B2B transactions: How it works

Posted by News Express | 16 January 2020 | 886 times

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First of all, let us identify some terms, shall we?

 

Transactions.

 

A transaction is a business activity which brings together at least one buyer and one seller for the exchange of goods, services, and financial instruments.

Financial instruments are cash – banknotes, cheques, drafts, credit cards, debit cards, bonds, stocks, shares, et cetera.

These transactions can be trade by barter, the transfer of goods, services, and financial instruments for other goods, services, and financial instruments.

Foreign exchange services swap funds denominated in one currency for funds in another currency.

Loans are another form of barter and involve an exchange of funds for principal and interest, where applicable.

Sometimes, real estate owners transfer landed property in exchange for another landed property.

Any difference in the price worth of the two property transferred is settled via cash or some other agreement.

More commonly these days, transactions occur through a medium of exchange, such as, banknotes – money and other financial instruments.

In Nigeria, the Naira (₦) exists as banknotes and the Kobo, coin currency, has become an endangered commodity.

Few Nigerians utilise the Kobo in payments.

Attempts to reintroduce the Kobo met rebuffs from citizens who did not want to carry heavy coins in their pocket.

Transactions are rounded to the nearest Naira.

Correction: rather, goods and services are charged to the nearest five Naira (₦5).

Nigerians appear not to mind the potential loss of cash in hand, provided charges do not increase exponentially.

Charges do rise, but that is a story for another day.

Business To Business (B2B)

B2B or B to B is defined as transactions that occur between a business and another business.

Examples:

1. Warehouses or wholesale stores that buy from manufacturers (B2B) and sell to small businesses (B2B).

Observe both ends of these transactions are B2B:

Manufacturer to wholesaler;

Wholesaler to small business.

2. A livestock or poultry farmer who supplies fresh meat to restaurants and supermarkets.

3. A footwear designer who launches advertisement campaigns via media houses.

4. An information technology (IT) company which services, repairs, and upgrades the network coverage of telecommunications companies and Internet service providers (ISPs).

5. A freelance Author who pens articles to be published in a magazine owned by another enterprise.

Observe the variation between the B2B and a B2C business models.

The latter does business with consumers.

The consumers in B2C models are the end users of the products and services.

Examples of B2C include retail stores that sell household goods and groceries to customers.

Operating a B2B

As with other businesses, a B2B requires:

a. A type of business – goods, services, or both. If goods, what specific products? If services, the specific services to offer.

b. Target market.

c. Demand or potential demand for those products or services.

d. Evaluation of the competition for that product or similar products.

e. Survey of the business location to identify companies that can buy the product.

f. Contacting the companies to offer the product.

g. Establishing long-term business relationships.

Example:

An entrepreneur can decide to start a solar energy business, installing solar panels, direct current-alternate current (DC-AC) inverters, batteries, and other gadgets on business premises.

Constant electricity supply is a major issue in Nigeria, so there ought to be a market for an alternative means of power generation.

Of course, homeowners can value this product, as well.

Should the entrepreneur choose to focus on businesses, one should be aware many businesses run a petroleum-based generating set.

To offset that competition, one has to convince the market that solar energy is cost efficient in the long run.

Its ease of use and maintenance should be mentioned.

The entrepreneur will note the larger the company the greater their energy needs.

The energy profile of a company determines the number of gadgets to be installed on the premises.

Of value is the durability of the batteries.

A six-hour battery will be sufficient for a one-employee business.

Any corporation larger than that will require a power battery or set of batteries to sustain operations.

The solar energy type of business can be accompanied with provision of services, such as maintenance and repairs.

Critical is the training of the buyer company on how to handle the gadgets to avoid damages.

B2B Risks and Benefits

Businesses have the right to negotiate the terms and conditions of doing business with another firm.

They have a say in forms of payment, frequency or timing of payment, service or product delivery schedule, customisation of products and services.

The flip side is larger corporations may be inclined to exploit the naïveté of small business owners.

A conglomerate has access to better lawyers and may deliberately default on payment.

Establishing business contacts with other businesses may be difficult, as businesses prefer known and trusted names to new entrances in the market.

Small businesses may appreciate the product, but not offer a cash payment for the product.

They may not have the cash or they may be accustomed to purchases on credit, even if they do have the cash.

 

 

•Umm Sulaim is the Publisher of Umm Sulaim’s Thoughts (https://iamummsulaim.wordpress.com).

Copyright © 2019 Umm Sulaim. All rights reserved.


Source: News Express

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