What is business to business (B2B)?

Published Tuesday 19 May 2026

Table of contents

• What is business to business (B2B)?
• How the B2B model works
• Types of B2B businesses
• Where do B2B companies fit in the supply chain?
• Examples of B2B companies and industries
• B2B vs B2C: what's the difference?
• Advantages of B2B partnerships
• Challenges of B2B transactions
• How to manage your B2B relationships
• Simplify your B2B finances with Xero
• FAQs on business to business (B2B)

Key takeaways

• B2B (business to business) refers to transactions between companies rather than between a company and individual consumers. It includes everything from raw materials to software subscriptions.
• B2B relationships tend to involve larger order values, longer sales cycles, and more decision-makers than business-to-consumer (B2C) transactions, so building trust and delivering consistent value matters.
• Managing cash flow is one of the biggest challenges in B2B. Longer payment terms and fewer, larger clients can create gaps that affect your day-to-day operations.
• Cloud accounting tools like Xero help you track invoices, automate payment reminders, and stay on top of your B2B finances so you can focus on growing your business.

What is business to business (B2B)?

Business to business (B2B) is a type of transaction where one company sells products or services to another company. Unlike business-to-consumer (B2C) sales, where the end buyer is an individual, B2B deals happen between organizations.

B2B covers a wide range of commercial activity. A lumber supplier selling wood to a construction firm, a marketing agency providing services to a retailer, or a software company offering cloud accounting to other businesses are all examples. Xero, for instance, is a B2B company that provides accounting software to small businesses, accountants, and bookkeepers.

Nearly every business relies on B2B transactions in some way, whether it's purchasing inventory, subscribing to software, or hiring a professional services firm. Understanding how B2B works helps you make smarter decisions about your own business model and partnerships.

How the B2B model works

B2B transactions typically follow a structured process with multiple steps and decision-makers. Here's how a typical B2B sale unfolds, from first contact to final payment.

1. Identifying a need

A business recognizes a gap, whether that's a shortage of materials, a need for specialized software, or a service they can't handle in-house. For example, a Toronto-based bakery might realize it needs a wholesale flour supplier to keep up with growing demand.

2. Researching and evaluating suppliers

The buying business compares options, reviews proposals, and evaluates potential partners. In B2B, this research phase is often longer and more detailed than in B2C because the purchase amounts are larger and the stakes are higher.

3. Negotiating terms

Once a supplier is shortlisted, both parties negotiate pricing, delivery schedules, payment terms, and service-level agreements. A $50,000 CAD contract for IT services, for instance, might involve net-30 or net-60 accounts payable terms.

4. Placing the order and fulfilling it

The buyer places a formal purchase order, and the supplier delivers the goods or begins the service. Both sides typically use invoicing systems to document the transaction and keep records straight.

5. Managing the ongoing relationship

B2B deals rarely end at one transaction. Businesses build ongoing relationships through repeat orders, service contracts, and regular check-ins. Maintaining these relationships is key to long-term stability for both buyer and seller.

Types of B2B businesses

B2B businesses come in many forms, but they generally fall into 3 main categories based on what they sell. Understanding these categories can help you identify where your own business fits and where your best opportunities lie.

Product-based B2B

These businesses sell physical goods to other companies. Examples include raw material suppliers, manufacturers, wholesalers, and distributors. A steel manufacturer selling to a car maker, or a packaging company supplying boxes to an ecommerce retailer, are both product-based B2B.

Service-based B2B

Service-based B2B companies provide expertise or labour rather than physical products. This category includes consulting firms, marketing agencies, staffing companies, legal practices, and commercial cleaning services. Their value comes from specialized knowledge or capacity that the buying business doesn't have in-house.

Software and SaaS-based B2B

Software-as-a-service (SaaS) has become one of the fastest-growing B2B categories. These companies sell cloud-based tools that other businesses use to run their operations. Examples include accounting platforms like Xero, customer relationship management (CRM) tools, project management software, and communication platforms like Slack or Microsoft Teams.

Many B2B businesses span more than one category. A company might sell both a physical product and the software to manage it, or bundle consulting services with a SaaS subscription. The lines between categories are flexible, especially as more businesses adopt digital tools.

Where do B2B companies fit in the supply chain?

B2B companies operate at different levels of the supply chain, depending on how close they are to the end consumer. Understanding where your business sits can help you identify your customers, competitors, and growth opportunities.

Primary market

Companies in the primary market extract or produce raw materials. Think mining companies, agricultural producers, or forestry operations. In Canada, this includes businesses like potash miners in Saskatchewan or lumber producers in British Columbia. They sell directly to manufacturers or processors.

Secondary market

Secondary market businesses take raw materials and turn them into finished or semi-finished products. Manufacturers, assemblers, and food processors fall into this category. A company that turns raw lumber into furniture or processes canola into cooking oil operates in the secondary market.

Tertiary market

Tertiary market companies provide services and distribution that support the first 2 levels. This includes wholesalers, logistics providers, financial services, and SaaS companies. A freight company moving goods from a Vancouver warehouse to retailers across the country, or an accounting platform helping manufacturers track their finances, are both tertiary market B2B businesses.

Examples of B2B companies and industries

B2B transactions happen across nearly every industry. Here are some common examples, with a focus on companies and sectors relevant to Canadian businesses.

• Technology and software: Shopify (ecommerce platform), Xero (accounting software), and Hootsuite (social media management) all sell tools that other businesses use daily.
• Manufacturing and supply: companies like Magna International supply automotive parts to car manufacturers, while Saputo supplies dairy ingredients to food producers.
• Professional services: law firms, accounting practices, marketing agencies, and HR consultancies all operate on a B2B basis, providing specialized expertise to other organizations.
• Wholesale and distribution: wholesalers buy products in bulk from manufacturers and sell them to retailers. This includes everything from building materials to office supplies.
• Financial services: business lenders, payment processors, and commercial insurance providers serve other companies rather than individual consumers.
• Logistics and transportation: freight carriers, courier services, and warehouse operators keep goods moving between businesses across the supply chain.

If your business sells to other businesses in any of these areas, you're already part of the B2B world, even if you also serve individual customers on the side.

B2B vs B2C: what's the difference?

The core difference between B2B and B2C is who the customer is. B2B companies sell to other businesses, while B2C companies sell directly to individual consumers. This distinction affects everything from pricing to marketing to how decisions get made.

Here are the key differences:

• Buyer motivation: B2B buyers purchase to improve their operations, save money, or resell. B2C buyers purchase for personal use or enjoyment.
• Decision-making: B2B purchases often involve multiple stakeholders, formal approvals, and detailed evaluations. B2C purchases are typically made by one person, often on impulse or emotion.
• Sales cycle: B2B sales cycles are longer, sometimes weeks or months, because of the research and negotiation involved. B2C transactions can happen in seconds.
• Order value: B2B orders tend to be larger in dollar terms. A single B2B contract might be worth $100,000 CAD, while a typical B2C transaction might be $50.
• Relationships: B2B depends on ongoing, trust-based relationships. B2C relationships are often transactional and shorter-lived.
• Pricing: B2B pricing is often negotiated, volume-based, or customized. B2C pricing is usually fixed and publicly displayed.

A practical example: Xero sells accounting software to businesses (B2B), while a budgeting app like YNAB sells directly to individuals managing their personal finances (B2C). Some companies operate in both spaces. A coffee roaster might sell wholesale beans to cafés (B2B) and retail bags to consumers through an online shop (B2C).

Advantages of B2B partnerships

Strong B2B partnerships can give your business a competitive edge and create a more predictable revenue stream. Here are the main advantages of selling to or partnering with other businesses.

Larger order values

B2B transactions are typically bigger than B2C ones. A single business client might order hundreds or thousands of units at a time, or sign a contract worth tens of thousands of dollars. This means fewer sales can generate significant revenue compared to selling to individual consumers.

Stronger long-term relationships

B2B buyers tend to stick with suppliers they trust. Once you've proven your reliability, clients are more likely to reorder, renew contracts, and refer you to others. These long-term relationships create stability and reduce the cost of constantly finding new customers.

More predictable revenue

Many B2B arrangements involve recurring orders, retainers, or subscription models. This predictability makes it easier to forecast income, plan your spending, and scale your business with confidence.

Streamlined business structure

Serving a smaller number of higher-value clients can simplify your operations. You can focus your resources on fewer accounts, reduce marketing spend compared to mass-market B2C campaigns, and build deeper expertise around the specific needs of your business clients.

Challenges of B2B transactions

B2B selling has clear advantages, but it also comes with challenges that can affect your bottom line if you're not prepared. Here are the most common ones to watch for.

Cash flow management

B2B payment terms are often 30, 60, or even 90 days. That means you might deliver products or services long before you see the money. For small businesses, these gaps can create serious cash flow pressure, especially if you have your own suppliers to pay in the meantime.

Customer dependence risk

When a large portion of your revenue comes from a small number of clients, losing even one can have an outsized impact. Diversifying your client base helps reduce this risk, but it takes time and effort to build a broader portfolio of B2B relationships.

Demand forecasting difficulty

B2B demand can shift quickly based on your clients' own market conditions. If a major client cuts back orders because of a downturn in their industry, your revenue can drop without much warning. Accurate forecasting and maintaining a financial buffer are important safeguards.

Complex decision-making processes

B2B sales often involve multiple decision-makers, lengthy approval chains, and detailed procurement processes. Closing a deal can take months, and a change in leadership at a prospective client can reset the process entirely. Patience and relationship-building are essential.

How to manage your B2B relationships

Building a successful B2B business isn't just about landing clients; it's about keeping them. Strong relationship management leads to repeat business, referrals, and more predictable revenue over time.

Connect with your customers regularly

Don't wait for problems to reach out. Schedule regular check-ins with your key clients to understand how their needs are evolving. Ask for feedback, share updates about your products or services, and look for ways to add value beyond the original contract.

Study your competition

Know what other businesses are offering your clients. If a competitor launches a new feature or drops their pricing, you want to be aware of it before your clients bring it up. Staying informed helps you respond proactively rather than reactively.

Build your reputation

In B2B, your reputation is one of your biggest assets. Deliver on your promises, meet deadlines, and be transparent when things go wrong. Ask satisfied clients for testimonials or case studies you can share with prospects. Word of mouth carries significant weight in B2B circles.

Use technology to stay organized

As your client list grows, keeping track of contracts, invoices, payment terms, and communications gets more complex. Cloud-based tools can help you manage these details without things falling through the cracks. Accounting software, CRM systems, and project management platforms all play a role in keeping your B2B operations running smoothly.

Negotiate terms that work for both sides

Healthy B2B relationships are built on fair terms. If a client's payment terms are stretching your cash flow, have an honest conversation about it. Offering small discounts for early payment or adjusting delivery schedules can help both parties stay comfortable.

Simplify your B2B finances with Xero

Managing B2B finances means juggling invoices, tracking payment terms, and keeping a close eye on cash flow. Xero's cloud accounting software helps you stay on top of all of it in one place.

With Xero, you can send professional invoices, set up automatic payment reminders, reconcile bank transactions daily, and get a clear view of your cash flow at any time. It's built to save you time on admin so you can focus on building the B2B relationships that grow your business.

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FAQs on business to business (B2B)

Here are answers to some frequently asked questions about business to business (B2B) transactions and partnerships.

What is B2B vs B2C?

B2B (business to business) involves selling products or services to other companies, while B2C (business to consumer) means selling directly to individual customers. The main differences are in order size, sales cycle length, and how purchasing decisions are made.

What are examples of B2B companies?

B2B companies include software providers like Xero and Shopify, manufacturers like Magna International, professional services firms like law practices and marketing agencies, and wholesalers that supply products to retailers. Any business that sells primarily to other businesses rather than individual consumers is a B2B company.

How does B2B ecommerce work?

B2B ecommerce uses online platforms to facilitate transactions between businesses. Buyers can browse product catalogues, request quotes, place bulk orders, and manage their accounts digitally. Many B2B ecommerce platforms also integrate with accounting and inventory software to streamline the process.

What are the benefits of B2B partnerships?

B2B partnerships typically offer larger order values, more predictable revenue through recurring contracts, and stronger long-term client relationships. They can also simplify your operations by letting you focus on fewer, higher-value accounts rather than a large volume of individual customers.

How do you manage B2B relationships?

Effective B2B relationship management involves regular communication with clients, delivering consistently on your promises, staying aware of competitor activity, and using technology to keep track of contracts and invoices. Building trust over time is the foundation of lasting B2B partnerships.