The Complete Guide To B2B Payment Processing: Credit Cards, ACH, Software & More

Are paper checks costing your business more than you think? That is the burning question you may want to ponder as we explore the good, the bad, and the ugly of the B2B payments landscape. We’re going to look at the current state of affairs of paper checks when it comes to B2B sales and why this laborious little unassuming piece of paper is sticking around well past its expiry date. Beyond this, we are going to look at what your customers — who are also just people when it comes down to it — need when it comes to paying you (and paying you on time!).

Whether you’re knee-deep in the comings and goings of accounts receivable or you’re standing afar in another department, the issue of payments affects you, your employees, and your customers more than you may realize. Find out how you can cut costs, save time, and get paid faster with B2B payment processing — not to mention find the solution that fits the needs of your business. Let’s begin with the basics.

How Are B2B Payments Different Than B2C?

It’s probably somewhat obvious, but a B2B payment is a payment made between two businesses for a product or service. A business-to-business sale may be a one-off purchase or an ongoing agreement. B2B payments have a plethora of factors and challenges that don’t affect the business-to-consumer world in quite the same way. First, the sheer volume of the B2B payments industry is in the trillions, while the B2C industry sits in the billions. Next, businesses deal more frequently with contracts, which means that recurring transactions make up a big chunk of payments with their own set of challenges (e.g., a backlog of invoices).

Payment delay can be a hurdle for small to mid-sized businesses — even affecting overhead and operations. In contrast with a B2C transaction that typically gets settled on the spot, a B2B payment can experience delays in the payment cycle, which can last one to three months. An even further delay in payment can cause more frustration, not to mention add to the overall cost as internal teams must devote energy to these accounts.

And finally, each B2B payment itself passes through a lot more hands during that payment cycle, including accounts receivable, accounts payable, and other players in the billing and sales team. And many of the times, it’s a check. That’s because despite paper checks being practically an antiquated idea to most of us when we’re doing personal shopping, paper checks are still the ole standby for nearly half of businesses in the United States.

But should they be? If a business could reduce the number of hands that a payment needs to pass through, it theoretically reduces the workload on the team and frees up time for more important tasks — such as procuring more clients and improving relationships with current ones.

Let’s take a look at the types of payment methods that are possible so that we can get an even clearer view of the B2B payments landscape.

Understanding B2B Payment Methods

There’s a bit of some interesting history when it comes to the seismic shift we’ve seen from paper checks to electronic payments over the last couple of decades. And it all started with national security. After September 11, 2011, the Federal Aviation Association placed restrictions on all domestic flights. Because planes containing billions of dollars in paper checks were delayed or grounded, the Federal Reserve Bond responded with the Check 21 Act, which authorized the electronic clearance of checks. Now, a digital image could replace the physical check. It’s not hard to see that this shift affected the rest of the payment landscape, too. Digital payments were necessary, and technology was keeping pace. We now have more ways to accept payment than ever before.

Some of the most common payment methods (other than paper checks) in the B2B space include:

• Electronic Bank Transfer: One of the safest and most reliable ways of giving and receiving payment is through the Automatic Clearing House (ACH). We will discuss this option more and how to get it working for you further down in this post.
• Wire Transfer: This option is a fast way to move money from one account to the other. Often only taking hours, money is wired between banking institutions through a financial network (e.g., SWIFT). Are you confused about the difference between ACH and wire? Check out our post, ACH VS Wire Transfers: Which Payment Method Is Right For You.
• Credit Cards: Accepting a credit card payment can work in person, over the phone through a virtual terminal, through an invoice, and through a payment gateway (a software application that allows you to accept payments online on your website). These can be one-off payments or recurring payments.

So you’ve got some options — now what? If you’re reading this, then you’re probably open to change, but it’s also a sure bet that not everyone in your organization will feel the same way. When we look at some of the research surrounding the B2B payments industry, it’s clear that we’ve got some work to do.

B2B Payment Methods: Why It’s Time To Adapt To the 21st Century

As we dug into the subject of paper checks and the B2B payments industry, we found that the attitudes that permeate the business world don’t always match up with what’s necessarily best in reality. In a study shared by Deloitte, small business owners “strongly prefer paper checks to any other payment method.”

Here’s the problem with that: According to the Bureau of the Fiscal Service, a business is 125 times more likely to have an issue with a paper check than with an electronic payment. That’s a sobering reality and one that needs to sink in. Another reason to rethink the paper check is that several bigger organizations, including Bank of America, did research on the aggregate cost of the paper check, and it’s estimated to be $4 all the way to $20 or more per check! That somewhat surprising figure includes the cost of the check itself, shipping, and time spent in the entire payment cycle within the whole organization.

From tampering to other types of fraud, time spent in processing and record-keeping, and just plain human error, paper checks can be more trouble than they’re worth when it comes to keeping funds flowing efficiently. So let’s explore how we can update your organization’s B2B payment options, shall we?

Understanding The Importance Of B2B Payment Solutions

When we talk about payment solutions, the crux of the matter when it gets right to the heart of it is that your payment solution should provide just that — a solution — to your particular organization’s challenges.

By switching from paper checks to digital B2B payment options (such as credit cards and ACH), you can trim your payments cycle in half, which helps solve a widespread challenge in the B2B space — staying cash flow positive. No matter how successful your business is, however, finding ways to improve efficiency is going to save you time and money.

For instance, instead of sending an invoice and waiting for a paper check the old fashion way, you could send a digital invoice as soon as the job is done. And after that, you could send reminders automatically. By doing these things, you make it easier for your clients to pay instantly (and stay on top of those who don’t).

Getting paid faster is not all you can look for in B2B payment solutions, however. The B2B payment options you have to choose from are growing each year, and many offer an all-in-one solution that allows you to not only accept payments in person, online, or by invoice but also integrates with CRM and accounting, too.

Nowadays, you can also gain all kinds of insights about your sales team, your customers, and the life cycle of the sale. Analytics and reporting offer invaluable insights to help you connect and understand the landscape of your company in all kinds of ways. Whether these services cost a lot or a little depends on the platform itself as well as the size of your company, processing volume, services, integrations, and more. Let’s dig a little deeper and see what you need to know when it comes to B2B credit card processing.

Everything You Need To Know About B2B Credit Card Processing

The first step in getting started is doing a bit of research, so you’re on the right track! Choosing a processor can, unfortunately, be a frustrating experience if you aren’t aware of some of the tricks of the trade. All of the merchant account provider reviews that you’ll find on our site are broken down into categories with a rating and scoring system so that you can peruse the most important aspects, including:

• Products and services
• Fees and rates
• Contract length and early termination fees
• Sales and advertising transparency
• Customer service and technical support
• User reviews

Right off the bat, I can tell you that I am most leery of contract length for merchants, so pay close attention to that no matter what company you’re considering. That’s because we see time and again that merchants sign on the dotted line without reading their contract. In doing that, they can also become an unwitting victim in what can be iffy sales and advertising transparency issues.

You see where I’m going: We always urge you to read your contract before signing, and never take what any salesperson says to you to the bank unless you see it in writing. The great news is that on our site here at Merchant Maverick, you’ll find in-depth resources to help you determine for yourself if a solution is right for you. If you’re interested in researching some of our top-rated, all-in-one solutions, check out our full posts on Dharma, Payment Depot, and Square.

Why B2B Companies Can Qualify For Lower Credit Card Processing Rates

If you process most (or at least a substantial portion) of your transactions as business-to-business, you can enjoy lower interchange costs as well as lower overall processing costs. However, you may have to jump through a few hoops to establish yourself as a B2B merchant, and the specialized software you’ll need to take advantage of those lower rates isn’t free. You’ll want to evaluate very carefully whether it’s cost-effective to add specialized B2B processing services to your merchant account.

Classifying With A Merchant Category Code (MCC Code) For A Special B2B Rate

Not to be confused with the Merchant Identification Number (MID), Merchant Category Codes (or MCC codes) are assigned by the credit card associations to classify businesses according to the products and services they provide. Before you can take advantage of the lower interchange rates available for B2B transactions, you’ll need to be assigned an MCC code that identifies you as a B2B merchant.

Unfortunately, all the major credit card associations have their own set of MCC codes, and they all treat them differently when it comes to B2B transactions. Visa, for example, will offer you a discounted interchange rate on B2B transactions if you’re assigned a qualifying MCC code and meet certain other criteria. Mastercard also uses MCC codes but doesn’t offer a discount for B2B transactions.

Because each card association uses its own set of MCC codes, your business will end up with a separate code for each type of credit card you accept. Establishing the proper MCC code for your business is ultimately up to the credit card associations, although your merchant services provider can assist with this task to make sure you’re assigned an appropriate code.

What You Need To Know About Data Levels

In case you’re already feeling a bit overwhelmed, the good news is that processors can (and should) assist you in setting up what you’ll need to collect the proper information when it comes to data levels if you opt to go for specialized B2B rates. The primary reason is that you’ll need some specialized software to input the sale correctly and here’s why:

Credit card associations recognize three levels of payment data. Each has its own requirements for information that a merchant gathers at the time of the sale: Level I, Level II, and Level III data. Each major credit card association has its own separate way of classifying this data, too. Visa, for example, refers to these three data categories as “data levels,” while Mastercard calls them “data rates.” (Nothing is made simple in the world of payment processing!)

For standard transactions between your business and individual consumers, you only need Level I data to process your transaction. Level II and III data is not submitted, as you won’t get a discount on these interchange rates. Because most businesses primarily sell to individuals rather than other businesses, your merchant account is likely only set up to handle Level I data — unless you add a service to record and transmit Level II and Level III data. This option is usually only available as an optional upgrade, and you’ll often be charged an additional monthly fee for it.

Here’s an overview of the typical data requirements for each data level:

Level I data is required for all transactions, B2B or otherwise, and generally includes the following fields:

• Merchant DBA name
• Transaction amount
• Billing zip code

Level II data includes all Level I data, and the following additional fields:

• Sales tax amount
• Customer code
• Merchant postal code
• Merchant tax identification number
• Invoice number
• Order number

Level III data includes all Level I and Level II data, plus the following additional fields:

• Product commodity code
• Item ID or SKU
• Item description
• Unit price
• Quantity
• Unit of measure (each)
• Extended price
• Line discount

As you can see, entering Level III data requires a lot of additional information for each transaction. Unfortunately, manually entering this data on a standard countertop credit card terminal is not an easy process. If you’re using a virtual terminal or a payment gateway, it’s a little easier since you’ll have access to a full alphanumeric keyboard. Some merchant services providers can also set you up with a specialized software load for your terminal that automatically captures the required data, but you’ll have to pay extra for it. The bottom line is that manually entering Level II and III data is only a practical option for merchants who only handle the occasional B2B transaction and for whom specialized B2B processing software would not be cost-effective.

Again, the good news is that your processor will assist you in setting up what you need, and it’s not too complicated once you get started.

Security & PCI Compliance

PCI compliance is related to the level of data you collect as well. That’s because PCI compliance has to do with security, but it doesn’t just stop at the information you collect — it has more to do with the security of that data during the transmission and storage. We’re talking fraud protection, and it is vital to staying in business.

Being PCI compliant is an absolute necessity because, without it, you can be liable for fraudulent charges and any data breaches that occur. (And they are a lot more common than you might think.) So how do you make sure you have it?

Your merchant account will either have PCI compliance included in the total of the offering (such as Square), or you may need to pay an additional PCI compliance fee for the tools your provider offers. It’s up to you to make sure you are fully PCI compliant, so it pays to get a general lay of the land and be informed. A good introductory post on the subject is What Is PCI Compliance? Why Business Owners Need To Learn The Ins & Outs Of PCI Compliance.

Other Electronic Payment Methods For B2B Companies

Let’s take a moment and think back to the bullet list we shared near the beginning of the post that listed how a business can receive payment. You don’t necessarily have to accept credit cards to modernize your accounts receivable; you have a lot of options. One of the best ways to take advantage of going paperless and avoid taking credit cards is setting up ACH payments for your clients.

Why ACH Works Great For B2B Payments

ACH is relatively cheap, easy, and takes a lot of the grunt work out of payments. ACH is a type of electronic fund transfer that allows your clients to pay you directly with their bank account and can make taking recurring payments easy, too.

While ACH is often offered in tandem with credit card processing, you can also find standalone offerings. Check out Everything You Need To Know About Accepting ACH Payments. 

Understanding PayPal & Zelle

Some other pretty simple ways to bring more options into your B2B sales are through PayPal and Zelle. These two options allow for easy fund transfers by bank accounts through just an email or phone number. Transferring funds takes mere minutes, and because you aren’t storing any data on your own servers, you won’t need to jump through all of the hoops to ensure PCI compliance. It’s all done behind the scenes.

Want more information on mobile processing options that can help you keep things leaner and get paid faster? Check out Mobile Payment Apps 101: How To Get Paid For Anything, Anywhere. (You’ll find a section devoted to Zelle within this post, too.) To find out more details about PayPal as a processing option, check out our full PayPal review.

Why It’s Time To Upgrade Your B2B Payment Infrastructure

Paper checks not only drain more time out of an organization but they also inherently come with a lot more security risks and problems than most realize. Despite this, paper checks are hanging on for dear life. From well-known corporations to the small mom-and-pop, sometimes what we’ve always done seems like the path of least resistance. However, adding new payment options for your customers is not only a step in the right direction as far as saving time; it can trim down your payment cycle and get you paid faster. And that’s what it’s all about!

We have more resources to help support you when it comes to getting paid. Check out our posts 10 Strategies To Improve Cash Flow and Slow Paying Customers? 10 Tips To Get Your Invoices Paid Faster.