A company’s revenue model serves as a framework for how a business generates income, outlining what to sell, how to sell it, and who will pay for the goods or services being sold. Business to business (B2B) and business to consumer (B2C) payments are integral components of a company’s revenue model, shedding light on who the business is selling to. The characteristics of a business and the payment products and services they utilize vary based on whether the payment model is B2C or B2B. Let's delve into the details, defining each model and identifying the key players involved in the transactions.
What Are B2B Payments in Credit Card Processing?
When there is a transaction between merchants involving the exchange of goods and/or services, it is considered a B2B payment. The B2B payment model relies on one business selling its services or products directly to another business, with both parties involved being businesses.
What Are B2C Payments in Credit Card Processing?
Conversely, if there is a transaction between a merchant and an individual for the exchange of goods and/or services, it is deemed a B2C payment. Everyday scenarios like purchasing items at a supermarket, gas station, or any other store for personal use fall under the category of B2C transactions.
How B2B Payments and B2C Payments Differ in Merchant Processing
The fundamental difference between B2B and B2C payments lies in the number of individuals involved in the transaction. B2B payments, involving multiple people in business-level purchasing decisions for organizational purposes, are distinctly different from B2C payments where a consumer pays for goods and/or services for personal use.
Business to Business Store Front: Characteristics of B2B and B2C Payments
While additional considerations may arise, particularly in high-risk industries, three key differences between B2B and B2C payments are crucial: payment size, payment frequency, and payment terms. Understanding these characteristics provides insights into the distinctions between B2B and B2C payments, without delving too deeply into industry nuances.
Payment Size in Credit Card Processing
Payment size refers to the average price of each transaction. Typically, B2B payments are larger than B2C payments due to scale and pricing considerations. For instance, a local coffee shop, a B2C merchant, may see smaller transactions for a cup of coffee and a pastry. In contrast, a B2B coffee bean distributor selling to local coffee shops across the city can transact a much larger volume, resulting in significantly larger transactions.
In addition to scale, the average price of goods and/or services in a B2B transaction is higher. A business law firm charges more for its services than its customer-facing counterpart. The combination of higher average prices and large volumes gives B2B payments an advantage over B2C payments in terms of transaction size.
Payment Frequency in Credit Card Processing
The quantity of transactions is typically higher among B2B businesses compared to B2C businesses. Exceptions exist based on industry and the nature of goods and/or services. For instance, B2C payments may outpace B2B payments in frequency for fast-moving consumer goods like those sold at gas stations or grocery stores.
B2B companies operate at a larger scale because businesses consume at a faster pace than consumers. Businesses with 100 or more employees need to reorder goods more frequently than a family of four. Moreover, businesses make purchases that contribute to their supply chain, such as raw goods or components for production, resulting in a higher transaction frequency.
Payment Terms in Credit Card Processing
B2B and B2C payments differ in the terms and structure of transactions. For a business law firm, the relationship between the lawyer and the business owner is a significant dynamic considered by the business owner when choosing their legal partner. Business decisions often involve collaboration among decision-makers and may take longer, especially for substantial purchases.
In contrast, personal transactions, like buying a morning coffee or a weekend scone, involve fewer decision-makers and have a faster turnaround time. Additionally, consumers often pay for goods or services before receiving them, while businesses typically receive the goods or services first and then receive an invoice. This approach is more manageable for businesses with recurring purchases essential to their business model.
The Most Popular Methods of B2B Payments in Credit Card Processing
1.ACH Payments: Automated clearing house (ACH) payments, including direct deposit, direct payments, and electronic checks (eChecks), pass through the ACH network. ACH B2B payments are a popular and reliable option, with the ACH Network processing 29.1 billion payments worth $72.6 trillion in 2021. [1] ACH statistics continue to grow, indicating the sustained relevance of this payment method.
2.Checks: Checks remain a simple, reliable option with a check number aiding in accounts payable tracking. Approximately 80% of B2B payments use checks as the preferred method, [2] although they are gradually losing ground to digital alternatives.
3.Credit Cards (P-Cards): Purchaser Cards (P-Cards), a type of commercial credit card, allow businesses to distribute cards to employees for purchasing goods and services. Similar to consumer credit cards, businesses pay off the card at the end of the month, often at a reduced processing rate compared to consumer cards.
4.Wire Transfers: While not as popular as checks, wire transfers play a vital role in the B2B payment landscape, especially for handling large transactions conveniently. The Federal Reserve Bank notes that even a small shift of 2% of check payments to wire transfer systems would represent a significant 47% increase in wire transfer volume. [3] Despite their smaller volume, wire transfers remain a reliable option for merchants across various verticals.
Considerations for Your Business in Credit Card Processing
When partnering with a merchant processing company, understanding how these differences impact payment procedures is crucial to ensuring effective business operations. This includes considerations such as saving costs by eliminating unnecessary fees, streamlining information for quicker processes, and minimizing operational challenges.
In the realm of credit card processing, merchant accounts, and payment gateways, adapting to the unique characteristics of B2B and B2C payments is essential. Whether your business operates in a high-risk industry or is involved in credit repair, CBD, or e-commerce, tailoring payment processing strategies to the specific needs of your business model is key to success. Embracing reliable and popular payment methods, such as ACH payments, checks, credit cards, and wire transfers, ensures seamless transactions and contributes to the overall efficiency of your business.
Recognizing the nuances of B2B and B2C payments, coupled with a strategic approach to credit card processing, empowers businesses to navigate the complexities of the modern financial landscape successfully.
Footnotes:
- "What Is An ACH Payment And How Does It Work?" , Forbes, 2021. Forbes Advisor
- "What are B2B Payments? Definition, Methods, & Trends for 2023", MSI data, 2023. MSI data
- "Business-to-Business Wire Transfer Payments Study", FRBServices.org, 2002. FRBServices.org
Author
Writing for Touchsuite, Jonathan Bomser, is a technology and marketing expert with over 30 years of industry experience. He is a businessman, writer, artist and musician. He has vast knowledge of finance, business and technology. Jonathan is currently founding, investing and board advising in several early stage and start up companies. Jonathan has been involved in Technology, Media, Marketing and Advertising for a multitude of Fortune 500 companies for over 30 years.He has served as a strategic, creative and marketing executive and consultant for both parent companies and subsidiaries at AOL, The National Football League, The Walt Disney Company, NBC, MTV, Viacom, Time Warner, USA Today, Alliance Entertainment, WPP, Penguin USA, along with numerous other established companies, start-up ventures and reorganizations.Jonathan was the CEO and Founder of BigLinker.com, which was acquired by Ziff Davis (Nasdaq: ZD) in 2021, CEO and Founder of TownTarget.com from 2013-2015 which was acquired by Touchsuite/American Bancard in 2015 and previously Bomser Payan Interactive Agency from 2008-2012 which was acquired by Big Step Interactive/Digital Marketing Associates. Jonathan was the key developer for the technology used to power many of their successful digital campaigns. Clients included national brands such as Adidas, PNC Bank, Massage Envy, European Wax Center and others.Jonathan has also helped manage the technology initiatives, creative strategies and business development for AIM Pages.com, AOL’s Social Network. Since May 2006, Jonathan has also been consulting for technology, marketing, sales and creative strategies for Veoh.com, BigString.com, Vuguru.com and others. Before consulting for these major companies, Jonathan was a principal in En Pea Productions,Inc. which was a television production company focused on reality television, commercials and music videos. Jonathan is also the former Board Member, CEO and President of WoozyFly.Inc. Trading on under the symbol WZFY.Jonathan's current projects at AccountSend.com, VocalChimp.com and CoolValidator.com
Touchsuite is located in Boca Raton, FL and is a payment processing and point of sale company that specializes in merchant accounts, point of sale systems, Grubbrr self-ordering kiosks.
Recent Posts
