Choosing the right B2B payment processing solution
Explore the extensive landscape of B2B payment processing software providers to find the best possible solution for your SaaS business.
What are B2B payments?
B2B payments are those made between two companies for goods or services. For example, a company might make a payment to a supplier for office equipment.
These payments don’t involve the consumer, but instead, take place between two businesses directly.
There are several commonly used B2B payment methods that fall into different categories:
Person or process-based payments
Wire transfers (or ‘credit transfers’)
- Requires setting up bank accounts
- Provides a direct connection from one account to another
- Making payments usually involves a transaction fee for both sender and receiver
- Paper forms requesting the bank to make a payment on the sender’s behalf
- Significant hassle for the receiver to deposit cash
- Poorly suited to fast-moving modern business workflows
Automated tooling-based payments
- Require fraud prevention systems
- Require payment processes and global payments routing with acquiring banks
- Poorly suited to handling large transactions
Beyond just payment methods, B2B payment processing comes with a slew of additional requirements. Those include the need to issue invoices, handle sales tax exemptions, charge correct sales taxes, and set up various transaction sizes to support different levels of spend.
Also, B2B payment processing in a typical business is normally subject to finance department preferences.
Let’s say your business sells product licenses and normally accepts payment by credit card online. One day you land a large customer who wants to buy a license for everyone in their business. Given the size of the transaction, card payment isn’t feasible and they insist on paying by check. You’ll need to set up specific processes to handle that payment.
In short, B2B payment processing requires businesses to cater to their customers’ payment demands. Handling this internationally, as most SaaS businesses do, involves the added complexity of assorted payment methods, geographies, and business habits.
Why is B2B payment processing hard?
Handling B2B transactions presents a range of challenges for SaaS businesses. Much of the challenge comes from the spectrum between lower and higher value B2B transactions, and the methods used to handle these purchases. These are typically either self-serve at the lower end, or sales-assisted at the higher end.
Lower value B2B transactions: typical features
- Self-serve purchasing (just like consumers)
- Value lower than $1,000
- Buyer’s journey involves few human touchpoints, if any
- Credit cards commonly used
- Invoicing required
- Processed through automated payment gateways
Higher value B2B transactions: typical features
- Sales team assisted purchase
- Value higher than $10,000
- Buyer’s journey involves multiple human touchpoints, increasing spend on sales and customer service
- Wire transfer or check commonly used
- Invoicing required
- Payments processed manually – requiring more Finance headcount!
Different mechanics of the payment process have their own issues too – card payments and invoicing in particular.
Credit cards have limits, so customers typically can’t use them to pay for high-value B2B transactions. Even if the business has the funds, the finance team often doesn’t allow it. High-value transactions on a credit card can also trigger fraud warnings with the credit card company.
On the seller’s side, accepting credit cards means dealing with high fees. For example, American Express charges a fee of 3.5% on each transaction – a painful $175 on a $5,000 payment. That soon adds up!
Invoicing is another big challenge in B2B payment processing. For starters, invoicing costs your business money in terms of headcount and time spent on handling the invoices.
What's more, there’s no correlation between the value of invoices and the amount of work involved in processing them. You could process 1000 invoices for transactions of $10 each, or just one invoice for a transaction of $10,000.
And finally, invoicing is slow. Invoices are often sent by email, or, even worse, paid by checks sent in the post. That can cause delays which may take months to resolve.
The ‘B2B payments gap’
Handling payments from different customers based on vastly different transaction value sizes is an everyday occurrence for B2B SaaS companies. It’s only a matter of time before a growing business in this space will need to handle the two types of payment behavior outlined above. You’ll need to service both sides effectively and make sure they communicate with each other.
That’s why B2B payment processing is such a challenge for SaaS companies. For each customer, you must react quickly to however they want to pay. To do that, you need the correct infrastructure and human resources to handle both kinds of payment behavior – to bridge the ‘B2B payments gap’.
Top 5 reasons to look for an alternative B2B payment processing solution
Reason #1: The B2B payments gap
Many SaaS companies struggle with bringing together two different payment worlds based on customer spend levels: self-serve (lower-value) and sales-assisted (higher value).
When combined with the challenges of siloed data, processes and reporting, handling such complexity becomes a major pain point. Companies need increasingly advanced integrations to create and keep a single source of truth for their revenue data.
Handling two different payment worlds requires communication between multiple tools. But none of them are designed to do that. As a result, you'll need to reconcile data yourself, which requires dedicated support from engineering and revenue operations teams. You’ll burn through time and resources in the never-ending quest to mine daily data and force unrelated tools to play nicely together.
What’s more, SaaS companies struggling to bridge the B2B payments gap also have a tough time getting a handle on their key metrics. We often hear from companies that don't know their own monthly recurring revenue (MRR) at a single point in time.
That lack of knowledge has resounding implications for SaaS companies because it can hamper their growth. Without timeline insights from properly reconciled data, executives will struggle to take advantage of new market opportunities. That’s highly problematic for management accounting, board meeting preparations, and corporate governance.
Reason #2: Higher transaction costs
B2B payment processing requires various tools, including payment gateways, payment processors, or merchant of record (MOR) platforms. The cost of all these tools adds up quickly. For example, prices for just one tool can range from 2.5% to 7%.
And that's only for transaction costs. You'll also need to account for the costs of integrating the tool with the rest of your infrastructure, including analytics, subscriptions, sales tax compliance, and so on.
B2B SaaS companies dealing with higher value transactions also need to take headcount costs into account. Businesses that spend substantial amounts of money on software typically prefer to pay via invoicing, so you’ll need to hire accountants to deal with that as you scale. They’ll also want to discuss pricing, features and discounts and gather feedback on the product from their stakeholders before moving ahead with purchase. As a result, your SaaS company must factor in the hiring of sales and customer service teams.
Finally, higher transaction costs are driven by the need to create a comprehensive revenue infrastructure that brings together the siloed data and multiple automation tools – complete with a finance team to handle all that invoicing.
Reason #3: Compliance needs
The third reason for seeking an alternative B2B payment processing solution revolves around the inescapable need for global compliance.
SaaS companies selling to enterprise companies should have a SOC 2 audit to validate their security controls. Without that, many enterprise clients will be reluctant to buy from you.
Another key security aspect for B2B software sales is payment compliance. This is necessary to ensure security of credit card transactions. In a constantly evolving industry, SaaS companies need compliant payment flows to make sure their payment processes meet changing rules and regulations.
And don't forget GDPR, a legal protocol to enforce compliance to protect your customers’ data. Fines for breaching GDPR can be heavy.
In enterprise sales, procurement is another key aspect of B2B payments. When selling to large enterprises, companies must typically be on an approved vendor list. Getting on those lists isn't always easy, requiring various inspection processes and evidence of security protocols such as SOC.
Then there's the problem of sales tax. In some jurisdictions, B2B software is taxed. As an online seller, you have the responsibility to collect tax in all jurisdictions where you have customers, regardless of your physical location.
For example, businesses selling into the US, either from within the US or from other countries, must collect and pay sales tax to different states for all sales to customers located in those states. Some of the biggest US states now enforce these nexus tax laws due to recent US sales tax changes.
Reason #4: Payment failure
Another reason to seek B2B payment processing alternatives is the problem of failed payments.
High-value credit card payments often fail because bank fraud systems treat them as suspicious.
Wire transfers aren't perfect either. They can fail when one bank doesn’t communicate with another bank. That can happen because there’s no existing relationship between the two banks, or because there’s no international routing address.
Checks are also problematic because they can get damaged, lost in the post, or simply fail to deposit.
What’s more, renewals are a crucial factor in B2B payments. Many businesses hire full-time employees to make sure clients renew their contracts. Unfortunately, this is hard to scale and carries added headcount costs.
Reason #5: Unable to serve international customers effectively
When doing business in an international context, it's essential to serve global buyers in their local currencies. If you don't, your conversion rate will suffer. This is especially pertinent for companies selling software to a global audience (which SaaS companies do by default).
In international contexts, it's important to have relationships between banks around the world. Not having them can result in payment failures, such as when checks fail to deposit.
Also, it's increasingly common for global B2B SaaS companies to receive specific localized requests, such as having to accept a large payment in Russian rubles. These requests can multiply quickly when you serve global markets, so your company will need to set up suitable infrastructure to handle them, or lose out on revenue otherwise ready for the taking.
Choosing the right type of B2B payment solution
It's easy to feel overwhelmed when considering all the different B2B payment processing solutions. The key to success is to keep the above five reasons in mind and find a tool that addresses all of them.
Let’s take the example of a billing platform. It will handle billing of B2B payments, but it won't be able to deal with all the other processes around taking and reconciling payments. To sell software globally, you'll need something more comprehensive.
Our discussions with SaaS sellers have shown us that they typically choose from the following three options: revenue delivery platforms, payment processors, and merchants of record.
In the next section, we’ll examine the pros and cons of these three categories and look at the top competitors in each one.
Option #1: A revenue delivery platform
A revenue delivery platform combines all B2B payment processing tasks and supporting tooling into a single platform.
Using a revenue delivery platform offers the following benefits:
- Instant access to established international banking infrastructure for optimized payments in multiple countries and currencies, all via a single integration
- Maximize payment conversions with an optimized checkout experience
- Register, file and remit taxes globally, while also gaining peace of mind from offloading all liability onto an integrated compliance product
- Optimize your net recurring revenue with a flexible subscription tool
- Single source of truth about all payments and revenue data
- Fully integrated invoicing tied into all the other aspects
- Navigate the fast-growing SaaS market with dedicated growth support
Paddle (oh hey! 👋)
Paddle is a revenue delivery platform uniquely placed to tackle the pain points of the ‘B2B payments gap’. The platform is designed for SaaS companies with complex subscription needs and global customer bases requiring localization.
Using Paddle gives you access to all the revenue delivery platform benefits listed above, conveniently brought together in an all-in-one platform complete with full support for all your revenue delivery needs.
Option #2: A payment processor
Another possibility for handling B2B payments is to use a payment processor. But these tools are not necessarily well suited to the needs of global SaaS sales.
First, payment processors are typically limited to lower transaction values. If your business routinely handles higher value transactions, you'll need an alternative solution to avoid card payment failures.
Handling self-serve payments comes with added complexity, as it also requires taking care of subscriptions, different currencies, fraud, and sales tax compliance around the world.
What's more, as they’re not specifically designed for SaaS companies, payment processors come with limitations that can affect payment performance. These include problems with payment routing, dunning, and SaaS logic.
Also, the major challenge of global sales tax compliance doesn't go away when using a payment processor. You'll still be fully liable for registering, filing and remitting sales taxes globally – with severe penalties for error!
And finally, a payment processor forms just one part of your revenue delivery pipeline. It may seem cheap on its own, but costs soon stack up when you must factor in other essential tools.
Let's examine the pros and cons of major competitors in the payment processor space.
PayPal is a popular and trusted payment method, especially in the B2C market. In fact, it's Europe’s preferred way to pay online.
If you’re processing recurring payments from midmarket and enterprise companies, PayPal’s popularity means you can't avoid using it.
Most companies use PayPal alongside another payment gateway to offer more payment choices. That means another tool to pay for, on top of PayPal itself, Stripe being a popular option.
One major drawback, though, is PayPal’s lack of integration with Stripe, which means you'll have to manage this manually. That creates a burden on your engineering team and means you won't have a single source of truth for revenue data.
Another thing to bear in mind is PayPal’s customer subscription cancellation feature. It’s a risk factor for SaaS companies because it lets customers stop their subscriptions from within PayPal, rather than via your cancellation flow, creating a whole new source of potential churn.
A close competitor to PayPal, Stripe allows you to integrate payments, approve or decline transactions, and connect your acquiring bank to your customers’ issuing banks – without creating a separate merchant account.
Stripe is easy to integrate with other tools in the revenue delivery pipeline, thanks to its developer friendly APIs.
But one area where Stripe falls short is its lack of integration with PayPal. You'll end up using the two tools separately, dealing with siloed data and added setup burden.
Stripe doesn't have any buyer support, nor does it handle sales tax compliance. That weighty burden still falls on you.
Like other payment processing tools, Stripe forms just one part of the revenue delivery infrastructure. Handling subscription, localization and tax compliance will still be up to you.
If you’re running an enterprise level SaaS company, Adyen could be a good choice.
Its powerful payment features make it a good fit for large businesses with dedicated engineering teams to manage and maintain their revenue infrastructure. Adyen offers adjustable fees based on the volume of payments.
Adyen has flexible APIs for a range of integrations, along with extensive supporting documentation. The downside is that your engineering team will spend a lot of time handling it, which makes it less of a great fit for smaller SaaS businesses.
Another thing to note, just like other single payment gateways like Stripe, Adyen lacks the capability to re-route failing payments between multiple providers – lowering the chance of payments being successful.
Recently acquired by PayPal, Braintree is a payment gateway designed for taking online payments. The acquisition means Braintree has a native integration with PayPal, making it a good fit for selling to B2C and lower priced B2B – especially in European markets where PayPal is strongly preferred.
On the downside, Braintree still lacks the capability to route payments through multiple providers. In addition, it only handles the payments aspect of a revenue delivery strategy. You'll still need to deal with subscription billing, analytics, and localization issues, while still being liable for global sales tax compliance.
This fast-growing payment service is mainly used by midmarket and enterprise companies. Checkout.com’s recent acquisition of ProcessOut means it can now offer payment routing, making it stand out from the competitors. There’s an extensive choice of payment methods available, along with transparent pricing.
Despite these benefits, Checkout.com is still only a payment service. It doesn't handle any other aspects of the revenue delivery pipeline, such as sales tax compliance, data, or flexible subscriptions. What's more, Checkout.com’s manual approach can be time and resource heavy.
Option #3: A merchant of record
Using a merchant of record (MOR) is the third option for your B2B payment processing needs. Here we’ll look at what they are, what they do, and the main competitors in the MOR space.
First, what is a merchant of record? It’s the legal entity selling goods or services to a buyer. The buyer pays the MOR instead of the final seller (i.e., your business). MORs assume all liability for the transactions, including sales tax compliance.
However, MOR platforms are often expensive and have limited B2B capability. Primarily built in the early 2000s, MOR platforms are typically tailored for e-commerce or physical product sales, but not SaaS. They include B2B payment methods, but often lack the capability to handle modern billing processes.
What's more, MORs aren’t necessarily well suited to bridging the B2B payments gap. For example, they might offer wire transfer payments, but without syncing them to your CRM tool. This ends up creating data silos, compromising your ability to respond fast to new opportunities for growth.
With that context in mind, let's examine the pros and cons of the top competitors in the merchant of record space.
FastSpring offers core features including payments, subscriptions, tax, anti-fraud, and invoicing. However, with its focus divided between e-commerce and SaaS, FastSpring lacks the level of subscription flexibility that’s essential for B2B SaaS.
As a result, a typical SaaS business would need to customize the FastSpring subscriptions to fit the diverse needs of their customer base.
FastSpring has higher fees than alternative solutions. What’s more, if you ever decide to switch platforms, FastSpring may make it difficult for you to access your customers’ subscription data. (If you decide to switch to Paddle, our experts have lots of experience in handling FastSpring switchovers and will make sure the process goes smoothly for you – one less thing to worry about).
Next up is 2Checkout, a merchant of record platform that also offers a range of associated payment tools. 2Checkout positions itself as a monetization platform that supports sales of both physical and digital products.
2Checkout offers three main products:
- 2Sell – a payments processor
- 2Subscribe – a payments processing and subscription tool
- 2Monetize – the MOR platform
Unfortunately, 2Checkout has a big disadvantage when it comes to processing MasterCard payments. In April 2021, the company was forced to stop processing MasterCard payments for users in certain regions.
MasterCard is one of the world’s most popular payment options (37% of our credit card payments are via MasterCard) so losing this key capability could put your company at a significant disadvantage.
3. Digital River
Digital River is one of the older MOR legacy platforms, having started life as a B2C provider. Its key features include subscriptions, payments, fraud, tax and compliance management.
Digital River also offers a ‘headless commerce’ setup, which connects separate front ends to its MOR platform. Nevertheless, this is a more time-consuming implementation process than some of the competitors.
Unfortunately, Digital River lacks comprehensive buyer and seller support, so you'd have to deal with technical issues on your own. This creates problems both for your company and for your customers.
Digital River is moving towards a greater B2B focus, introducing new invoicing tools and core billing functionality. But, for the time being, it's difficult to look past the poor customer support and difficult implementation.
Cleverbridge includes several features suitable for use with SaaS sales. These include the following:
- Subscriptions, billing, payments and tax compliance
- Configurable pricing page layouts
- Shopping cart customization
Cleverbridge offers a lot of billing models and custom pricing page layouts. But they all require manual adjustment. That creates more work for the engineering team and more costs in terms of headcount.
Because of this, Cleverbridge is less well suited to smaller SaaS companies. It’s a better fit for larger firms with the resources already in place to manage a heavier integration.
Just like 2Checkout and FastSpring, Cleverbridge tends to make life difficult if you want to switch to another provider.
Cleverbridge also falls short in the essential area of customer support, achieving a poor score of just 1.5 on Trustpilot.
5. PayPro Global
The basic subscription models of PayPro Global pitch it more towards B2C use than B2B.
Key features of this merchant of record include:
- Subscriptions, billing, payments, support and tax compliance
- Checkout customization
- Ability to run and test upsell campaigns
Advantages of PayPro Global are its wide range of payment options, along with payment routing and a focus on digital products. As for checkout, the steps can be customized but branding options are limited.
On the downside, PayPro Global has higher fees than its competitors. It charges $1 on top of 4.9% of each transaction, which soon adds up.