From manual processes and longer sales cycles in the pre-digital era, enterprise resource planning (ERP) systems in the 1990s to 2000s, automation and integrated payment solutions in the 2010s, to data and API-driven transactions in the 2020s, the world of B2B transactions continues to evolve.
Today, the gap between B2B and B2C transactions could never be narrower. Both B2B and B2C buyers and sellers continue to gravitate towards contactless and online convenience.
In the B2B world, in particular, online payments have become the most preferred way of transactions.
If you’re a business that regularly transacts with other businesses, implementing B2B billing and payment solutions is no longer an option—it’s a priority.
But it’s not just about searching online and signing up for the first B2B payment solution you see.
This is why we’ve created this comprehensive guide to walk you through everything you need to know about B2B billing and payments.
What is B2B Billing?
Business-to-business (B2B) refers to transactions conducted between businesses. B2B payments are fund transfers from one business to another business in exchange for goods and services. As such, B2B billing is when one business charges another for its products or services.
B2B payments often involve manufacturers, wholesalers, retailers, service providers, enterprises, and small businesses. They also involve various processes, such as subscription and cash flow management, accounting, and tax payments.
These transactions can be one-time or recurring, based on the terms the buyer and seller agreed upon.
For example, let’s say you run a cloud computing business that allows other businesses to access business software on a subscription basis. In this case, you’re the B2B merchant and your customers make regular monthly or annual payments to your business.
To receive payments from your customers, you bill them every payment schedule and send invoices based on usage or predetermined fees.
B2B vs B2C Billing
Unlike B2B transactions, business-to-consumer (B2C) transactions involve businesses and consumers (individuals). While they both involve the exchange of money from one entity to another, they differ in various principles including transaction values, complexity, and preferred payment methods.
Here’s a comparison table to understand the differences between the two:
| B2B Billing | B2C Billing | |
| Parties | The participating parties on both ends of the transaction are corporate entities | Characterized by a single buyer, who’s the customer |
| Complexity | B2B transactions are often more complex and involve larger payment amounts. They might include recurring payments, bulk orders, multiple pricing models, and intricate invoicing | Consumer transactions involve directly purchasing products or services, so they are more straightforward. They also have lower transaction amounts and simpler payment processes. |
| Payment Methods | B2B transactions involve various payment methods, such as electronic fund transfers (EFTs), checks, wire transfers, Automated Clearing House (ACH) transfers, credit cards, and many others | B2C payments often involve cash, mobile e-wallets, credit and debit cards, and online payment platforms, like Paypal and Stripe |
| Processing Time and Fees | B2B payments generally take longer to process since they’re larger in volume and more complex. They often have higher processing fees, especially for payments that require specialized payment solutions or cross-border payments | B2C payments can be processed faster with few special considerations since they’re simpler and involve readily available products. These transactions often have lower standardized transaction fees |
| Regulatory Requirements | B2B transactions are subject to stringent regulatory and tax requirements, such as compliance with contract laws, the need for detailed invoicing, and adherence to international trade laws. Both parties must adhere to tax implications both at the state and regional levels | Laws and regulations governing B2C transactions are generally less complex than B2B regulatory requirements. B2C transactions must comply with standard consumer protection regulations and sales taxes |
| Relationship Dynamics | Business relationships are often at the core of B2B transactions. Relationship dynamics influencing the payment process include negotiated agreements, custom pricing, and personalized contract terms. Usually, business owners work with the leadership team before committing to a contract or purchasing a product or service. Deliberations also take longer. | B2C payments are transactional in nature and don’t involve negotiations or long-term contracts. These transactions are often characterized by speed, convenience, and security. For example, buying a cup of coffee isn’t a decision you deliberate on for weeks involving multiple business leaders. You simply walk into a coffee shop for faster turnaround time |
Types of B2B Billing Models
B2B payments comprise various billing models, including:
- Recurring billing – Also known as subscription billing, recurring billing is when businesses charge their customers on a regular and scheduled basis (monthly, quarterly, or annually) for continuous products or services. This is the most widely adopted billing model for SaaS companies, maintenance services, and other subscription-based businesses. Many businesses that choose this model benefit from improved customer retention and predictable revenue. However, it requires a robust subscription billing system that can handle subscription renewals, manage potential payment failures, and provide flexible billing cycles based on customer needs.
- One-time billing – One-time billing involves a single payment for a specific product or service, without any recurring payments. This model is mostly used for individual purchases, such as project-based work, equipment sales, and consultation services. This is the easiest model for customers to understand since it’s straightforward and with immediate revenue recognition. On the other hand, it offers businesses limited revenue predictability. Businesses must stay on their toes to constantly generate new sales and maintain cash flow.
- Usage-based billing – Commonly known as pay-as-you-go, usage-based billing charges customers based on consumption or usage of the product or service. This model is common among businesses whose products are used constantly and require ongoing support, such as utilities, telecommunication companies, and cloud service providers. It’s highly flexible for customers since they only pay for what they use. However, the business must adopt accurate usage tracking systems to avoid overcharging or undercharging.
- Hybrid billing models – Hybrid billing models combine the above models to create a customized pricing strategy. For example, a SaaS company might charge a subscription fee (recurring billing) plus an extra fee for additional cloud storage (usage-based billing). Hybrid is a great option for SaaS businesses and service providers that want to cater to diverse customer needs. While it helps you optimize revenue potential, it can be quite complex to implement and often requires advanced billing software.
B2B Payment Methods
B2B transaction terms can vary based on the merchant and customer’s negotiations. Some of the ways these payments differ are based on the payment methods used by the customers to settle the invoices.
Let’s take a closer look at some common B2B payment methods:
ACH payments
An ACH transaction is an electronic mode of transfer where funds are transacted between banks and credit unions through a network known as an Automated Clearing House. An ACH network is a secure intermediary that facilitates the transfer between banks.
ACH payments are popular with B2B payments since they’re contractual. In short, they require both parties involved in the transaction to complete the paperwork, which makes them secure.
On top of that, they’re more cost-effective with lower processing fees compared to other options like credit cards and wire transfers. They typically cost around 1% of the transaction amount with a $10 limit.
This makes them affordable options for large transaction volumes and suitable for recurring payments.
On the flip side, they ordinarily take 1-3 business days to process, which might be significantly longer than other options. This means they might not be suitable for urgent payments.
International ACH payments may be more complicated due to the string of intermediary banks and compliance with international transfer regulations.
Wire transfers
Wire transfers involve electronically transferring money from one bank account to another without other financial institutions acting as middlemen. Services like the SWIFT (Society for Worldwide Interbank Financial Telecommunications) banking system facilitate real-time fund transfer.
Wire transfers are fast and convenient, making them suitable for both domestic and international transfers. They also offer a high level of security and are irreversible once sent.
One major concern with wire transfers is their high processing fees. The transaction fees are charged on both incoming and outgoing transactions. The average wire transfer fee for domestic transfers is $15 for the receiver and $25 for the sender. For international wires, the average is $15 for the receiver and up to $50 for the sender.
While the irreversible nature is beneficial for security, it can be a downside if you send money to the wrong account. You have to ensure that you’ve entered accurate recipient details.
Credit card payments
Credit card payments are the primary payment method for B2B transactions. Just about every B2B customer will offer to pay using their credit card. And it makes so much sense why.
They’re convenient, inexpensive, and provide strong fraud protection. On top of that, credit card issuers like Visa and Mastercard offer various reward schemes and lower interest rates tailored to attract businesses like yours.
Credit card payments give merchants instant access to funds. It can be highly beneficial if you treat it like a debit card and pay it off every month.
Note that credit and debit card processing fees can add up fast, especially for credit cards. For this reason, not many businesses will accept credit card payments for large amounts.
eChecks
An electronic check (eCheck) is simply an electronic form of the conventional paper check. Just like the paper check, the eCheck draws money from the issuer’s bank account.
However, paper checks are limited when it comes to out-of-state or international payments. Such transfers would require additional paperwork and are sometimes not possible. This is where eChecks come in.
Echecks allow businesses to transfer money domestically or internationally through local or global financial institution networks. They offer increased security with advanced safety features, such as encryption and authentication processes to reduce fraud and unauthorized access.
Since they leave a digital trail of traceable records, they bolster trust between the transacting parties.
If you want to adopt eChecks for your business, you must comply with the rules and regulations governing the electronic transfer of money. You must also implement data security measures to address cybersecurity concerns.
Payment gateways and processors for B2B
Payment gateways and processors are more popular with eCommerce brands and online retailers. But B2B businesses can also benefit from popular payment platforms like PayPal, Skrill, Venmo, and Zelle.
For starters, B2B payment gateways are digital platforms that act as intermediaries in electronic funds transfers. They eliminate the need to rely on a third-party payment processor.
These platforms often have additional features such as invoicing, account management, and automated billing. These services not only allow businesses to accept multiple payment methods via a single platform, but also boost speed, convenience, and flexibility.
Just like credit and debit card payments, transaction fees for payment gateways and processors can add up quickly. Most of these platforms are only available in the countries they’re based in.
Relying on a third-party payment services provider also means evaluating the service’s reputation and data security measures.
B2B Payment Terms and Invoicing
B2B payment terms, also known as net terms, are the financial conditions that must be met to complete a B2B transaction. The merchant communicates these terms to the consumer stating how the consumer can complete a payment and how long they have to do so.
In most cases, the buyers expect the merchants to stretch their payment terms to net 30, 60, or even 90-day payment windows. These terms allow consumers to pay for the goods or services after the stipulated period instead of paying upfront.
From a business perspective, this can be beneficial to the buyer’s working capital as they can resell the products or use them as raw materials and make a profit before the invoice is due.
Other payment terms to consider include:
- Payment methods – State your preferred payment methods. Do you want your customers to pay via ACH transfer or do you prefer credit cards?
- Default interest and penalties – If you apply an interest amount and other penalties for late payments, include them in your invoices
- Retention of title – This clause states that you retain ownership of the products until the consumer has fully paid for them. This protects you against payment defaults
- Discounts and bonuses – These are incentives to consumers who meet special conditions, such as bulk orders, early payment, or simply complying with payment terms.
These details can easily slip through the cracks. This is why you need to apply best practices for B2B invoicing.
One strategy to leverage is automation. Automating the invoicing process can save your business a lot of time and money. Invoicing tools handle the entire billing process including collecting customer details, creating and dispatching invoices, and revenue recognition.
On top of that, billing automation increases accuracy and eliminates the risk of errors present in manual invoicing processes. For example, your billing tool automatically syncs and applies your payment terms on all your invoices without the need for manual intervention.
But there’s a catch—to enjoy these benefits, you must invest in the right B2B billing software, like Stax Bill.
How to Choose a B2B Billing System
When selecting a B2B billing system for your business, you need to first evaluate your business. You just don’t want to invest in the most expensive or most popular billing system in the market. You want to invest in one that suits your specific business needs.
Some billing systems on the market are created for large enterprises with intricate needs, while others are more suitable for small businesses with a handful of users.
Consider your business’s number of customers, pricing model, discounting, and needs to grow with time. Ask yourself whether there are any gaps in your business processes you’d like the billing system to bridge.
Once you’ve determined your business needs, you can look for the following B2B billing system features:
- Customizable invoices – The B2B billing system should have invoice templates that you can customize to match your brand image or pricing models. For example, you should be able to add your brand colors and logo or add and delete line items.
- Integration capabilities – The billing system should integrate with other tools in your tech stack, such as CRM, payment gateway, and accounting tools. Seamless integration ensures information flows smoothly within various departments in your business. This also gives you a detailed picture of your finances and business performance.
- User-friendliness – Making your payment process simple ensures you get paid on time. This is why the billing system should provide a payment portal for both your accounts receivable team and your clients. The portal should have an intuitive and easy-to-use navigation system, giving your clients an easy way to pay.
- Multiple payment options – Which payment methods do your clients prefer? Does the B2B billing system support these methods? Remember, accommodating your customer’s most preferred methods gets you paid on time. Also, check whether the system allows flexible payment terms, such as installments or Buy-Now-Pay-Later (BNPL) options.
- Pricing – While it’s important to have a B2B billing system, you don’t want to break the bank and eat too much into your profits. Check whether the investment matches your budget. Also, evaluate the software provider’s transparency when it comes to pricing. Hidden fees and costs are a red flag.
- Recurring billing – If you run a subscription-based business, it’s important to get a billing system with automated recurring billing features. These features allow you to set up monthly, quarterly, or annual subscription plans and automatically bill clients based on these schedules.
Don’t forget to think about your future. Consider scalability. You want a B2B billing software that can accommodate your business as it scales. Since your business is likely to expand to international markets, look for a billing system that will accommodate your international customers’ preferences.
For example, evaluate whether it supports multiple currencies, multiple languages, and international trade and tax regulations.
Similarly, invest in a system that prioritizes security and compliance with industry standards like the Payment Card Industry Data Security Standard (PCI DSS). Checks for data security measures such as encryption, tokenization, and access controls.
Challenges in B2B Payments and How to Overcome Them
Like many business processes, B2B payments have various challenges. Here’s a breakdown of some challenges and how to overcome them:
Payment delays
Payment delays aren’t a new concept to many B2B businesses. According to a 2022 study by Chaser, 87% of B2B businesses typically receive payments after the due date. In addition, over half of these businesses spend more than 4 hours daily following up on late payments.
These delays lead to cash flow and operational challenges while straining the relationship between you and your clients.
One of the key factors behind payment delays is manual processing of invoices and paper-based approvals. This means that circumventing this challenge starts with automating your billing processes.
Another contributor to payment delays is poor communication and vague payment terms in your contracts. To go around this, establish transparent and clear communication to eliminate confusion and ensure your clients understand your expectations.
Also, invest in B2B payments software with automated payment reminders and dunning management.
Managing different payment terms across clients
You probably have different payment terms for different clients. Some could be on net-30, others net-60, and even milestone-based payments. Managing everything while ensuring accurate invoicing and no payments are missed could be a headache. It could strain your accounting resources and complicate your reconciliation process.
The way around this is to invest in a flexible billing system that allows you to customize invoices and payment terms. During initial contract negotiations with your clients, ensure you agree on terms that balance flexibility with your business’s cash flow needs.
For clients with differing payment terms, you can set up alerts for approaching due dates to help you efficiently manage your accounts receivables.
Navigating international payments
Managing international payments is like juggling multiple bowling pins. Think of foreign exchange rates, varying regulations, and varying banking systems. If not managed well, they could lead to delays and increased costs.
You can leverage B2B billing solutions that accommodate cross-border payments to streamline international payments. Such platforms offer competitive exchange rates, faster payment processing times, and improved payment process visibility.
Multi-currency accounts can also help you streamline international payments by allowing you to hold funds in different currencies and convert them when rates are more favorable.
Also, stay on top of regulatory compliance measures to avoid any legal issues in target markets.
The Role of Automation in B2B Billing and Payments
Manual billing systems are like an old jalopy—functional, but expensive. As a SaaS business owner, you likely understand how primitive and slow traditional billing systems are, but have you thought about their true cost?
Manual billing systems cost more than just time and money. They cost you opportunities as well. Instead of having up-to-date financial records that you can leverage to make smart business decisions, you’re stuck playing the waiting game.
Human errors elevate these issues further. In finances, a small inaccuracy can morph into grave business issues. With manual systems, you’re likely to see interchanged numbers, displaced decimal points, and generally chaotic financial books.
All of these aren’t mere inconveniences. They spark payment delays, damage client relationships, and affect your business’s bottom line.
Automation in B2B billing and payments speeds up the entire process by eliminating repetitive tasks like invoice creation, data entry, and payment follow-ups. Streamlining these tasks helps free up your staff to focus on other productive activities like sales.
Since there’s little to no need for human intervention, you save administrative costs. You also won’t have to spend on paper, printing, and postage.
Automated billing systems also streamline the experience for your clients by enabling timely, accurate invoices and payment reminders. Customers appreciate timely notifications which foster robust relationships.
To top it all off, automated systems give you access to reports and analytics with valuable data-driven insights you can leverage to make smart business decisions.
How to Manage Recurring Payments in B2B
Managing recurring B2B payments requires more than just a quick setup and leaving the system to do all the work. Instead, you need to develop and adopt strategies that leverage the system’s capabilities.
For long-term contracts, you need to automate regular invoicing. This helps simplify recurring billing by creating a regular invoicing schedule that your clients can rely on. Stax Bill allows you to set up automated cycles.
Long-term contracts often evolve. Your clients might upgrade or downgrade their subscription plans or modify their service levels. You should ensure that your billing system is flexible enough to adjust accordingly with minimal bumps.
For mid-cycle changes, your system should have proration features that ensure your clients are only charged for the services they receive and your business still captures that revenue.
In case you change your pricing or contract terms, make sure to communicate clearly, ideally using automated updates. Transparency avoids any payment disputes in the future and keeps your relationship smooth, even as service levels change.
Sometimes, clients forget to make payments or update their payment details. Automate payment reminders to avoid interrupting your cash flow. Also, dunning management comes in handy for clients who might have expired cards or insufficient funds. These strategies help you avoid involuntary churn.
Recurring payment systems are likely to provide insights into payment failure rates. You can monitor and optimize these analytics to spot common causes of payment failures. With these insights, you can reduce payment failures and create a more reliable revenue stream.
Best Practices for B2B Payment Reconciliation
Payment reconciliation involves processes of matching and comparing transaction records to ensure that received payments match your business’s financial statements. This accounting process ensures your records are accurate and up-to-date.
To make B2B payment reconciliation as efficient as possible, you need to adopt these best practices:
- Leverage automation – B2B payment tools like Stax Bill can help you automatically match incoming payments with outstanding invoices. This simplifies the reconciliation process by reducing the time spent manually tracking payments and looking for discrepancies.
- Reconcile frequently – You should regularly reconcile your payments, ideally every month. This not only keeps your records current but also helps you spot discrepancies early and address them.
- Address discrepancies fast – If you identify any discrepancies, such as unrecognized payments, mismatched amounts, or duplicate entries, investigate them immediately. Acting fast is vital for avoiding escalations, correcting errors, recovering funds, and avoiding similar issues in the future.
- Standardize the process – Have a set of standardized procedures you use for reconciliation to maintain accuracy and consistency. Document these procedures and ensure your team understands and follows them closely.
- Maintain clear records and audit trails – Document every process of each transaction, including invoice details, payment dates, and client communication. Also, ensure that all transactions are tracked using clear audit trails for compliance purposes.
The Future of B2B Billing and Payments
The B2B payments industry continues to grow at staggering rates. According to Fortune Business Insights, the market is expected to grow at an impressive CAGR of 11.9% and hit $174.38 trillion by 2030.
This amount of growth comes with various trends you should watch closely, including:
- Blockchain – Businesses continue to explore the adoption of block and cryptocurrency into B2B payments. Blockchain technology is a decentralized and immutable database that bolsters security, transparency, and trust. Cryptocurrency is a great payment alternative, especially for cross-border transactions.
- Real-time payments – Businesses want their money fast. This has led to an increased demand for quick processing. Modern B2B payment systems offer real-time payment processing which improves convenience for vendors.
- AI in B2B payments – Artificial Intelligence (AI) technologies such as Machine Learning (ML), Generative AI, predictive analytics, and Natural Language Processing (NLP) have the potential to streamline B2B payments further. Businesses are likely to adopt AI technologies in various processes like invoice management, customer service, fraud prevention, security compliance, and forecasting.
Conclusion
The B2B world is extremely competitive. Businesses that fail to adapt and level up to changing times end up going underwater. One of the solutions technology has made possible is B2B billing and payment systems.
Automating your billing processes allows you to boost accuracy, maximize efficiency, improve your business cash flow, and stay in the good books of the IRS.
But you need to go for the right billing solution. Features to look for include customizable invoices, integration capabilities, user-friendliness, multiple payment options, recurring billing, and transparent pricing.
Stax Bill offers you these features and many more. Schedule a demo today and improve your B2B billing efficiency.
