The Payment Flows of a B2B Marketplace

Hokodo

Making sure that marketplace payment flows move quickly, accurately and securely is fundamental to the success of a B2B platform. Working with fintech partners is the key to getting it right.

Managing B2B marketplace payments can be complicated. Trade purchases often involve large order volumes, high transaction values and long payment terms. Add in multiple currencies plus international tax and regulatory considerations and it’s easy to see how bottlenecks can occur.

To ensure a smooth payments journey, B2B marketplaces need specialised solutions and processes to handle complex transactions, manage credit risk, ensure compliance and win the trust of business partners.

Not every marketplace gets this right. It’s estimated that just one-third of total B2B expenditures globally are processed electronically, opening the door to mistakes and delays. With 25% of sellers representing 88% of all marketplace revenue, such problems can be costly.

To avoid some of these pitfalls, it’s helpful to understand all the different players and moving parts in marketplace payment flows, the common challenges that marketplaces face and the solutions you can employ to make everything work smoothly.

The different roles in a marketplace transaction

B2B marketplaces are made up of buyers, sellers and the marketplace itself, with payment service providers (PSPs) facilitating transactions. 

Buyers initiate transactions by placing orders for the desired products or services and authorising payment for the purchases made.

Sellers offer products or services on the marketplace, send invoices to buyers after receiving an order and arrange delivery.

Marketplaces act as intermediaries, providing a platform where buyers and sellers can connect. They facilitate transactions by hosting product catalogues, enabling order placement and often integrating with payment service providers to streamline payment processes.

Payment service providers (PSPs), including banks, payment gateways and fintech companies, ensure the smooth transfer of funds between buyers and sellers. They handle payment authorisation, fund transfer and often provide additional security measures to protect sensitive financial information.

How money moves in a marketplace

To better understand marketplace payment flows, let’s break the process down into the different stages:

1. Order placement

Buyers browse the marketplace, choose desired products or services, and place orders. The marketplace confirms the availability of the items and generates an order summary.

2. Invoicing

Sellers receive the order details and generate invoices, including itemised costs and any applicable taxes or fees. These invoices are sent to buyers for payment authorisation.

3. Payment authorisation

Buyers review the invoices and authorise payment, either manually or through automated processes. The marketplace validates the payment details and confirms the availability of funds before proceeding.

4. Fund transfer

Once payment is authorised, the PSP facilitates the secure transfer of funds from the buyer’s account to the seller’s account. This may involve encrypting sensitive data, adhering to compliance regulations and confirming transaction settlement.

5. Reconciliation

The marketplace and PSP ensure that the transaction details, including amounts, fees and commission charges, are accurately recorded and reconciled.

The top 3 payment flow challenges

As money moves through the steps described above, there are several challenges that can prevent marketplaces from achieving a smooth and secure payment process.

1. Payment delays

Various factors can cause delays, such as manual payment authorisation processes, technical glitches or issues with fund transfers. These can affect cash flow for both buyers and sellers, leading to dissatisfaction and potential disruptions in business operations.

2. International transactions

Cross-border transactions introduce additional complexities, including currency conversions, regulatory compliance and varying payment methods across different countries.

3. Security concerns

With the rise in cyber threats, ensuring the security of sensitive payment information is paramount. Marketplaces and PSPs must implement robust security measures, such as encryption, tokenisation and multi-factor authentication, to protect against fraud, data breaches and unauthorised access.

Fintech solutions

Platforms can address these challenges with fintech solutions that help to keep B2B marketplace payments flowing smoothly. The following are all areas where fintechs can help to support marketplaces.

1. Cross-border payments

International payment solutions simplify currency conversions, handle compliance with regional regulations and support multiple payment methods. They can also handle payment authorisation workflows, multi-level approvals and comprehensive reporting.

2. Secure integration

APIs and enterprise connectivity solutions allow secure, seamless data exchange between marketplaces, buyers and sellers. This streamlines processes such as order management, invoicing and payment reconciliation, ensuring accurate and efficient payment flows.

3. Trade credit

Trade credit solutions allow sellers to offer extended payment terms without sacrificing cash flow. This ensures liquidity and working capital for sellers while offering buyers the payment flexibility they expect. Such solutions can also mitigate credit risk, protecting sellers against non-payment or default by buyers.

4. Financial crime

Artificial Intelligence and machine learning algorithms can detect and prevent fraudulent activities in B2B payments. Advanced analytics and pattern recognition help identify suspicious transactions, without unnecessarily flagging legitimate transactions.

Keeping payments flowing

Payments are no longer an afterthought for marketplaces — they are now a key part of the customer experience and can be used to build trust and reputation, which are increasingly important qualities for B2B marketplaces.

Efficient and reliable payments can also be a crucial differentiator as marketplace competition grows and margins come under greater pressure.

Fintech providers are making it easier than ever for B2B marketplaces to unlock these benefits, helping them to drive growth to the next level.

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