Pros and Cons of Accepting Credit Cards for Your Business
In today's fast-paced digital economy, businesses must adopt new technologies to stay competitive. Credit cards offer many advantages to businesses, but they also have disadvantages. What should companies consider to accept or decline credit card payments?
Collecting payments may be one of the cornerstones of a successful business. Although many overlook this activity, companies can get in trouble unless their accounts receivable (AR) department works efficiently.
Credit cards are one of the most popular and convenient payment methods. This is true in the B2C market, but it also holds in today's B2B world. This guide will examine the pros and cons of accepting credit cards for your business. But first, let's take a step back and look at the current state of affairs in the payment arena.
State of Business-to-Business Payments
As e-commerce grows and technology accelerates, B2B transactions also increase. AR departments often suffer from this increase. They must deal with rising volumes, antiquated legacy systems, and manual data entry processes.
Unfortunately, the B2B payment process has yet to keep up with digitization. Even with digital payments –such as credit cards, ACH, or wire transfers– the reconciliation process can be tricky if systems are not integrated. As a result, processing payments and reconciling books can be inefficient and taxing for accounting staff.
This results in increased operating costs, numerous errors, poor visibility into the payment cycle, increased DSO, and disgruntled employees.
Many organizations adopt technology during the COVID-19 global pandemic to stay in business. According to a survey by Mastercard, 82% of companies are changing how they send and receive payments due to the pandemic.
Also, the rise of financial and online crime has affected payment cycles. This prompts companies to seek more secure ways to manage financial transactions. Many digital payment options feature heightened security measures, blockchain technology, and other protections for businesses and customers.
Finally, customer expectations across the board are increasing. Society is becoming accustomed to getting exactly what they want when they want it. Businesses are no different. Companies struggle with cash flow issues, demanding earlier payments or providing incentives for customers who pay more quickly.
Pros of Accepting Credit Cards
Credit cards offer many advantages to businesses. Although these pros may be more evident in B2C transactions, there are benefits for those conducting B2B exchanges. Here are some of the top advantages:
Convenient and Easy to Use
Credit cards are convenient whether you're a one-person start-up or a Fortune 500 company with thousands of employees. It's common to use credit cards for business expenses, but they are also easy to use to pay vendors and accept customer payments.
Being prepared can mean immediate payment if your customers are ready and willing to pay. In this case, you want to be as flexible as possible in accepting payment options. After all, the most important part of AR is collecting invoices, regardless of the payment form.
As more of the economic landscape becomes global, you must ensure that you cut the difficulties of international monetary transactions. Major credit card companies have solutions that seamlessly handle transaction customs and fees.
Since credit cards are a standard payment method everywhere, they are an excellent way to play in the global e-commerce market.
Faster Than Some Forms of Payment
Credit card payments can be completed faster than paper check payments sent in the mail. If your business accepts credit card account numbers through an automated phone tree, website, or email, you'll have your funds more rapidly.
This, in turn, can help improve your cash flow and reduce your DSO metrics. This means more money for growth, expansion, or hiring new business staff.
Cons of Accepting Credit Cards
Like any business decision, there are drawbacks to accepting credit cards for B2B transactions. Here are some disadvantages to consider before making a payment form decision.
High Transaction Fees
The most significant disadvantage of accepting credit cards is the high transaction fees. Although per-transaction fees can make sense for B2C transactions, there are fewer benefits on the B2B side.
It's common for credit card companies to charge around 3% per transaction. Overseas credit card payments often carry a higher foreign exchange rate as well. Those fees add up for a business and take a significant bite out of profits.
Learn more about Credit Card Fees and how to eliminate them here.
Increased Fraud Risk
The news show us how much cybercrime exists today. Since fraudulent credit card payments affect the seller, accepting this method may increase your business' risk for financial losses due to theft and credit-card-based crime.
Credit card numbers may be entered incorrectly, or accounts may expire or require new account numbers. This results in a bottleneck of errors for the business trying to collect payments. For each credit card refusal, your organization must trace that invoice and track the customer to make alternative payment arrangements.
Credit Card Alternatives
Whether you accept credit card payments for B2B transactions or not, offer a wide range of payment options to meet your customers' preferences. Consider these common alternatives to credit cards instead of or alongside:
Customers may still prefer to pay by mailed checks depending on your industry. Although this can be a cumbersome collection process that can span weeks, involve lockboxes, and require manual paperwork, it can be essential for payment collection. Encourage customers to switch to digital methods by offering incentives or a seamless way to interact with your AR processes.
Many businesses use an automated clearing house (ACH) network that supports electronic money movement between various banking accounts in the US. Founded in the 1970s, the ACH network handled nearly $62 trillion in 2020 alone.
While many people are familiar with ACH used for direct paycheck deposits or tax refunds, it can also be used for payments. ACH payments are much faster than paper checks, taking about three business days to appear on a company's books. They are less expensive than credit card transactions and typically do not experience the account churning problem of credit cards. They are also a secure method of transferring money.
Although similar to ACH payments, wire transfers offer some key differences. Wire transfers are direct payments from one bank to another and can be performed internationally. Because of their direct nature, funds are available immediately instead of requiring a three-day delay, which is typical in ACH payments.
Businesses paying with a wire transfer can use a debit, credit, or bank account as the payment source. But this will incur an extra fee, and you cannot reverse the transfer once it is completed.
Paystand Bank-to-Bank Network
Paystand gives businesses a zero-fee payment option through its Paystand Bank Network. Companies can move money through 90% of the US banking market and 98% of commercial accounts.
Customers can access real-time fund transfers, automated payment settlements, and secure, one-time, or recurring bank payments. Since every in-network payment is recorded on the Assurety blockchain, companies can rest assured that a notarized record trail exists that is verified, secure, and digitally auditable. Real-time fund verification and payment tracking ensure that customers have funds to pay invoices, eliminating follow-up and chargebacks.
Credit Cards vs. Alternative Payment Solutions: Making the Best Choice for Your Business
The payment landscape is changing along with the global economy. Although credit cards will remain a popular option to secure payments, they have advantages and disadvantages. Each company must weigh the pros and cons and determine the best future direction for its organization.
If you're interested in learning more about how Paystand's solution, reach out to us today. Our software helps you manage, optimize, and automate payments, providing all the tools to help you get paid faster. Book a free demo with one of our experts today, and make the best decision for your business.