Table of contents
The global B2B eCommerce market is worth a huge USD $20.4 trillion, more than five times the size of the B2C market. And it’s set to grow at a rate of 25% by 2030. With Asia Pacific holding nearly 78% of the market share, Australian businesses are right in the mix of this thriving sector.
Whether you’re launching a new business or fine-tuning your current processes, getting your B2B payment systems right keeps things running smoothly – not just your funds, but also your operations and client relationships. Let’s explore how B2B payments work, the different payment methods available and what to look for when choosing a B2B payment system.
What are B2B payments?
B2B (business-to-business) payments are the transactions between businesses for goods or services. Unlike B2C (business-to-consumer) payments, which involve selling directly to individual customers, B2B payments involve one business paying another.
Whether it’s a retailer ordering stock from a wholesaler, a cafe settling its account with a coffee supplier, a beauty salon paying for cleaning services, or a small business hiring an accountant – these are all B2B in action. (If you’d like to know more about B2B eCommerce, including benefits and best practices, this beginner-friendly guide goes into extra detail.)
B2B payments tend to involve larger amounts, more formal agreements and a bit more complexity, which means the systems that handle them need to be more robust and secure.
What is a B2B payment system?
For these transactions to happen, a B2B payment system comes into play. This platform or network facilitates payments between businesses. It acts as a bridge between you and your supplier, ensuring money flows smoothly and securely.
A well-functioning B2B payment system is essential for businesses that regularly transact with other businesses. It keeps cash flow healthy by processing payments quickly, which in turn helps build trust and positive relationships with your suppliers by being reliable. Plus, streamlined payments save time by reducing admin work. In short, it’s the backbone of your financial operations. Without an effective payment system, you could be left dealing with delays, miscommunication or even lost payments, which could derail your reputation.
How do B2B payments work?
For B2B payments to successfully transfer between businesses, several processes are needed to ensure accurate and efficient transactions. They typically involve:
- Contracting: Before any money changes hands, most B2B transactions start with a contract. This document outlines the scope of work, deliverables and payment expectations. A clear, thorough contract ensures you and your client are on the same page and avoids misunderstandings down the line.
- Term sheets: For larger or more complex deals, a term sheet is often used. This document summarises the key points in the contract. It’s like a cheat sheet for what’s been agreed on, so everyone’s crystal clear about the main details.
- Purchase orders: When one business places an order with another, a purchase order formalises the request. It’s essentially a document that confirms, “Here’s what we want, and here’s what we’re paying for.”
- Establishing payment terms: Will the payment be due upfront, in instalments or after the project is completed? Clear payment terms are critical as they set the timeline and expectations, giving both parties clarity and helping to prevent disputes. Terms like ‘net 30’ (payment due in 30 days) are commonly used in B2B agreements. Some agreements might include incentives for early payment or penalties for late payment, which helps to keep everything on track.
- GST considerations: In Australia, most B2B transactions include GST. To comply with ATO requirements, ensure your invoices are GST-compliant to keep your records in order. It’s also wise to stay updated on any tax changes to maintain compliance.
- Creating invoices: Invoices are your official request for payment and include details like a breakdown of costs, payment terms and your preferred payment method. Aside from requesting payment, it’s also a professional document that reflects your professionalism while making it easy for clients to pay you on time.
- Choosing payment methods: B2B payments can be made in several ways (which we’ll cover in the next section). Selecting the right method depends on your needs and what works best for you and your clients.
- Payment reconciliation: After receiving payment, ensure it’s correctly matched to the corresponding invoice. Reconciling payments with your records keeps your accounts accurate and reduces financial errors.
- Sending payment reminders: Sometimes, payments don’t come through on time. Sending a friendly, polite reminder can help nudge your client without straining the relationship.
- Record-keeping for compliance: Good record-keeping isn’t just for peace of mind – it’s a legal necessity. Storing contracts, invoices and payment records helps with tax reporting, audits and analysing business performance.
Types of B2B payment methods
You’ve got several choices when it comes to B2B payments. Each has its pros and cons, and choosing which depends on your business and client needs.
Cash transactions
Although uncommon in modern B2B dealings, cash is still used in some industries. It’s immediate and universally accepted, but not practical for large amounts or long-distance transactions. Handling cash also comes with risks, like theft or loss.
Direct debit payments
Direct debits are convenient for recurring payments, such as monthly subscriptions or regular supplier fees. They’re reliable and reduce admin time once they’re set up, but they require authorisation from the paying business.
Card payments
Credit and debit card payments are quick and convenient, especially for smaller transactions. However, processing fees can add up over time, especially for large payments, making them less ideal for every situation.
Wire transfers
Wire transfers are a secure way to send money directly from one bank account to another. Unlike direct debits, which are set up to automatically withdraw funds regularly, wire transfers are typically one-time payments for specific transactions, especially in international transactions. While widely accepted, they tend to have higher fees and take longer to process. They also usually need to be processed during business hours, which can delay payments if done outside these hours.
Digital payments
Digital payments allow businesses to process transactions quickly and securely, often with just a click online or a tap in person. These systems are especially handy for online transactions and offer convenience and speed. However, it’s important to be aware of any fees involved and ensure the payment platform integrates smoothly with your accounting system.
Cheques
Cheques are rare today, but some businesses still use them for formal or traditional transactions, such as with older clients and legacy systems. Their decline reflects the move towards more efficient, secure digital payment methods. With that, several banks in Australia have begun to phase out cheque services – and we’re set to see it disappear altogether by 2030.
How to choose a B2B payment system
When selecting a B2B payment system for your business, it’s important to choose a solution that not only meets your current needs but also supports your growth and long-term goals. Here are some points to consider:
- Payment security: Security should be your top priority. Look for systems with encryption, compliance with security standards, and strong fraud prevention measures to keep your money safe. For example, Square provides data encryption, PCI compliance, advanced fraud prevention and 24/7 monitoring as part of its standard service to protect payments.
- Transaction speed and reliability: Cash flow is king in any business, so you’ll want a payment system that processes transactions quickly and reliably. Delays can disrupt operations and strain relationships with vendors, so it’s important to consider processing times and reliability based on what works best for your business.
- Fees and costs: Different payment systems come with varying fees, including processing charges, credit card fees, international transactions and hidden fees. It’s also worth considering whether the system offers transparent pricing. Analyse and compare your options to find a system that fits your budget.
- Integration with existing systems: A good payment system should work seamlessly with the business tools you already use, such as ERP, accounting software or CRM platforms. Having streamlined processes saves time, reduces manual errors and makes managing payments easier in the long run.
- User experience and accessibility: An intuitive platform benefits you, your team and your clients. Choose a system that’s easy to use and requires minimal training for staff.
- Scalability: As your business scales, your payment processes may become more complex. Look for a B2B payment system that can grow with you and easily adapt to your increasing transactions, users and evolving needs.
Trends in B2B payments
The B2B payments landscape is evolving fast, driven by new tech that’s reshaping how businesses manage financial operations.
More businesses are embracing digital and mobile payment solutions for their speed, efficiency and real-time access to payment data. The rise of B2B eCommerce and the move towards online portals are also transforming how businesses handle invoicing and payments, especially for those managing international transactions. At the same time, automation is revolutionising processes such as invoice generation and payment reconciliation, significantly reducing admin workloads and improving efficiency. As digital payments become the norm, B2B payments companies are focusing their efforts on cybersecurity and compliance, helping businesses meet regulatory standards.
With these shifts in B2B payments, Australian businesses are experiencing less friction in their transaction, fewer admin burdens and greater peace of mind around security. By adopting a reliable digital payment solution, you can take advantage of fast, secure transactions, automated workflows and real-time reporting – helping you stay ahead, improve cash flow and future-proof your business for long-term success.
