B2B payments: What payment method to choose and when

Modern financial software has changed the way businesses pay each other for goods and services. These new B2B payment methods have vastly improved the convenience, efficiency, and reliability of business transactions.

Below, we’ll dive a bit deeper into what B2B payments are, how they work, traditional and modern B2B payment methods, and the process for managing and accepting them.

What are B2B payments?

Business-to-business (B2B) payments are transactions made between businesses, as opposed to transactions between businesses and consumers (B2C). B2B payments tend to be more complex than B2C transactions since they may take days or weeks to complete.

B2B payments can be made for services, digital products, physical goods, or anything else one business may need to acquire from another. For example, an accounting firm purchasing bookkeeping software from a technology company would constitute a B2B payment.

How are B2B payments different from B2C payments?

The biggest differences between B2B and B2C payments lie in their complexity, size, regulatory considerations, and the payment methods used:

1. Complexity: B2B payments are often more complex, including considerations like net payment terms, price negotiations, various discounts, and shipping schedules. Creating and tracking purchase orders (POs), invoices, and approvals is another added wrinkle that makes the B2B payment process more complex than a typical B2C transaction.
2. Transaction size: By their nature, B2B transaction values are usually much larger due to bulk purchases, high-value materials or equipment, or specialized services. They also tend to occur less frequently. In contrast, B2C transaction amounts are typically smaller, though they can occur more frequently as consumers make regular purchases.
3. Payment methods used: Because B2B payments need to accommodate larger transaction amounts, businesses often rely on traditional payment methods like checks, Automated Clearing House (ACH) transfers, and wire transfers. However, businesses are increasingly turning to digital payment platforms tailored to business transactions.
4. Relationship dynamics: Business relationships are often long-term, strategic, and governed by unique contracts. For those reasons, B2B payments must be secure and reliable—not just to meet the agreed terms of service but also to preserve trust. B2C payments are typically transactional, with an emphasis on speed and convenience.
5. Regulatory and tax considerations: B2B payments are subject to complex regulations, including anti-money laundering (AML) laws and Know Your Customer (KYC) guidelines. Businesses also need to manage sales tax considerations and, if you have a global customer base, value-added tax (VAT) and international trade regulations.

The B2B payment cycle

The B2B payment cycle is the process a business goes through when making a purchase from another business. It typically involves multiple steps, stakeholders, and systems to ensure the transaction is processed correctly. Here’s an overview of the B2B payment cycle:

1. PO creation and approval

The B2B payment cycle usually starts when one business (the buyer) creates and issues a purchase order to another business (the seller). The PO specifies all the purchase details, including the products or services, quantities, prices, delivery dates, and payment terms.

The PO is a formal request from the buyer and serves as a binding offer to the seller. As such, it typically undergoes review by the buyer’s team to ensure it aligns with their budgets and expense policy. If the PO is approved, it’s sent to the seller.

2. Order acceptance and invoice generation

The seller receives the PO and confirms they can fulfill the order. The providing business then issues an invoice to the purchasing business specifying the purchase details, total amount due, payment terms (e.g., net 30, net 60, etc.), and which payment methods they accept. Based on the nature of the purchase, the invoice is sometimes delivered after services are rendered.

3. Receipt and inspection of goods

The seller delivers the goods or completes the services. At this point, the buyer inspects the goods or services they received to ensure they meet the purchase terms. Any discrepancies— including issues of quantity, quality, or damage—could lead to a dispute between the buyer and seller, leading to returns or price adjustments.

4. Invoice validation and approval

If the buyer is satisfied with the goods or services received, they submit the invoice for approval. This process can be long and complex, especially in larger organizations that require review from multiple approvers.

The buyer’s accounts payable (AP) team will typically perform a 2-way or 3-way match to ensure the invoice matches the goods received and the PO their team initially submitted. After the AP team and any other stakeholders validate the invoice, it’s approved for payment.

5. Payment execution and reconciliation

Once the purchase is authorized, the purchasing business schedules the invoice for payment according to the seller’s terms and using the agreed-upon payment method. B2B payment methods include cash, checks, bank transfers, cards, or online payment platforms. Processing times can vary widely depending on the payment method and the seller’s payment terms.

Once the payment is complete, the seller sends a confirmation to the buyer. Both businesses record the transaction in their financial records, a process known as invoice reconciliation, which marks the transaction as complete.

Popular B2B payment methods

Most businesses accept a variety of B2B payment methods, and each has their pros and cons. We’ve ordered the list of payment methods below from least to most complex, which—not coincidentally—also lines up with traditional to more modern methods.

1. Cash

Digital payments are on the rise, but cash is still king for many small businesses. Paying in cash is easy, accessible, and eliminates any transaction fees. However, cash payments can be difficult to track, complicating budgeting and accounting in the long term. Plus, they can negatively impact cash flow since money that’s spent is immediately removed from your balances rather than at your discretion (as with credit options).

2. Paper checks

Another popular payment option is the classic paper check. Checks offer a few benefits, including:

• A concrete paper trail that’s easier to follow than cash or digital options
• Flexibility in scheduling, as checks can be deposited at your leisure
• No need for a bank account to cash checks, for any party

However, checks have their drawbacks. They can be time-consuming to process and are prone to human error, which can further delay payments. Plus, checks sent by mail present a security risk since they can be intercepted, altered, or stolen, leading to payment fraud.

3. Wire transfers

Wire transfers are the standard for large B2B payments, especially international transactions. Wires are one of the most flexible payment options because you can initiate them from a bank or non-bank financial institution, and all you need is the receiving account’s information.

However, if you plan to use wire transfers, you'll likely incur additional costs since you'll typically pay a processing fee to initiate the payment. The recipient may be charged for accepting the payment as well.

Wires are a secure form of real-time payment, but note that they can’t be refunded or canceled once initiated. For this reason, wires are best suited for infrequent rather than bulk or recurring payments.

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4. Debit cards

Similar to cash and checks, debit cards pull directly from your business checking account. Debit and credit card payments are typically the go-to method for B2C payments. They’re essentially digital cash payments, making them the halfway point between physical cash and wire or ACH payments.

Debit card payments offer immediacy and convenience, and automatic recordkeeping aids in the reconciliation process. However, they can sometimes come with transaction fees. Additionally, they’re not ideal for large transactions due to daily spending limits, and they lack flexibility in payment terms, unlike checks or credit, which allow for delayed payments.

5. Corporate cards

As a payment method, corporate cards offer easy tracking and expense management, along with rewards or cashback on transactions. They provide a short-term credit option, aiding cash flow management and allowing for simplified expense reporting and approval processes. Modern corporate cards often give you the option of spinning up virtual cards as well, enhancing security.

The only consideration to keep in mind is whether your credit limit will support your B2B transactions. If your credit limit is too low, it may not cover the cost of significant purchases or recurring expenses. This problem can be easily avoided by making sure your limit is high enough when you get your card.

6. Automated Clearing House (ACH) payments

Many B2B payments are sent over the Automated Clearing House network. Overseen by the regulatory body Nacha, ACH payments are electronic payments that function similarly to checks or bank transfers. They offer excellent security; businesses often use ACH for payroll services, such as direct deposits.

ACH transfers and wire transfers are similar, and the terms are sometimes used interchangeably. However, there are some important differences between the two:

• ACH transactions tend to be significantly cheaper than wires and are often free
• ACH typically takes longer to process than wire transfers
• Unlike wires, ACH transactions can be refunded or canceled by either party
• Whereas wires can be cross-border, ACH is limited to domestic transactions

These factors make ACH an ideal baseline method for recurring expenses or bulk domestic B2B transactions. Many businesses use ACH for their regular transactions and choose wires, checks, cash, or other methods for special, niche, or infrequent payments.

7. PayPal and other online B2B payment platforms

Digital B2B payment options from fintech brands like PayPal have grown in popularity over the years. These online platforms offer quick and secure payments that ecommerce businesses can integrate directly into their checkout processes. Some of these payment providers include:

• PayPal: The industry standard for over two decades, PayPal is a B2B online payment platform built specifically for business transactions. It doubles as a peer-to-peer (P2P) payment network.
• Venmo: Owned by PayPal, Venmo emphasizes P2P payments but also allows companies to set up business profiles, offering features like tap to pay for physical POS
• Cash App: A part of Square’s suite of business services, this payment option emphasizes privacy, security, and accessible business functionality
• Google Pay: Google’s B2B payment system prioritizes ease of use and integrates with other G-Suite applications and services like Gmail
• Apply Pay: Apple’s analogue to Google Pay is a digital wallet that allows for much of the same functionality. It’s a widely accepted checkout option for both ecommerce and physical storefronts.
• Stripe: Stripe facilitates B2B transactions via APIs that enable customized payment solutions and integrations with other business tools

The major drawback to online B2B payment platforms is cost: These services charge a flat fee or percentage per transaction, making them more expensive than most other B2B payment options. In other words, what you gain in convenience, you may lose in processing costs.

The current state of B2B payments

While many businesses still make purchases using traditional methods like cash or check, COVID-19 accelerated the adoption of digital payment methods for all transactions. B2B transactions were no exception:

• Straits Research reports that COVID-19 forced businesses to expand their use of digital payments, equaling a 10-year increase in adoption rate in just four months
• Nacha estimates that businesses made 6.6 billion B2B payments via ACH in 2023, a 10.8% increase over 2022
• A Mastercard study shows that the use of cash and checks for B2B payments decreased by 34% and 24%, respectively, as a result of COVID-19

COVID-19 clearly forced many businesses to transition to electronic payment methods for B2B transactions regardless of whether they were prepared to do so. But the benefits have been tangible: 81% of respondents in the Mastercard study say that electronic payments have improved customer satisfaction levels.

Managing the B2B payment process

The B2B payment process may seem simple, but there are plenty of opportunities for things to go sideways. Lengthy payment processing times and manual approval workflows can create an inefficient process that could impact your bottom line.

Here are some best practices for managing the B2B payment process:

Use digital invoices

One of the simplest ways to streamline the B2B payment process is to eliminate paper invoices. Paper leads to storage costs, data entry errors, and lost or misplaced documents. Switching to a digital invoice management solution allows you to automate your invoice processing, which saves time, reduces errors, improves cash flow, and simplifies compliance and recordkeeping.

Automate your approval processes

B2B payments often require a multilayered approval process across various departments. These manual processes can be cumbersome and lengthy, leading to delayed payments and late fees. AP automation software enables smoother transactions with features like automatic bill pay, custom workflows, and role-based approval responsibilities.

Enable multiple payment methods

Offering a variety of payment methods improves convenience and customer experience. It also helps avoid the headache of using multiple systems to send and receive payments. Modern finance platforms like Ramp let you send B2B payments via check, card, same-day ACH, or wire transfer from a single system, improving flexibility, reporting, and reconciliation.

Prioritize security and compliance

Above all, you want to make sure your B2B payments are secure and compliant to avoid any legal or regulatory issues. Look for payment solutions that offer security features like role-based access control, multifactor authentication, and end-to-end data encryption. Similarly, ensure that whatever method you choose enables easy compliance with regulations around financial recordkeeping.

How to choose a B2B payment processor

You need to choose a payment processor before you can begin making and accepting B2B payments. Answering the following questions will help you choose the right payment processing solution for your business:

1. Who do you need to accept payments from? Identify the other businesses you’ll be transacting payment with. Are they mostly small businesses? Large corporations? The size of the business and their average transaction volume can usually give you an idea of their preferred payment methods.
2. What are your preferred payment methods? Depending on your answer to the question above—and the industry you operate in—decide which payment types make the most sense for you. For example, a lot of suppliers in the restaurant industry deal heavily in cash, while technology companies mostly prefer card or ACH payments.
3. How often will you need to accept payments? Your transaction volume will have a big impact on your B2B payment process. This will help determine not only the payment methods you choose to accept, but also the level of automation you need from your payment processing system.
4. Do you need to accept international transactions? Decide whether you’ll need to be able to accept cross-border payments. There are several implications here, including foreign tax laws, international payment fees, and handling currency conversion.

Once you’ve answered the questions above, you’ll have a more concrete idea of what you need from your B2B payment solution. Here’s a quick table that breaks down the most important features to look for as you research your options:

Streamline B2B payments with Ramp

Ramp's accounts payable software automates your B2B payment workflow so every bill is recorded, approved, and paid without manual data entry or repetitive tasks. With Ramp, you can consolidate all your payment methods into a single platform—pay domestic and global vendors by card, check, same-day ACH, or international wire.

Our platform also integrates with popular accounting software like NetSuite, QuickBooks, and Sage Intacct to auto-sync bill payments, pull in purchase orders and amortization schedules, and automatically reconcile all your transactions.

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