Credit card processing fees on business-to-business transactions have become a significant cost for companies, according to new research from REL Consulting, which recommends that organizations reduce fees by changing their acceptance policies for cards.

creditcardIn 2013, companies incurred an average of $2.2 million in swipe fees per $1 billion of revenue, REL said, noting that credit card usage for B2B payments has increased dramatically in recent years and is expected to represent 10% of all payments this year.

“B2B customers have doubled their use of credit cards over the past few years, even for five- and six-figure payments,” REL customer-to-cash practice leader Veronica Wills said in a news release.

The benefits for customers include an extended period of time to pay the balance once it is transferred to the credit card provider, rebates and rewards granted by the provider to encourage the use of credit cards, and fraud protection.

But for B2B sellers, Wills said, “the cost of accepting credit cards far outweighs the benefits” by cutting into bottom-line profitability. Visa, MasterCard and other credit card companies have tripled their U.S. swipe fees in the past decade, she said, and they are now the highest in the world.

According to Wills, many companies have been slow to recognize the problem, in part because they are afraid of losing customers and of giving their competitors an edge.

REL estimates in its report, however, that about 60% to 85% of credit card fees can be avoided by implementing acceptance policies that are tailored toward an organization’s business model, customer base and competitive landscape. “The potential return on investment for this type of effort is significant,” the report said.

To reduce credit card usage, REL recommends, among other things, that companies consider lower-cost forms of electronic payment such as electronic funds transfer and direct debit; renegotiating credit card fees; surcharging credit card transactions; establishing convenience charges; and implementing multi-tier pricing.

“The simplest solution may be to no longer permit settlement of receivables by credit card where credit terms are offered,” REL suggested. “This ensures total mitigation of credit card fees and other processing costs.”

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5 responses to “Cost-Saving Idea: Don’t Take Credit Cards”

  1. Telecommunications companies are big believers in NOT accepting credit cards although they will except them on an exception basis. When was the last time you saw ATT ask to be paid via a credit card?

    As this article mentioned there are ways to reduce credit card fees. One of the best methods is to emphasize to your most credit worthy customers the use of trade credit, ACHs or even debit cards depending on the “ticket size” of the sale. Debit cards are order of magnitude cheaper than credit cards and ACH can be cheaper than credit cards depending on sales value.

    The advent of Apple Pay has recently focused customers’ attention on the whole issue of payment methods which could be good / bad depending on which side of the sales counter is discussing the issue.

    Credit card costs maybe expensive to the merchant but the customer gets a vote too. (i.e customer must agree to use an alternative / cheaper form of payment so they need to benefit too).

    After all my A/P is your A/R

  2. This is a hot topic among our clients for the reasons you describe in the above article. (Billtrust is a provider of Billing and Payment services to B2B businesses.) Many distributors, manufacturers and transportation companies operate on tight margins so giving up over 2% to credit card companies is painful. Most of our clients accept credit cards for payments made at the time of sale. Over 60% of the payment portals we host on behalf of clients offer ACH as the only payment option. They still experience robust growth in payment adoption, as they find that their customers will pay by ACH if they are told that credit cards aren’t accepted.

    For those B2B billers who do offer both credit cards and ACH as online payment options, a growing number are working with us and their merchant card processor to qualify for Level 3 interchange rates, which can lower average fees by an as much as 50 basis points (0.5%). Another popular option is to prevent the taking of early pay discounts when paying by credit card online. These and other approaches can reduce the expense of offering credit cards so that the benefits (faster cash flow and greater customer convenience) come closer to being worth the price.

  3. Is that number, $2.2 MM out of each $1 B correct? If so that is less than a 1% transaction fee, most of my wire transfers are more than that. One route might be to accept debit cards as those transactions fees are normally very low outside of the cost per swipe.

  4. Rob Crowder of the Hackett Group provided some context:

    “Our logic was that of the $1Bn in spend, 9% of that was on credit cards with an average fee of just under 2.5%…so 1Bn * 9% * 2.5% = ~$2.2MM.”

    “Your reader is correct in terms of accepting debit cards, there is essentially no % fee per swipe other than a fixed ~$0.35 per swipe cost. This is why some stores will only except debit card transactions and not credit transactions.”

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