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What Is a B2G Business Model?

What Is a B2G Business Model?

B2G stands for “business-to-government,” which means that instead of a company selling goods or services to individual consumers or other businesses, they sell to the government or other public entities. Usually, they have access to restricted areas that anyone outside of the government or military would normally not have, such as when civilian government contractors for Boeing provide services for the U.S. Defense Department by building missile defense systems or providing maintenance for Air Force One.

As such, B2G businesses also have different requirements to complete their sales for security purposes. Their employees may have to pass more stringent background checks, and confidentiality is expected. In some cases, when a government agency seeks out services from the private sector, those contractors will need to attain special clearance before they can even begin the contracted work. Government agencies also work differently from privately-held businesses, who can usually make decisions pretty quickly. Red tape and bureaucracy can slow down the process of working with a government agency. Seemingly endless regulation, approvals, and vetting must be done by the agencies before they can get a contract signed, and the work started.

So with all of these setbacks and challenges, why do privately-owned businesses like working with government contracts? Because they’re usually a lot more than the contracts they would get from independent consumers or even B2B companies. Government agencies also provide more stable work that can last for several years or decades. When businesses develop a great reputation among government agencies, and when those agencies enjoy working with them, it can be a lucrative and stable endeavor for a privately-held business.

Saving Money with B2G Processing

Bigger contracts mean that more money is being passed between your business and the government agency you are contracting with. But with that also comes another downside: you will have to pay higher fees on credit card transactions made between those contractors and your company. Every time you process a credit card you must pay a fee to the credit card issuer for the service of using them, which is called the interchange rate. These rates vary from company to company and can range from 1.8% with a $.10 cost per transaction to 2.4% plus $.10 per transaction. These costs are significant and could be causing you to lose money.

How Can I Lower My Costs when Processing B2G Transactions?

Interchange Pros has some suggestions on how to reduce your B2G processing fees by switching to level III credit card processing, which is the highest processing level and the one with the lowest rates. The difference between the levels is how much information they ask for at the time the transaction is taking place. More information means that a transaction is more secure, and so the credit card companies reward merchants for the extra information by lowering their rates.

Growing a B2G business is a lot of work, but you don’t have to lose a lot of your profits to interchange rates. Make sure that your transactions meet the minimum requirements for Level III processing, preferably, or at least for Level II. Remember, you will save more when you process at Level III rates, so the sooner you get set up with B2G processing, the sooner you will enjoy savings.

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by Harvey Carr // Harvey Carr is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.