B2B Payments

The Case Against B2B Credit Card Payments

B2B companies spend an average of $2.2 million in credit card processing fees for every billion of revenue, according to new research released, but the company suggests this in an avoidable burden.

As reported last week on PYMNTS.com, B2B credit card payments  have doubled in the past two years and is expected to represent 10 percent of all payments this year, increasing the amount companies are spending on fees. This begs the question: Is it worth accepting credit cards for B2B companies? No, the report suggests.

“It’s not hard to understand why B2B customers have doubled their use of credit cards over the past few years, even for five and six figure payments,” the report said. “It’s an easy way to extend time to payment, and transaction processing cost to the purchaser is low. In addition, companies can often accrue rebates and rewards. But for B2B sellers, the cost of accepting credit cards far outweighs the benefits.”

Swipe fees from credit card companies have also doubled in the past decade, the report said, and U.S. fees are now the highest in the world. Researchers said companies needs to be proactive and re-evaluating and potentially changing payment policies in order to avoid the wasted revenue spent on fees.

“As a result, the spiraling cost of allowing credit card payments can easily cut into bottom-line profitability. Any company that is not actively reviewing how and when it accepts credit cards is willingly squandering away margin,” the report said. Still, companies remain slow to adapting, in large part of fear of losing customers, giving competitors and edge, and cutting into amount of commission sales staff receives from revenue, the report concluded.

The report “encourages U.S. companies to carefully evaluate what forms of payment they accept from clients, and consider both incentives and disincentives to encourage customers to use other electronic payment methods that benefit both the payer and the payee. A comprehensive analysis should evaluate the impact of payment methods on cash flow, cost, risk, and service. Companies [should] consider multiple strategies to reduce the use of credit cards by their customers. Through a strategic analysis of the customer base, companies can develop a stratified payment method acceptance plan that takes into account payment terms optimization, migration to other forms of payment, and trade-offs, modeling to evaluate concessions such as discounts in lieu of payment by credit card.”

As detailed in a Wall Street Journal article, the attraction to using credit card payments came from companies struggling to get out of the credit card crisis have been enticed by credit card offer perks, favored getting rid of checks and ensuring more fraud protection. But that trend cut profit margins and end up benefiting the credit card company more than the companies using the service.

So which figures should be considered when evaluating B2B company credit card policies? To start, cost. Electronic payment can be less labor-intensive, less error-prone and sometimes less expensive, the report said, but there are other, more beneficial, types. Electronic funds transfers, automated clearinghouse, direct debut are a few options, that the report said offers lower processing costs than credit card acceptance, have faster turnaround and are just as easy to complete. If those options aren’t favorable to a company, other suggestions include: “renegotiating credit card fees, considering alternative payment processors, surcharging credit card transactions, establishing convenience charges, and implementing multi-tier pricing.”

Alternatively, the report said the easiest solution to ridding the unnecessary burden of credit card processing fees may simply be to no longer allow B2B payments where the pricy credit card terms are offered. That option, while seemingly unfavorable to some companies, would rid credit card fees and processing costs all together.

“Companies are understandably cautious when making changes like they ones we’re proposing. They need help understanding how and when they can apply new regulations to their credit card policies, because there’s a lot of room for interpretation, and not a lot of guidance out there for B2B companies. There’s also concern that policy changes may spark customer discontent,” the report said.

“But we are not aware of any B2B company in our database ever reporting a loss of business due to a strict credit card acceptance policy,” the report said. “Still, communication is a critical element of success here. Internal staff need to understand policy changes and why they’re being made, and how to answer questions. Customers need to be told what’s happening, and how they can potentially benefit by changing their payment procedures. There’s potential for a win/win. But it takes careful analysis, thoughtful planning, and real cooperation.”


New PYMNTS Study: Subscription Commerce Conversion Index – July 2020 

Staying home 24/7 has consumers turning to subscription services for both entertainment and their day-to-day needs. While that’s a great opportunity for providers, it also presents a challenge — 27.4 million consumers are looking to cancel their subscriptions because of friction and cost concerns. In the latest Subscription Commerce Conversion Index, PYMNTS reveals the five key features that can help companies keep subscribers loyal despite today’s challenging economic times.