digital payment technologies is gradually bridging the gap between B2B and consumer payments by introducing more speed and flexibility into B2B transactions, there are still many major differences. These include:

• Transaction complexity and size: B2B payments are often more complex and involve larger transaction values compared with consumer payments. They may include bulk orders and recurring payments for services, as well as transactions that require detailed invoicing and purchase orders. B2B transactions often involve negotiations regarding payment terms, discounts and delivery schedules. Consumer payments are typically more straightforward and involve the direct purchase of goods or services. The transaction values are usually lower and the payment process is simpler, involving standardised prices that aren't subject to negotiation.

• Payment methods: B2B payments can use a variety of payment methods, including bank transfers, cheques, electronic funds transfers (EFT), Automated Clearing House (ACH) payments, credit lines and, increasingly, digital payment platforms designed specifically for business transactions. Payment terms vary, often allowing for longer payment periods (e.g. net 30 or net 60 days). Consumer payments commonly use cash, credit and debit cards, mobile payment apps and online payment systems, such as PayPal, as the payment method. These payments are usually expected to be immediate or at the point of sale.

• Relationship dynamics: B2B payments often occur within the context of business relationships. This dynamic can involve negotiated contracts, personalised pricing and custom terms of service, all of which can influence the payment process. There's also more emphasis on the reliability and security of these transactions because of the larger transaction values and the importance of the suppliers. Consumer payments are typically transactional and do not involve long-term contracts or negotiations. Instead, the emphasis is on the convenience, speed and security of the payment process.

• Regulatory and tax considerations: B2B payments face more complex regulatory and tax considerations, including the need for detailed invoicing, adherence to contract laws and compliance with international trade regulations, when applicable. Businesses must also manage value-added tax (VAT) or sales tax implications, which vary by country or region. Consumer payments are subject to standard consumer protection laws and sales taxes, but the regulatory requirements are typically less complex than those governing B2B transactions.

• Payment processing and fees: B2B payments may encounter higher processing fees, especially for transactions that require specialised payment solutions or those that are processed across borders. Businesses may negotiate lower fees based on volume or establish a relationship with a preferred vendor. Consumer payments typically face standardised processing fees, with some payment methods, such as debit cards or certain payment apps, offering lower fees compared with credit cards.

The B2B payment cycle

The B2B payment cycle encompasses the end-to-end process that businesses go through when making transactions with other businesses. This cycle is more complex and nuanced compared with consumer payment processes, and involves several stages from the initial order to the final payment and post-payment activities. Here's an overview of the B2B payment cycle:

• Purchase order (PO) creation and issuance: The cycle often begins when the customer creates and issues a PO to the seller. This document specifies the products or services that were requested, in addition to the quantities, prices and payment terms. It serves as a legal offer to buy.

• Order confirmation and invoice generation: Upon receiving the PO, the seller confirms the ability to fulfil the order and generates an invoice. This invoice documents the transaction details, including the goods or services provided, the total cost, the payment terms (e.g. net 30 and net 60) and the payment instructions. For transactions involving services, the invoice may be generated after the service has been completed.

• Goods or services delivery: The seller delivers the goods or completes the services as agreed. The seller may provide documentation of delivery to the customer, such as delivery notices or service completion confirmations. Often, the customer requires this documentation before they will release the payment.

• Receiving and inspection: Upon delivery, the customer inspects the goods or evaluates the services to make sure that they meet the agreed-upon specifications and quality standards. Any discrepancies may lead to disputes, returns or adjustments in payment.

• Approval and payment processing: If the delivered goods or services are satisfactory, the customer approves the invoice for payment. The approval process can be complex in larger organisations, involving multiple departments, such as procurement, finance and receiving.

• Payment execution: The customer executes the payment using the agreed-upon method (e.g. ACH, electronic transfer, cheque or B2B payment platform). The choice of payment method can depend on various factors, such as transaction size, location of the seller and payment terms.

• Payment confirmation and reconciliation: Once the payment has been received, the seller sends a confirmation to the customer. Both parties reconcile the payment with their respective financial records to confirm that the transaction is reflected accurately in their accounting systems.

• Dispute resolution: If there are any disputes during the cycle (e.g. regarding invoice accuracy, service delivery or quality of the goods), the parties work to resolve these issues before moving forwards. This can involve issuing credit notes, returns or re-negotiating payment terms.

• Reporting and analysis: Both parties may engage in reporting and analysis post-transaction to assess their business's financial health, evaluate supplier performance and inform future purchasing decisions. This stage is important for financial planning and supplier relationship management.

• Recordkeeping and compliance: Throughout the B2B payment cycle, businesses must maintain accurate and comprehensive records of all transactions for legal, tax and compliance reasons. This includes keeping copies of the POs, invoices, payment records and correspondence related to each transaction.

Businesses should consider the following features of their B2B payments carefully to fine-tune the payment process and protect their business's financial health and operational efficiency.

• Payment terms: Negotiated between customer and seller, payment terms affect cash flow and working capital management.

• Technology and automation: The use of electronic invoicing, payment platforms and enterprise resource planning (ERP) systems can streamline the payment cycle and reduce errors.

• Security and fraud prevention: Given the typically high value of B2B transactions, these payments require strong security measures to prevent fraud and preserve the integrity of financial data.

• International requirements: Cross-border payments may involve additional complexities, including currency exchange, international banking regulations and tax implications.

Types of B2B payment methods

Different types of B2B payment methods vary in terms of speed, cost, convenience and suitability for different transaction sizes and business contexts. Here's a closer look at some of the primary methods used in B2B transactions:

ACH payments

• Description: ACH payments are electronic payments made through the ACH network, a system for processing US-based transactions quickly and securely. ACH payments include credits and debits, making them a versatile choice for a variety of B2B transactions.

• Advantages: ACH payments are cost-effective and typically have lower processing costs than electronic transfers or credit cards. They can handle large volumes of transactions and are suitable for regular, recurring payments because of their low cost.

• Disadvantages: ACH transactions can take one or two working days to process, which may be slower than some of the alternatives. International ACH transactions are more complicated because of the involvement of intermediary banks and the need for compliance with international banking regulations.

Credit or debit cards

• Description: Credit and debit cards are common payment methods for B2B transactions, especially for lower-value purchases.

• Advantages: Cards provide immediate transaction processing, offer rewards or cash back in some cases and come with fraud protection. They are also convenient for online and over-the-phone transactions and are widely accepted.

• Disadvantages: Transaction fees for credit and debit card payments can be higher compared with those of other B2B payment methods, especially for credit cards. There's also a higher risk of fraud compared with other methods, such as ACH and bank transfers, and not all businesses accept credit cards for large transactions because of the fees.

Electronic transfer

• Description: Electronic transfers involve the electronic transfer of funds from one bank account to another without any intermediary financial institutions. They offer a fast and secure method for sending funds, especially for international transactions.

• Advantages: Electronic transfers are immediate and irrevocable, offering a high level of security. They are ideal for large transactions and can be used for domestic and international payments without any maximum transfer limit.

• Disadvantages: The main drawbacks of electronic transfers are the higher fees associated with sending and receiving funds compared with those of other methods. Another important consideration is that once an electronic transfer has been initiated, it cannot be reversed.

Digital payment services

• Description: Digital payment services, such as Stripe, facilitate online transactions and can accommodate payments via their own account balances. These platforms often provide additional services, such as invoicing, automatic billing and account management.

• Advantages: These services offer convenience, speed and flexibility, allowing businesses to accept payments from a variety of methods through a single platform. Many digital payment services also provide added security features and the ability to manage transactions remotely.

• Disadvantages: Fees can vary widely and may be higher than those associated with direct bank transfers or ACH payments, especially when processing credit card payments. Relying on a third party also means that businesses must consider the service's security measures and reputation.

Electronic B2B payment processing

Electronic B2B payment processing involves a series of digital transactions between businesses. This process allows businesses to execute payments faster, reduce their processing costs and improve cash flow management. Here's a look at how electronic B2B payment processing works:

• Payment initiation: The payer (buying business) initiates a payment to the payee (selling business) for goods or services rendered. This initiation often comes after the issuance of an invoice by the payee, which details the amount due, payment terms and instructions for payment. The payer selects an electronic payment method, such as ACH, electronic transfer or digital payment service, based on factors such as cost, speed and convenience.

• Payment authorisation: For certain payment methods, especially those involving credit or debit cards, or digital wallets, the payer must authorise the payment. This authorisation can involve entering payment details into a secure online portal, using a digital wallet or providing payment information over the phone. For ACH and electronic transfers, authorisation may be part of the setup of the payment instruction in the payer's banking platform.

• Payment processing: Once the payment has been initiated and authorised, it is processed through the chosen electronic method.

  • ACH payments: Transactions are batched and processed through the ACH network. The payer's bank sends a request to the payee's bank through the ACH system and funds are transferred electronically between the accounts, typically within one to two working days.
    
  • Electronic transfers: The payer's bank transmits funds directly to the payee's bank account through a network of banks or transfer services. Electronic transfers are faster than ACH payments and are often settled within hours, making them suitable for urgent or large transactions.
    
  • Credit/debit card payments: The payer enters their card details into a secure payment gateway. The transaction is routed through the card network to the issuing bank for authorisation. Once approved, funds are eventually settled to the payee's merchant account, minus any processing fees.
    
  • Digital payment services: Platforms including PayPal and Stripe facilitate payments by acting as intermediaries. The payer uses the platform to send funds, which are then transferred to the payee's account on the platform or deposited into their bank account.
    

• Transaction verification and settlement: The payee's receiving bank or payment service verifies the transaction details, confirming that the funds are available and that the payment is legitimate. Once this has been verified, the funds are settled into the payee's account. The time for settlement varies: some methods provide same-day settlement, while others may take several days.

• Reconciliation and reporting: Both parties receive confirmation of the transaction, typically through electronic statements or notifications. The payee and payer must then reconcile the payment with their accounting records, matching the payment against the issued invoice and recording it appropriately in their financial systems. Electronic payment systems often facilitate this process through integration with accounting software, thus automating the reconciliation process.

• Security and compliance: Throughout the process, electronic B2B payments are subject to rigorous security protocols and compliance standards. This includes the encryption of payment data, adherence to the Payment Card Industry Data Security Standard (PCI DSS) for card transactions and compliance with the relevant financial regulations. Various security measures, such as two-factor authentication, fraud detection algorithms and Secure Socket Layer (SSL) encryption are commonly used to protect the integrity and confidentiality of payment information.

Automating the B2B payment process

Automating the B2B payment process can improve efficiency, reduce errors and free up your resources for key tasks. The reduced amount of manual labour leads to faster, more accurate payments with expedited processing and settlement times, thus improving cash flow for both parties. These automated processes work best with electronic payment methods, which involve higher levels of security and minimise the risk of fraud compared with paper cheques. Automated B2B payment processes save time and paper-handling expenses and they may even come with lower transaction fees, offering an overall lower-cost payment process. Automating these processes also allows for real-time visibility into the payment process for better tracking and control.

Several software solutions specialise in automating B2B payments. Different options will include different features, as outlined below.

• Invoice capture and data extraction: The ability to ingest invoices automatically from a variety of formats and extract relevant information.

• Matching and validation: The ability to match invoice data with purchase orders and receipts for accuracy.

• Approval workflows: The ability to route invoices for approval based on pre-defined rules, eliminating manual routing.

• Payment execution: The ability to schedule and initiate payments electronically through ACH, electronic transfers or virtual cards.

• Reconciliation and reporting: The ability to automatically reconcile payments with invoices and generate reports for easy tracking.

Beyond integrating specific software, businesses can adopt the following practices to help automated B2B payment processes run more smoothly.

• Electronic invoicing (e-invoicing): E-invoicing allows for faster processing, while reducing errors and enabling integration with automation software. Encourage your vendors to switch to e-invoicing.

• Standardise electronic payment methods: Adopt electronic payment methods, such as ACH transfers, virtual cards and online platforms. These offer faster settlement times, lower transaction fees and enhanced security compared with paper cheques.

• Integrate with existing systems: Choose a B2B payment automation solution that can be integrated smoothly with your existing accounting software, ERP system and other relevant platforms. This eliminates data silos and automates data exchange.

• Establish approval workflows: Define clear rules and conditions for invoice approvals based on amounts, vendors or other criteria. This automates approvals for most invoices, minimising the need for manual intervention.

• Encourage vendor acceptance of virtual cards: Virtual cards offer secure, one-off-use payment options with lower fees and potential cash rebates. Consider offering incentives to encourage vendors to adopt them.

• Review and update payment processes regularly: Monitor your automated B2B payment process continuously, identifying areas for improvement and adjusting your workflows or system settings as needed.

Recurring online payment process

Recurring online payments, a fixture of the subscription economy, let businesses charge their customers on a pre-arranged schedule (e.g. monthly, annually) for continuous access to products or services. This model provides businesses with a predictable revenue stream while offering customers convenience and an uninterrupted service. Many businesses operating with this payment model may rely on subscription-management platforms which integrate billing, customer management and reporting tools. These platforms automate much of the recurring payment process, including customer sign-up, payment scheduling, authorisation, execution and handling of failed payments.

Businesses involved in a recurring payment model should be aware of their regulatory and security obligations, including compliance with the PCI DSS and compliance with the Electronic Fund Transfer Act (EFTA) in the United States, which requires customer consent for electronic payments and provides guidelines for error resolution and cancellation rights.

The recurring payment process is outlined below.

• Subscription initiation: The customer chooses a subscription model, providing their payment details (such as credit card or bank account information) for recurring charges. This step often involves the customer agreeing to a set of terms and conditions that outline the billing frequency and amount, as well as the subscription cancellation policy.

• Secure storage of payment information: To comply with the PCI DSS, sensitive payment information is encrypted and stored securely using tokenisation. Tokenisation replaces payment card data with a unique identifier (a "token") that has no intrinsic value if breached. This bypasses the storage of actual card details on the business's servers, reducing the risk of financial data theft.

• Payment authorisation: Before initiating the recurring payment, the business must obtain authorisation from the customer's bank or card network. This involves sending a request through a payment gateway, which acts as an intermediary between the business and the payment processors. The payment gateway encrypts the transaction details and communicates with the customer's bank to confirm that the funds are available for the charge.

• Payment execution: Upon receiving authorisation, the business can proceed with charging the customer's payment method at agreed-upon intervals. Each transaction generates a unique transaction ID and records details such as the date, amount and authorisation code.

• Payment notification: Customers are typically notified of upcoming charges and receive receipts or invoices for each completed transaction. This communication is key for transparency and can help to reduce chargebacks and disputes.

• Failed payment handling: Failed payments can occur for a variety of reasons, including insufficient funds, expired payment information and bank declines. In these scenarios, businesses will use various strategies, such as retry logic, where the payment is re-attempted after a certain period of time, or dunning management, which involves notifying customers about the payment issue and requesting updated payment information.

• Renewal and cancellation: Subscriptions will generally be auto-renewed until the customer cancels. The process for cancellation is outlined in the initial agreement and should be straightforward for the customer, involving contacting customer service or cancelling through a self-service portal.

Using Stripe for B2B payments

Stripe's suite of tools is designed to address the challenges of B2B payments and automation. Stripe offers a modern alternative to the outdated infrastructure that has long-governed B2B transactions, and can help to streamline payments and promote growth across a variety of industries and business models.

• Modern digital alternatives: The global volume of B2B payments dwarfs that of consumer payments, yet the sector has lagged behind in terms of digital innovation. Stripe offers an all-digital alternative to inefficient processes, such as cash or cheque transactions, which are still prevalent and costly. For example, Stripe's digital invoicing solutions come with built-in electronic payment options that can be integrated with other systems, providing a more effective alternative to the paper invoicing systems that many businesses still use. Stripe's digital systems reduce the amount of manual work required while speeding up the payment process.

• Comprehensive financial infrastructure: Stripe's platform offers a fully integrated suite of financial and payment products that have been designed to reduce costs, grow revenue and run businesses more effectively. The platform caters to a wide range of needs, from handling global payments and managing revenue operations to launching new business models. Products such as Stripe Issuing and Treasury are particularly relevant for B2B contexts, allowing businesses to issue cards for expenses and manage funds with sophisticated treasury operations.

• Tailored solutions across a wide range of use cases: Stripe supports startups, enterprises and many more business types across a variety of industries, such as software-as-a-service (SaaS), e-commerce, marketplaces and the creator economy. Stripe's global payment infrastructure supports over 100 payment methods, making it easier for businesses to accept payments from anywhere in the world – a key factor for global businesses looking to expand their operations.

• Flexible modular design: Stripe's modular design lets businesses choose the solutions that best fit their needs, whether they're looking to automate invoicing, streamline subscriptions, manage revenue or maintain compliance with local tax laws. This flexibility, combined with Stripe's application programming interface (API) and software development kit (SDK) support, empowers businesses to integrate Stripe's capabilities into their existing systems, providing a smooth financial management experience.