Business-to-Business (B2B) enterprise systems and services have become increasingly important for Small and Medium Enterprises (SMEs) over the last few years. Their major potential is observable in the massive reduction of business transaction costs and enhanced cross-sectoral collaboration. A successful B2B marketplace should ensure greater transparency and trust while performing business processes. Among different ways to build transparency and trust, IoT-based traceability system can enable partners to track products and monitor the quality of production processes. Partners can principally trust each other and can avoid fraudulent malpractices. It is, however, still insufficient to prevent fraud and fight against counterfeit and inferior products due to data manipulation. Blockchain technology is a promising technology to prevent fraud through its data immutability characteristic. However, the adoption of Blockchain technology in IoT-based traceability system for SMEs entails significant challenges. For example, the transition of a large volume of IoT data from company-owned databases to Blockchain network would require a significant shift in terms of IT infrastructure. This paper discusses the typical challenges and presents an approach to handle them. It can be helpful to pave the way to support SMEs adopt Blockchain technology in IoT-based traceability system.