Pros and cons of accepting credit cards for your business

Nov 11, 2021 by Brandon Jones

Collecting payments for goods and services may be one of the cornerstones of a successful business. Although this behind-the-scenes activity often gets overlooked by many, unless an accounts receivable (AR) department is working efficiently, a company can quickly get into trouble.

One of the most popular and convenient ways to collect payment is with credit cards. This is obviously true in the business-to-consumer market, but it holds true in the business-to-business world today as well. In this guide, we’ll take a look at the pros and cons of accepting credit cards for your business. But, first, let’s first 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 continues to grow and technology accelerates across just about all industries, the number of business-to-business transactions will increase as well. AR departments often bear the brunt of this increase, frequently trying to keep up with increased volumes using antiquated legacy systems and manual data entry processes.

Unfortunately, the payment process for business-to-business has not necessarily kept up with digitization. As a result, processing things like paper checks and reconciling books can be inefficient and taxing for accounting staff. Even when digital payments such as credit cards, ACH, or wire transfers are used, the back-end reconciliation process can be just as difficult if systems are not fully integrated.

This results in increased operating costs, too many errors, poor visibility into the payment cycle, increased days sales outstanding (DSO), and disgruntled employees.

During the COVID-19 global pandemic, many organizations found themselves forced into adopting technology in order to stay in business. According to a survey by Mastercard, 82% of businesses are changing the ways they send and receive payments as a result of the pandemic.

In addition, the rise of financial and online crime has affected payment cycles, prompting companies to seek more secure ways to manage financial transactions. Many of today’s digital payment options feature heightened security measures, blockchain technology, and other protections for business customers.

Finally, customer expectations across the board are increasing. All of society is becoming accustomed to getting exactly what they want when they want it. Businesses are no different. As many companies struggle with cash flow issues, they often demand earlier payments or provide incentives for customers who pay more quickly.

Advantages of Accepting Credit Cards

It’s clear that credit cards offer many advantages to both those interested in buying and selling goods. Although these pros may be more evident in business-to-consumer transactions, there are also benefits for those conducting business-to-business exchanges. Here are some of the top advantages:

Convenient and Easy to Use

Whether you’re a one-person entrepreneurial start-up that’s just opened a business credit card account at your local bank or the manager of a Fortune 500 company responsible for managing corporate credit card accounts for thousands of employees, credit cards are convenient.

Although it’s common to use credit cards to pay for business trip expenses for busy executives or a sales team, they are also easy to use when it comes to paying for goods and services provided by vendors as well as accepting payment from your customers.

In the latter case, you want to be as flexible as possible in accepting payment options. After all, the most important part of AR is collecting on invoices, regardless of the payment form. If your customers are ready and waiting to pay you for goods and services and want to charge them, being ready to accept can mean rapid payment.

Globally Recognized

As more and more of the economic landscape becomes global in nature, you want to ensure that you minimize the difficulties of international monetary transactions. Major credit card companies often have workflows and solutions that handle things like customs and fees seamlessly for those who are participating in the transaction.

Since credit cards are accepted as common forms of payment from customers down the street or around the world, they are an excellent way to play in the global market when it comes to e-commerce businesses.

Faster Than Some Forms of Payment

When compared with receiving paper check payments sent in the mail, credit card payments can be completed much more rapidly. For instance, if your business can accept credit card account numbers through an automated phone tree, on your website, or through an email invoice, you’ll have your funds more rapidly.

This, in turn, can help improve your cash flow and reduce your DSO metrics. For businesses, this can mean having more money for growth, expansion, or hiring staff when needed.

Disadvantages of Accepting Credit Cards

Like any business decision, there are drawbacks to accepting credit cards for business-to-business transactions as well. Here are some of the disadvantages to consider before making a payment form decision.

High Transaction Fees

Perhaps the most significant disadvantage of accepting credit cards is the high transaction fees. Although per-transaction fees can make sense in a consumer environment, there are fewer benefits on the business-to-business side, making them a non-value-added cost. It’s common for credit card companies to charge around 3% per transaction. If you are accepting overseas payments, credit cards often carry a higher foreign exchange rate as well. For a business, those fees can quickly add up and take a significant bite out of profits.

Increased Risk of Fraud

It’s easy to see how much cybercrime exists today just by reading the news. Because a fraudulent credit card payment affects the seller, accepting this form of payment may put your business at an increased risk for financial losses due to theft and credit-card-based crime.

Correction Costs

Credit card numbers may be entered incorrectly or accounts may expire or require new account numbers, which results in a bottleneck of errors for the business trying to collect on payments. Each time a credit card comes back refused, your organization will need to bear the administrative burden of tracing that invoice and tracking down the customer to make alternative payment arrangements.

Credit Card Alternatives

Whether or not you decide to accept credit card payments for business-to-business transactions, you probably want to offer a wide range of payment options to satisfy your customers’ preferences. Here are some common alternatives to credit card payments to consider in lieu of or alongside:

Checks

Depending on your industry, you may still have customers who prefer to pay by mailed checks. Although this can be a cumbersome collection process for a business that can span weeks, involve lockboxes, and require manual paperwork, it can be an important avenue for collecting payments. Be sure to encourage customers to switch over the more convenient digital forms by offering incentives or a seamless way to interact with your AR processes.

ACH

Many businesses use an automated clearing house (ACH) network that supports the electronic movement of money between various banking accounts in the United States. Founded in the 1970s, the ACH network handled nearly $62 trillion transactions 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. Typically, ACH payments are much faster than paper checks, taking about three business days to appear on a company’s books. ACH transfers are less expensive than credit card transactions and typically do not experience the account churning problem of credit cards. They are also typically a secure method of transferring money.

Wire Transfers

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 the direct nature, funds are available immediately instead of requiring a three-day delay, which is common for ACH payments.

Businesses paying with a wire transfer can use a debit, credit, or bank account as the source of payment will incur an additional fee, and cannot reverse the transfer once it is completed.

Paystand Bank-to-Bank Network

Offering a payments-as-a-service model, Paystand gives businesses a zero-fee payment option through its Paystand Bank Network. Companies who participate can move money electronically through 90% of the U.S. banking market and 98% of commercial accounts.

Customers access real-time fund transfers and automated payment settlement as well as secure, one-time, or recurring bank payments quickly. 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.

Conclusion

The payment landscape is changing along with the global economy. Although credit cards will remain a popular option for businesses to secure payments, they do come with 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. Schedule a free demo or call us anytime at 1-800-708-6413.