Understanding credit card fees and how your B2B company can avoid them

Sep 30, 2021 by Mark Fisher

Although credit cards are popular in the business-to-consumer market and frequently used in the business-to-business market, the costs and benefits are not the same – which is contrary to what most people initially think. For many businesses, credit card transaction costs that can be as high as 3.5% amount to a huge chunk out of your company’s revenue and already tight profit margins.

Let’s take a look at the current credit card landscape and the evolving solutions that allow businesses to reduce or avoid high transaction costs.

The difference between B2C and B2B companies

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 simply not the same scenario. According to a recent blog 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 goes on to explain 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, costs of customer reward programs, equipment, and PCI-compliance requirements are all added on top of regular AR processes, making the total cost of doing business significantly higher.

Managing credit card fees is simply not the same for a consumer-based business compared with business-to-business purchases.

Understanding the 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 significantly more fees to consider. Although some of these fees relate to the consumer market, many apply to both B2C and B2B, and various combinations may be specific to particular industries and companies.

  • 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: 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

Ways to save money

Here are several ideas to help today’s businesses reduce or eliminate credit card-related fees as well as some other cost-saving ideas. It can be easy to cut some of these costs and keep more of that money against a company’s bottom line.

Consider level 3 interchange processing

Each credit card has an interchange rate, which is regulated by the Federal Reserve and changes twice a year. Rates vary widely based on the type of card, 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.

In order 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 large ticket discounts for invoices exceeding $7,500. Depending on the card and size of the transaction, businesses may be able to lower the cost of the transaction by 25% to 75%. If your company frequently fulfills large customer orders, this can be a huge money saver for you.

Add a convenience fee for credit card usage

Using a credit card is really to the benefit of the purchasing business, which may be able to extend final payment or obtain rewards for cashback, travel, or other discounts. As a result, passing these convenience fees onto the customer makes a lot of sense to the selling business.

In many states, adding a 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 surcharges, be sure to take advantage of this easy money-saving solution.

Accept ACH payments

Another way to save money on credit card processing fees is to avoid them all together. 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 both debit and credit payments. Although there may be some fees associated with ACH, they are small compared with typical credit card transaction fees, and you have the benefit of avoiding chargebacks and fraud as well.

Use Paystand’s bank-to-bank network

The Paystand Bank Network allows businesses to move money electronically without paying any transaction fees. The network covers more than 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 that 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.

Clear benefits

The Paystand Bank Network is a zero-fee, digital payment rail that gives businesses access to real-time fund transfers and automated payment settlements. Its digital format allows for easier, faster, and more secure transactions than existing legacy options such as debit or credit payments, helping businesses get paid more quickly and efficiently.

In addition, Paystand’s network offers 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.

Nuts and bolts

The Paystand Bank Network enables secure, one-off, or recurring bank payments that do not require a blanket authorization between trusted parties. Instead, the system leverages cryptography and digital signatures to ensure the validity of each transaction.

Because each Paystand payment is initiated by the customer, it shows a clear authorization and intent to pay instantly, therefore dramatically reducing the refund and chargeback requests commonly associated with credit card payments.

Integrate systems

Besides reducing credit card transaction fees, businesses can take a broader look at their AR processes and find ways to save money there as well.

Many of today’s AR processes are disjointed and unintegrated, which means that accounting professionals may still be spending a great deal of 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 in 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 not only streamline your AR processes, but will improve employee morale by removing mundane tasks, reduce errors and time needed to correct them, and lead to more real-time information for your whole team.

Automate where possible

Along the same lines as integration, automation can do a great deal for companies in terms of streamlining workflows. For example, customers who use Paystand can easily integrate a “pay now” button that automates the receiving of 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), which means better cash flow and more money available for investments, new hires, or growth.

Automation can also be custom-created to allow businesses to manage things like scheduled and recurring payments or establish virtual terminals, which can store funds, collect manual payments, and manage receivables from anywhere.

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. Schedule a free demo or call us anytime at 1-800-708-6413.