How to Offset Credit Card Processing Fees for B2B Companies
Consumers widely use credit card payments. The processing fees associated with these transactions can significantly burden businesses. B2B organizations face higher costs due to credit risk, back-office expenses, and extended payment terms. Developing strategies tailored to this model can reduce costs and boost revenue.
In 2020, consumers used credit or debit cards for over half of all payments - and it remains one of the most popular payment methods to date. But there's one problem for businesses: Card processing fees.
Both B2C and B2B organizations accept credit and debit cards. Until recently, most businesses have absorbed the processing fee. It was the price of "doing business." But when a credit card transaction can cost as high as 3.5% to process, that's a massive chunk of a company's revenue. This is significant for B2B companies, which often provide goods or services that cost thousands of dollars.
However, businesses don't need to take the brunt of these costs.
Actual change and cost-savings start with strategy. Considering the differences between B2C and B2B cash flow models, the various payment processing fees, alternative payment options, and card payment optimization, reducing costs while boosting revenue dramatically is possible.
First, look at the B2C and B2B credit card landscape to understand the vastly different payment models.
The difference between B2C and B2B payment processing
In the consumer world, a customer uses a credit card to pay for an item or service that is usually received immediately. As a result, it makes sense to tack on a 3.5% convenience fee for merchants who understand that they will usually make up the cost on greater volume and ease of customer payment.
For businesses, that is not the same scenario. According to an article by Roger McNamara, a veteran of the payments industry and president of Guide2Interchange, "B2B cardholders purchase items and take terms from the supplier of 30, 60, or maybe even 90 days. In that process, suppliers finance the transaction and act as a bank for their customers. In giving terms, they incur varying costs associated with this term."
He explains that the company then incurs credit risk and back-office costs such as sending invoices and reminders and dealing with late or absent payments. Credit card transaction fees, customer reward programs' costs, equipment, and PCI-compliance requirements are all added to regular AR processes, making the total cost of doing business significantly higher.
In other words, managing credit card fees for B2B organizations is considerably different and more expensive than its consumer counterpart. This disparity is even more evident when you break down the processing fee structure.
Understanding payment processing fees
When most companies think of credit card fees, they only think about transaction fees and perhaps late payment fines or high-interest rates. However, in the business world, there are several additional fees. Some fees relate to the consumer market, but many apply to B2C and B2B. And these fees are not necessarily standardized across industries or companies. You will likely find a specific combination based on your payment processor, industry, accepted cards, and other factors.
Common costs of accepting payment cards can include the following:
- Interchange fees: covers the cost associated with the payment risk
- Interchange rate: the fee set by the Federal Reserve that is required from the seller
- Assessment fee: based on total monthly sales
- Markup fees: paid to the processor per transaction
- Flat fees: a possible monthly service fee
- Minimum fees: charged when the monthly minimum is not met
- Batch fees: possible fee for batches
- Equipment leasing fees: associated with the consumer market
- Chargeback fees: can be incurred during customer disputes
- Payment gateway fees: may be charged by a third-party gateway
Once you list the costs specific to your organization, you can find ways to offset the expense.
8 ways to offset credit card processing fees
There are multiple ways to cut costs and streamline your AR processes. Here are our top 8 ways to offset or eliminate credit card-related fees:
1. Consider level 3 interchange processing
Each credit card has an interchange rate regulated by the Federal Reserve and changes twice a year. Rates vary widely based on the card type, issuing banks, and other factors. B2B companies that take advantage of level 3 data processing in this system can save significantly on credit card fees.
To qualify for level 3, businesses need to provide a greater level of transaction detail that includes:
- Merchant name
- Transaction amount
- Transaction date
- Customer code
- Total tax
- Customer postal code
- Invoice number
- Order number
- Freight cost
- Line item details
In addition, your business will need a payment gateway to authorize these transactions.
Besides reducing your transaction fee, level 3 processing offers significant ticket discounts for invoices exceeding $7,500. Depending on the card and size of the transaction, businesses can lower the transaction cost by 25% to 75%. If your company frequently fulfills large customer orders, this can be a huge money saver for you.
2. Add a convenience fee for credit card usage
Using a credit card is beneficial for the purchasing business, which can extend final payment or obtain rewards for cashback, travel, or other discounts. So why should the merchant end up footing the payment processing bill? Many choose to pass a convenience fee (a credit card surcharge) onto their customers.
In many states, adding this credit card surcharge is legal, with close adherence to rules, rates, notifications, and other regulations. California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas have passed state laws banning surcharges with limited exceptions.
If you run your business in a state that allows credit card surcharges, take advantage of this easy money-saving solution.
3. Accept ACH payments
Avoiding them altogether is another way to save on credit card processing fees. The automated clearing house (ACH) is an accepted computer-based network for processing domestic transactions efficiently. Many financial institutions participate, and ACH can be used for debit and credit payments. Although some fees may be associated with ACH, they are significantly less than typical credit card transaction fees. You also have the benefit of avoiding chargebacks and fraud as well.
4. Use a bank payment network
More and more businesses are accepting digital payments. The popularity of Venmo, Google Pay, and Apple Pay for B2C transactions has business organizations looking for similarly simple payment methods.
Today, there are a few options available.
One is the Paystand Bank Network, which allows businesses to move money electronically without paying transaction fees. The network covers over 90% of the US banking market and 98% of all commercial accounts, making it the most complete digital payment network available to businesses today.
As a zero-fee payment rail, the Paystand Bank Network gives you access to real-time fund transfers and automated payment settlements. It also enables secure, one-off, or recurring bank payments that expedite payments and reduce chargeback requests.
Every in-network payment a business makes is recorded on the Assurety blockchain, creating a notarized record trail that is secure, verified, and digitally auditable. These records can't be altered, assuring your transactions are valid and free of tampering.
5. Go digital
Digital payment rails give businesses access to real-time fund transfers and automated payment settlements. This AR format allows easier, faster, and more secure transactions than legacy options such as debit or credit payments, helping businesses get paid more quickly and efficiently. When combined with automation, accounts receivable teams can effortlessly scale invoicing while improving cash flow and reducing costly mistakes.
Digital systems, like Paystand, may offer real-time fund verification and payment tracking, so companies can immediately determine if customers have sufficient funds to pay an invoice. This eliminates chargebacks, processing fees, and manual follow-ups.
Often you can use a digital AR program directly from its dashboard, but you may also be able to integrate it with your ERP. At least, you can with Paystand.
6. Invest in security
A considerable chunk of credit card fees protects processors against fraud or misuse. Improving the security and transparency of your payment system can significantly reduce potential upcharges or increased fees.
Many types of protection extend to different AR processes.
For example, the Paystand Bank Network enables secure, one-off, or recurring bank payments that do not require blanket authorization between trusted parties. Instead, the system leverages cryptography and digital signatures to ensure the validity of each transaction.
Because the customer initiates each Paystand payment, it shows an explicit authorization and intent to pay instantly, dramatically reducing the refund and chargeback requests commonly associated with credit card payments.
7. Integrate systems
Besides reducing credit card transaction fees, businesses can look broader at their AR processes and find ways to save money there.
Many of today's AR processes must be more cohesive and integrated, so accounting professionals may still spend much time manually moving data from one system to another. A myriad of errors can be introduced when data from a spreadsheet must be re-entered into an accounting system.
Instead, many solutions are available today to allow businesses to integrate these systems, allowing them to transfer data and "talk" to each other seamlessly.
This will streamline your AR processes and improve employee morale by removing mundane tasks, reducing errors and time needed to correct them, and leading to more real-time information for your whole team.
8. Automate where possible
Along the same lines as integration, AR automation can do a great deal for companies in streamlining workflows. For example, Paystand customers can easily integrate a "pay now" button that automates receiving funds as soon as a customer pays. This easy-to-use feature can be incorporated into invoices, reminder emails, and all other appropriate customer communication.
By automating invoice payments, businesses can also speed up the collection time and reduce Days Sales Outstanding (DSO). This means better cash flow and more money for investments, new hires, or growth. And this saves you money on time spent processing and following up on invoices—even if your customer pays with a credit card.
Automation can also be custom-created to allow businesses to manage scheduled and recurring payments or establish virtual terminals to store funds, collect manual payments, and manage receivables from anywhere.
Cut credit card processing costs today
If you're ready to learn more about how to save money in credit card processing, check out Paystand's zero-fee network. It offers an easy, fast, and free way to collect payments faster than ever.
Our software can also help you manage, optimize, and automate payments on various platforms. To learn more about digitizing your AR cash cycle, check out this free eGuide. Or, better yet, schedule a custom demo and see how this payment solution works.