B2B payments for wholesale merchants: What you need to know
B2B payments have a significant impact on your business growth. Unlike simple consumer transactions, payments between businesses involve multiple layers of complexity, such as regulation, data security, and invoicing.
Moreover, B2B payments can be massive, especially for wholesalers or distributors selling in bulk. That said, if your business offers volume-based discounts to encourage larger orders, your payment system needs to do even more heavy lifting. It must apply the correct discounts based on order quantity, handle flexible payment terms, and process high-value transactions securely.
In this guide, we will walk you through the definition of B2B payment, how it works, common B2B payment methods, and best practices for using B2B payment solutions.
Understanding B2B Payments: Key differences from B2C
B2B payment is a transaction between two businesses for goods or services, typically involving negotiated payment terms and methods.
B2B payments are fundamentally different from B2C transactions. Let's explore the main differences between these two payment types:
B2B payments | B2C payments | |
|---|---|---|
Transaction value | Much larger compared to B2C payments, with the monetary amount reaching up to $41,118 per transaction, according to Paddle | Smaller compared to B2B payments |
Payment cycle | Formal and lengthy, often involve a multip-step process | Fast and simple, most of the time instantaneous |
Negotiability | Highly negotiable | Standardized and non-negotiable |
Legal framework | Governed by Commercial Contract Law (presumes equal bargaining power) | Heavily regulated by Consumer Protection Laws |
Documentation | Extensive, including a Purchase Order, Invoice, delivery confirmation, and many more | A simple receipt |
Despite the difference, the concept of both B2B payments and B2C is shifting toward an emerging approach called B2P, or “business to people”. According to Intero Digital, B2P emphasizes the human aspect of all decision makers in the buying process.
This means that you should expect to see B2B payment solutions becoming more user-friendly and intuitive, with interfaces and experiences that rival consumer payment apps.
With the rise of digital commerce, the younger generations of buyers are demanding a more B2C-style experience. In fact, a Digital Commerce 360 survey points out that seven in ten B2B buyers now prefer to place orders online rather than via phone or email.
On the other hand, B2C payments are also evolving toward B2B-style models. Subscription-based pricing, traditionally dominated by B2B businesses, is now increasingly popular among consumer products and services.
How do B2B payments work? A simple breakdown
Stage 1: Procurement and invoicing
A B2B transaction starts when a buyer wants to purchase products or services. Internally, the executives from the buyer’s side will create a document called Purchase Requisition (PR) that outlines the quantity and requirements for the products and services.
The buyer then researches potential suppliers and collects quotes by asking the suppliers for a Request for Quote (RFQ) or Request for Information (RFI). After evaluating prices, quality, and delivery time, the buyer will select a supplier to start the negotiating process.
Once two sides have agreed to terms and conditions, the buyer creates a Purchase Order (PO) — the official intent to purchase. This will be an important document for future payment receipts. Remember that a PO is a legally binding document.
The supplier fulfils the order and then delivers the intended goods or service to the buyer, along with a delivery note. At the same time, issuing a Sales Invoice to the buyer's Accounts Payable department. The invoice is a payment request that typically references the original PO’s information.
The buyer then creates a Receiving Report to confirm receipt and condition of goods.
Stage 2: Verification and approval
Before approving payment, the buyer's financial team carefully checks that everything matches up. This process is called three-way matching. The team will compare the three different documents to make sure they align:
Purchase Order (what was ordered)
Receiving Report (what actually arrived)
Invoice (what the seller is charging)
Stage 3: Payment execution
In B2B payments, the payment method will be negotiated between both parties, but it often depends on bargaining power. Although the seller includes the payment terms and payment options available on the invoice, the actual method can be influenced by the pre-existing agreement between the two businesses.
The buyer's finance team then prepares the payment by entering and verifying the seller's information, such as:
Seller's bank account information or payment details
Invoice number and amount
Payment date
Any reference notes
Once verified, the payment is submitted to the bank or payment processor. Depending on the company's payment schedule, this might be part of a batch with other payments or processed individually.
Stage 4: Reconciliation and settlement
The transaction is then finalized by both parties after the seller's Accounts Receivable (AR) department receives the payment. The seller confirms the outstanding balance has been cleared and often sends a payment confirmation to the buyer.
During this stage, any discrepancies, such as partial payments, overpayments, or errors, are identified and resolved through communication between the AP and AR teams. This reconciliation process is crucial for accurate financial reporting and helps both parties maintain clean books.
Since the transaction process is already complicated, you need to be careful when it comes to choosing the right B2B payment methods for your business.
Different types of B2B payment for volume-based discount
If you're a wholesaler or distributor offering volume discounts, here's the good news: your payment methods stay the same, except for the invoice amount. In fact, the volume discount gets calculated and applied to the invoice upfront, before any payment discussions happen. After that, the buyer uses a standard B2B payment method to settle the discounted amount.
The most common types of B2B payment methods used for these large, often high-value, transactions include:
ACH (Automated Clearing House) payment
ACH is a popular electronic payment method for B2B transactions. It's a type of EFT (Electronic Funds Transfer) that processes the payment between bank accounts through a secure, centralized system.
This payment method is primarily used in the United States, where it's managed by NACHA (National Automated Clearing House Association). NACHA is a nonprofit that operates the network linking all US banks together for seamless electronic transfers.
ACH is popular with B2B businesses for domestic payments because it offers much lower transaction fees than wire transfers or credit cards. However, standard ACH processing time takes 1-3 business days, which is slower compared to same-day domestic wire transfers.
There are two ways businesses can conduct ACH payments:
Directly through the bank: You set up ACH payments through your business banking platform. Although the fee is lower, you have to do more manual work and less automation than payment processors.
Through a 3rd-party payment processor: Services like Stripe and Melio offer more automation and features than banking platforms. However, fees are higher, typically ranging from 0.8%-1.5% of the transaction amount, sometimes with flat fees or caps depending on the processor.
Wire transfer
A wire transfer is a type of Electronic Funds Transfer (EFT) that facilitates the direct movement of funds between bank accounts, typically across different banks or financial institutions. While some modern banking platforms can automate wire transfers, they usually require more manual work to set up and send compared to other digital payment options.
Wire transfers are typically managed through one of the three systems:
Fedwire: Operated by the Federal Reserve, it is the most widely used system for domestic wire transfers in the United States. Fedwire processes payments immediately, ideal for urgent, high-value B2B transactions.
CHIPS (Clearing House Interbank Payments System): A private system run by The Clearing House, handling both domestic and international wire transfers. CHIPS uses a netting system that batches and settles transactions at specific times in the day. Commonly used for cross-border USD payments.
RTP (Real-Time Payments): The newest system, launched in 2017 by The Clearing House. As the name indicates, it offers immediate availability of funds. While RTP has transaction limits, it is suitable for merchants seeking speed and convenience.
Despite all the benefits, a wire transfer costs more than any other B2B payment type, with fees that can range from $15 to $45 per transaction.
It's important to note that wire transfers are irreversible, which makes them vulnerable to fraud. Unlike credit card payments or ACH transfers that can be disputed or reversed, once a wire transfer is sent, the funds are gone.
Commercial credit cards
From the buyer’s perspective, banks and card issuers offer generous rewards programs and interest-free grace periods when balances are paid in full. Major banks and issuers like American Express, Chase, and Capital One also offer specialized B2B credit card solutions designed to help businesses manage cash flow better.
On the seller's side, not only do you have to pay the processing fees, but the fees are often a percentage of the total transaction amount. Furthermore, many card issuers often have a credit limit, which is not ideal for high-value transactions.
In some industries where buyers have more bargaining power, it’s not a question of whether to accept credit card payments. To manage these costs, the most common strategy is credit card surcharging: adding an additional fee when buyers pay by card, effectively passing the processing cost to them.
You need to be mindful of the regulations on surcharging: some states prohibit it entirely, and card networks have specific requirements sellers must follow.
Digital payment services
Digital payment services involve using platforms such as PayPal Business, Stripe, Square, and Melio to make domestic or international payments quickly and securely.
These platforms facilitate quick transactions without requiring the sharing of banking details with the other party. Money moves between platform accounts, with both parties' bank accounts connected behind the scenes for funding and payouts.
Most platforms typically charge you based on a percentage-based fee structure. For example, Stripe offers a 2.9% + 30¢ rate per successful transaction for domestic credit cards, and an additional 1.5% for international cards. If you require currency conversion, that will be an extra 1%.
In addition to transaction fees, platforms will charge other fees such as:
ACH/Bank transfer fees: A different rate (often lower, or a flat amount with a cap) for direct bank transfers instead of credit/debit card payments.
Chargeback fees: A fee is charged when a customer disputes a chargeback, which may be refunded if the merchant wins the dispute.
Payout fees: Fees for instant or expedited access to funds.
Currency conversion fees: Some platforms add a margin to exchange rates. If you have to make transactions globally, better check with your payment platforms about the percentage charged.
SEPA transfer
SEPA was launched by the European banking and payments industry with the support of national governments. SEPA includes 41 European, non-euro area, and non-EU countries.
To make SEPA transfers, you will need two things:
International Bank Account Number (IBAN): An international standard for identifying bank accounts for cross-border transactions
Bank Identifier Code (BIC): the European equivalent of a US bank account number
Most SEPA payments settle within one business day, though exact timing depends on whether you use standard or instant SEPA transfers. The time can range from a couple of seconds to six business days for settlement.
Paper checks
But here's the thing: paper checks are actually one of the slowest and riskiest ways to handle B2B payments.
First of all, paper checks are sent by mail, which means they can take days before reaching the final destination. While the buyer benefits from the extra time to manage cash flow more tightly, it is a burdensome process for the seller. Not to mention the exposure to mail theft.
However, the buyer is also in trouble when it comes to paper checks. If the funds are insufficient when the seller tries to cash the checks, it will bounce. In this case, the buyer will be hit with Bank insufficient funds fees and late fees, charged by the seller for late payments.
The seller may also be charged by their bank for the bounced check, making this payment method even more problematic.
The hidden dangers of traditional B2B payment methods
Taking B2B payments features some of the challenges you should know about:
Slow workflow: Traditional B2B payment processes are time-consuming and labor-intensive. Manual invoice processing, lengthy approval chains, and reliance on physical checks create significant payment delays. These delays hurt cash flow and operational efficiency.
Security risks: B2B payments are prime targets for fraudsters, especially when large amounts are involved. Phishing scams, stolen checks, and invoice fraud are just a few of the threats you have to face.
Error-prone reconciliation: Manual payment matching is tedious and full of mistakes. Tracking invoices becomes a nightmare when you're dealing with spreadsheets and paper trails. One small data entry error can throw off your entire books.
Limited transparency: It’s hard to track payment status with traditional methods. Without real-time visibility, you can't see when payments will arrive or where they are in the process. This makes cash flow forecasting nearly impossible.
Damaged business relationship: Late payments frustrated your recipients. Constant delays can even harm your reputation. Worst-case scenario? Legal action or collections.
Benefits of digital B2B payment solutions
With tech-savvy business leaders taking charge, B2B payments are going digital and moving away from traditional methods. They also believe that their buyers are ready to transition to making payments digitally.
And for the best, digital payment solutions have solved many of the problems that plague traditional methods:
Faster process, better security
Digital B2B payment solutions let you process transactions more quickly and securely. For instance, electronic funds transfers process the payment in near real-time, reducing the risk of delays and fraud.
Digital B2B payment solutions also make reconciliation and record-keeping easier. When connected to your accounting software, payments update automatically, reducing manual entry and human error. You can also view transaction status at any time to manage cash flow more efficiently and stay on top of outstanding invoices.
With advanced security measures such as encryption and two-factor authentication, digital B2B payment solutions make sure your sensitive payment information is safe. Moreover, B2B customers also qualify for level 2 and level 3 data processing, which allows them to provide extra transaction details for lower interchange fees and faster approvals.
Easier payment collection
Digital B2B payments reduce the time it takes to clear compared to checks or paper invoices. For instance, you can get paid earlier and improve your cash flow with features like automated invoicing and online payment links.
Thanks to digital B2B platforms, your AR team can track payments in real time using a dashboard. It will show when an invoice has been sent, viewed, or paid, helping forecast cash inflows more accurately. This transparency also makes it easier to resolve disputes quickly.
Lower your business costs
Better customer experience
Digital B2B payment solutions offer flexibility for your buyers that traditional payment methods can’t match. Instead of relying on paper-based or phone-call methods, buyers can just pay online at any time and from any location, and enjoy a smoother overall experience.
Plus, the advanced security built into digital B2B payment services also helps strengthen customer trust and confidence with every transaction.
Tips to choose the right B2B payment platforms
There are many B2B payment platforms to choose from for your bulk pricing transaction. But selecting the right payment solution is no easy job. Here are some of the key factors to keep in mind when you evaluate different platforms:
Security level: Your B2B payment platform needs strong encryption and multiple layers of security. Virtual cards are a perfect example: you generate them for one-time use or specific vendors, set spending limits, and if anything goes wrong, your main account stays protected.
Integration ability: The platform should seamlessly integrate with your tech stack. While Shopify has its own payment platform, you may have other preferred methods of your own. Make sure the solution works with your accounting software (like QuickBooks or Xero), your ERP system, and any other tools you use daily.
Customer support: When it comes to large-volume transactions, the quality of support is important. You don’t want your payment getting jeopardized by any issues or downtime. Look for B2B payment platform reviews on sites like Gartner’s before making purchases.
Fees: Each payment platform has its own pricing structure. By understanding how fees are applied to different transaction types, you can better anticipate costs and prevent unexpected charges in the future.
Conclusion
For wholesale merchants, adopting digital B2B payment solutions has become a necessity rather than a convenience. With faster payments, automated invoicing, and flexible checkout options, you save time and cut costs. When paired with a volume discount strategy, you even create a seamless purchasing experience that turns every transaction into growth.
Ready to take your wholesale store to the next level?
FAQs
Harry Nguyen
Digital Marketing Specialist at Qikify
Hi, I’m Harry, your friendly neighborhood marketer at Qikify. I am all about providing E-commerce merchants like you with the best insights and industry tips to help you grow your online stores and drive more sales.
Out of office, I like working out at a gym and learning about all things E-commerce and Marketing.
Feel free to reach out to me on LinkedIn. I’m always up for a coffee chat with other marketing folks and store owners to exchange ideas and explore potential collaborations.
TABLE OF CONTENT
- Understanding B2B Payments: Key differences from B2C
- How do B2B payments work? A simple breakdown
- Different types of B2B payment for volume-based discount
- The hidden dangers of traditional B2B payment methods
- Benefits of digital B2B payment solutions
- Tips to choose the right B2B payment platforms
- Conclusion
- FAQs
