Optimize Your Revenue with a Zero-Fee Payment Strategy
In 2022, U.S. businesses paid a staggering $160 billion in credit card processing and transaction fees. To boost revenue in 2023, accounts receivables professionals need to cut these costs. Discover how you can save money and optimize your accounts receivable strategy.
Credit card processing fees and other transaction costs cut deep into business revenue—in 2022 alone, U.S. merchants paid more than $160 billion **in fees. And that’s just for accepting credit card payments.
For accounts receivables professionals looking to optimize their revenue in 2023, taking a closer look at transaction fees is crucial. If you’re paying percentage amounts for every transaction, you are losing hard-earned dollars that could be reinvested in growth.
AR teams can create strategies to reduce or eliminate fees. But before understanding how we must lay out the general fees for each payment method.
Which Transaction Fees Can You Get Rid Of?
With many payment options available today, AR teams must compute various transaction fees. General transaction fees include:
Whenever a customer pays an invoice with a credit or debit card, the issuing and receiving banks must authorize and verify the information. Each card issuer requires a different credit card processing fee, but other factors, such as whether or not the purchase was made online or in person, can also affect the total transaction cost.
The interchange fee tends to include various micro-fees and a low flat rate. Generally, interchange plus fees range between 1.5% to 4%, plus $0.20 to $0.50.
A direct deposit or ACH transfer is low-cost, but it isn’t free. While this payment method often gives a bigger bang for your buck, each transaction can cost between $0.20 - $1.50. In some cases, it could be as high as $3.00. But for B2B transactions that are often worth thousands of dollars, this is a small price to pay.
Bank Wire Fees
This old-school method of bank transfers is often costly. Transaction fees can easily amount to $25 or more per transaction.
Payment Gateway Fees
For B2B and eCommerce companies that use payment gateways or POS terminals, you may have to set aside another percentage cost for every transaction. Depending on the platform, you could pay 1.5% to 3%, plus $0.25 to $0.50 for every filled invoice.
You can also choose to invest in flat-rate or tiered pricing discounts for a more predictable monthly fee, which can be helpful for businesses with high-volume transactions. Out of these two options, flat-tiered pricing offers the most transparency, but it depends on each provider.
If your business also accepts paper checks, you’re likely spending significantly on traditional lockboxes or manual labor as your team focuses on manual data entry.
Out of all these methods, there are a few different ways to reduce fees and associated costs:
- Use flat-fee pricing options for ACH and bank transfers
- Limit or eliminate your payment gateways
- Shift the transaction fees to the customer as convenience fees
- Eliminate paper checks or use a smart lockbox platform
- Automate the payment process to reduce time spent on data entry
- Using Level 3 card payment processing
Out of these options, one of the most popular is the convenience fee. But why should your customer pay for credit card transactions?
Who Should Pay for Transaction Fees?
No matter your fee structure, someone always has to shoulder the costs, whether that’s your business or your customers. But who should handle the costs?
Transaction fees, particularly concerning credit card, ACH, and bank transfers, primarily offer convenience to the payer. They no longer need to take out cash, go to their bank to send a wire or write a check manually. Instead, they can key in their details and send their payment.
However, these payment methods are marginally more convenient for merchants and AR teams. While automated payments make this easier, accounting departments still need to review, match, and consolidate electronic payment data.
This is why more and more businesses are baking the cost into their prices or adding it as a convenience fee.
However, the question isn’t as simple as who should pay. Flexible payment options and accounts receivable strategies turn the question from “who” to “when.”
Defining a “Zero-Fee” Strategy
Regarding how you want to be paid, most AR teams want to reduce fees, get paid quickly and securely, and provide a stellar customer experience. AR teams often accept multiple payment methods to create a superior, seamless payment process.
This is where strategy comes into play.
B2B companies can leverage Zero-Fee transactions to incentivize preferred payment methods, such as ACH and bank–to–bank transfers. There are two components to this kind of strategy:
- Tack on a convenience fee to costly payment methods, such as credit cards
- Absorb fees on the lower-cost methods, such as ACH
This approach has two benefits. First, if the customer chooses to use a credit card payment, your business doesn’t shoulder the higher transaction percentage. But if they choose ACH, the customer and you pay less, even if you absorb the fee.
Let’s see how this works in practice.
Imagine that you run a solar energy company specializing in installing and maintaining renewable energy sources for businesses. You bill a customer twice—once in advance, once upon installation—for a $20,000 setup.
If your customer chooses to pay with a credit card, the transaction fee amounts to 2%. With a convenience fee, you save $400. And if, instead, they choose to pay via ACH with a fee of $0.50 per transaction, you’ve only lost $1.
Either way, you’re driving revenue up. All while giving your customer a choice.
Optimize Your Revenue with Paystand
Strategically using convenience fees and Zero-Fee options ensures your business retains as much revenue as possible. You can also reduce your DSO and keep your cash flow healthy by providing numerous payment options, no matter how your customer pays.
Many platforms let you offer different payment options, but not all are as user-friendly, seamless, or customizable as Paystand. Our solution makes it a cinch to implement a Zero-Fee policy, but that’s just the beginning.
Paystand provides B2B and eCommerce businesses with an end-to-end payment platform with features like:
- Automated collections
- Self-service branded payment portals
- Real-time data syncing and verification
- Access to our extensive bank network
- Tokenization for secure data storage
- eCheck and ACH capabilities
- Smart lockbox
- In-depth insights into your payment process
- ERP integration
To find out how simple AR can be, see Paystand in real-time in a customized demo.