Credit card fees: an avoidable burden for B2B companies - report

According to a recent research from REL Consulting, a division of The Hackett Group, companies could significantly improve their profit margin by changing acceptance policies for credit cards.

REL Consultings research estimates that B2B companies in the US now incur an average of USD 2.2 million in credit card processing fees per billion of revenue. Credit cards usage for B2B payments has increased dramatically over the past few years and is expected to represent 10% of all payments in 2014. REL estimates that approximately 60 to 85% of credit card fees can be avoided by making changes to credit card acceptance policies keyed to the organisations business model, customer base, customer risk, and competitive landscape.

REL Consulting encourages US 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.

REL Consulting also recommends that companies 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 optimisation, migration to other forms of payment and trade-offs, modeling to evaluate concessions such as discounts in lieu of payment by credit card.

The report explains that cost is the first thing that companies should consider. Electronic payment methods are significantly less expensive, labor-intensive and error-prone than cheques, which remain the most popular form of payment for B2B companies, as the research suggests. But some forms of electronic payment – in particular electronic funds transfer and automated clearing house or direct debit – are clearly preferable to the seller, as they offer lower processing costs than credit card acceptance, faster turnaround times than traditional cheques and are less labor intensive to process, REL Consulting’s study points out.

Finally, the research adds that other alternative options to consider include renegotiating credit card fees, considering alternative payment processors, surcharging credit card transactions, establishing convenience charges and implementing multi-tier pricing. And lastly, another solution may be to no longer permit settlement of receivables by credit card where credit terms are offered. This ensures total mitigation of credit card fees and other processing costs, REL Consulting concludes.