Credit Card Policy for A/R
We have seen a growing trend in credit card payments for many of our customers receivables. This growth is the result, I believe, from two shifts in the business climate. First, many customers are required to pay by credit card due to credit worthiness and the inability to ascertain open credit lines. Second, the points program has gotten to be a very attractive reward for use of credit cards.
As a result of these changes we have seen significant increases in fees. That being said, there are legal guidelines on how a company can recapture these fees to customers by applying separate processing fees making it very difficult to recoup these expenses. I am very interested in how any other companies may be dealing with this increase and specifically strategies of recapturing the handling of these transactions. We have negotiated many times with our administrator but the interchange fee is still a fixed significant amount that equates to pure profit erosion on a marginal basis. Thoughts????????
Answers
Company:
Funny you mention that, b/c I have been noticing that as well. Multi-thousand dollar invoices beign paid by CC? We weren't even set up to receive CC transactions but I had to find a solution for that. In my past life I was CFO of a company that accepted CCs in high volume and there is really nothing beyond a few basis points here or there, that you can do about it when it comes to paying exchange fees (and we bid out everyone!).
Recently I broached the topic of additional fees to compensate with a customer. Yes, he laughed at me. Seriously. Luckily we're friends, but that's not a happy conversation at any time. So 3% off the top. We have discussed this at our exec staff and if it expands beyond the current handful of customers, we will consider a cost increase to offset. Currently the impact is a fraction of 1% of our operating margin (since most sales are paid by check still), but if it crosses 1% impact we will revisit the issue.
I, too, would love to hear what others are doing.
Company: Helm Inc
I have been very up front (blunt??) with my clients. When they tell me they will pay by credit card but they want a discount for early payment, I let them know they are receiving a nearly 4% early payment discount when we pay their fees to accept payment. If they move to a different mode of payment I will increase their payment terms. The catch for my clients is that I have to control when the payments come in. So my options to them are to pay by credit card at the time I invoice, or pay by ACH on a Net15 basis - I submit the batch for processing and don't wait for them to remember the due dates.
I have had mixed reactions. Some companies feel better holding on to their cash for longer and opt for ACH. Others want to go with the 'automatic' route and leave it on credit card. When a card declines the charge, all services to that client are halted, which in my industry are time sensitive employment records used to make hiring decisions. Penalties are waived a first time, but after that they must be paid and I get few arguments once I remind them of the process. This would not work for me if our client service was not top notch. Some of my strength lies in what we provide for our clients and how highly they think of us.
I think people would be more open to other payment options (ACH) if they understood how the costs we pay get passed along to them in our services.
Company: Wabash Financial Strategies
This is pure profit erosion even though the majority of our collections were checks and wires. My most recent firm sold high ticket equipment (six/seven figures) with monthly service and maintenance costs that were often five figures. Terms N30. "Requests" to pay by CC usually came after sales contract completion or even after delivery. On a $4 million order, this is significant unexpected and unrecoverable cost. The card servicing agreements prohibited specific charges to recoup the fees from customers. There was no perceived competitive ability to raise prices. The sales team, incentivized on volume but not profit, didn't want this "trivial" issue to upset customer relationships.
We renegotiated our credit card servicing arrangements. Terms and pricing both improved.
We were able to maintain a "just say no" strategy for certain customers with a slower pay history. The company with green cards was targeting these customer to adopt a strategy where vendors get paid faster in return for a discount. The pitch to the customer was that the credit card company would take on some payables administrative work that might allow the customer to reduce staff. It took about 30 seconds with a calculator to confirm that this was only attractive for our company when the customer was paying beyond 150 days.
Company: in-between
In my experience, the company should have a policy that sets the maximum credit card payment amount accepted and you should stick to that policy. As the finance leader, it is your job to help the front line functions understand the negative impact of the fees.
An option is to work with the sales team to identify why the customer wants to pay via credit card? Are they working the float or are they actually carrying credit card balances? If they are working the float and you value their business, then perhaps you can offer them net 45 day terms. If they are carrying balances, then you might want to consider offering some type of financing arrangement. If structured properly, you can offer a lower interest rate, due to the fact that you should be able to secure the debt. Remember, credit cards are unsecured which is considerably more risky, hence the higher rates. If the customers are high credit risks, then you may need to accept the fees as a cost of business. Better the credit card company deals with a default.
Hopefully you can find a way to satisfy the customer and avoid lining the pockets of the credit card companies.
Best regards, --mike
Company: Johnny B Electric
I too am becoming increasingly overwhelmed with the costs of accepting cc for payments, especially on large contract receivables. I have not taken the time to research this, wondering if anyone already knew, if a customer uses the "checks" that cc companies offer them to pay their bills, are we charged the same fees?
Company:
Yes, the same CC fees apply.
Company: International Medical Group, Inc.
How can the same CC fees apply, Mark, when/if a customer uses the "checks" that cc companies offer them to pay their bills. If they use these "checks", these "checks" can be accepted by any company with or without cc/merchant card processing facilities. These "checks" are deposited at a banking institution without any tie in to the credit card companies. Am I mistaken or do the credit card companies then charge the banking institution that deposits the "check" and then push the fee on the banking client? If so, I haven't seen this happen yet. I am curious.
Company: In-between
You need to know the market that the Company is selling to - what are the competitors doing? How do the fees compare to lost business if the card is not accepted?
You may need to go renegotiate the fees with the bank/service provider (and they are negotiable) or change bank/service providers. More than anything, you have to be creative in building additional value. If you box the Company in, you box yourself out of a job.
Company: BendPak Inc.
We have found in our business dealings that being up-front with the customer in regards to payment requirements of CC's has been the best approach. First, we notified them that we absolutely would not allow AMEX to be used as the settlement fees were too high, than that no payments for sales on account (30 days is our standard) were allowed unless they were willing to pay a 3% finance charge of the amount they were paying with the CC, and finally, that they were welcome to use the CC provided they were paying for the item when it shipped and we were allowed to preauthorize (freeze) the funds at the point of order as the card would not be charged until the goods ship. Once all that was laid out and expectations on both sides were clear and documented, we have had very little issues with credit card transactions.
Respectfully - Jason
Company: Optimized Payments Consulting
This is a great discussion. I run a payments consulting firm and wanted to take an opportunity to share my thoughts and clarify few things.
There is no processing fee charged for credit card or "convenience" checks. From an A/R perspective these checks are like any other checks you accept in terms of cost. If your bank charges $0.10 per deposited check then this is the only fee you would pay for a credit card check.
It seems many of the comments were relating to business to business credit card payments. In our experience and surveys, the number one reason companies use credit cards is to accrue points or miles. From person experience, I think most of us would agree that we use cards to get some type of benefit on the back-end.
Now, in terms of controlling the cost of processing cards...contrary to popular belief, there are many things a business can do to reduce the cost of payment processing. From having been in the payment industry for eight years, here are few strategies used by our clients to lower processing costs:
-interchange management
-least cost routing
-charging convenience fees
-pricing optimization
-alternative payments
-tender type waterfall
Not each of strategies will work for every business, but it it important to know that there are several a business can do to get a better handle on their credit card fees. Not to push our content and articles, but you can find some useful articles here - http://www.optimizedpmts.com/blog/
Anand
optimizedpmts [dot] com
anand
404-542-8520
Company: MiniCo Insurance Agency, LLC
We've asked our customers that call to pay by credit card if they would like to fax us a check and avoid a credit card fee of 2%. The check by fax can be processed by ACH for about the same charge as depositing a regular check. This keeps the customer happy that we gave them an option.
The 2% credit card fee doesn't offset 100% of the processing cost but it helps discourage those $10,000 payments by credit card.
Company: Paula LeDuc Fine Catering
We quit accepting credit cards two years ago because the fees were outrageous and we needed to scale back expenses. 3.25% on an 500k charge hurt. We happily accept ACH payments and wire transfers. We looked at our client base before making the transition and they seem to be fine with the decision.
This change has put hundreds of thousands of dollars back into the coffers each year.
Company: Carol A Reithmiller, CPA, PLLC
Mary, I believe that you cannot charge an addional fee for credit cards, you can offer a cash discount though. I beleive that you can also charge a convenience fee, becuse the IRS assesses it when you pay your tax bill using a credit card. You might want to contact your credit card service provider and ensure that you are not violating your agreement with them or with any laws.
Company: Solutions
Many companies that I have worked with leave quite a bit of money on the table by failing to bid out credit card fees just like one would handle any other type of competitive purchase.
Any you would be surprised at the differential in the percentage fees and other add on charges that are assessed by the hundreds of providers.
If you look at the cost of gaining a new customer and how easy it is for another supplier to lure away existing customers, you should absolutely NOT create some new penalty (impediment) for customers to do business with you.
Hide the additional cost in a sweeping 1-2% price increase or adjust your "old school" 2% net 10 to apply only to cash payments.
In the near future, checks will be a thing of the past and more companies will use companies like Am-Ex to give them extra float time in paying the bills. Fighting the inevitable could actually give your firm a competitive disadvantage.
And nobody wants that.
Company: Peak Cost Containment, Inc.
Trying to recover credit card fees can be tricky. For now, you can charge a convenience fee in certain circumstances to help recoup the cost. You can find some information here: http://www.merchantcouncil.org/merchant-account/operation/convenience-fee.php
The new financial reform that was passed recently has some new provisions that may change some of this. The new law should allow a "discount" to be given to cash paying customers. This would require a price increase first to accomplish the goal.
Some other tips/ideas are below. Perhaps, you can turn the 'cost' into a benefit by getting the cash sooner, with less paperwork and hassle of checks.
- Require faster payment if paying by credit card
- Disqualify typical 2% discount for early payment
- Use a terminal that allows for repeat transactions securely and quickly (soft cost savings)
- Use a terminal that ensures transactions are not downgraded to more expensive non-qualified transactions (hard cost savings)
- Negotiate interchange-plus pricing with minimal fees (hard cost savings)
- In my experience a company doing most of their transactions without a card present and with a fair amount of B2B clients can expect a net rate of around 2.4%.
I'm the founder of a cost management firm and many businesses are not optimizing the way they process credit cards or the rates they pay. I typically see a 20-30% decrease in the NET rate a client pays. Any questions, I'm happy to answer.
Cheers,
Van Haas
Company: INFOSEC
Why should your business accept credit cards?
Why Accept Credit Cards? Every Business needs to accept credit cards for payment in today With a troubled economy consumers want choices when it comes making payments. All to often businesses lose customers when they don't accept credit cards as a from of payment. Let's take a closer look at this: A dry cleaning customer does $200.00 per month in dry cleaning their suits. The Dry Cleaner does not accept credit cards and tells the customer there is an ATM machine across the street; the customer never goes to that try cleaner again. Here are some of the excuses that businesses have for not accepting credit cards and when you think about it the business owner is stepping over a $200.00 sales just to save .40 cents.
'All my customers know me and I've never accepted credit cards"; "Credit cards acceptance is cost to much my customers pay cash" OK, you get the idea that accepting credit cards is an important door to your cash flow ad growing your business. By not accepting credit cards your business can only lose money and customers.
Now lets understand the process of accepting credit cards correctly and cost effectively.
There are two parts to accepting credit cards:
1) Your need a way to accept and process the credit card: ( Credit Card Machine, Online Processing, Virtual Terminal)
2) Their is a Rate you pay fro each transaction ( example : 1.69% and .19 Cents)
First let's take a detailed look at number 1
The Credit Card Machine:
There are many types of credit card terminals on the market today. Many of them are used, refurbished and Non PCI Compliant. My advice is to only get a brand new credit card terminal that is 100% PCI complaint. Here are the best terminals that are PCI compliant FD100 FD100ti FD200 FD300 FD400When you operate an old terminal you risk the terminal not qualifying the credit cards correctly resulting in penalty surcharges up to 5% on top of your rate. All it takes is a burnt out magnetic stripe reader to cause you to get a higher rate with out you knowing about it. Also if your terminal doesn't prompt you questions like - address and Zip code' for keyed in entries you will receive a penalty surcharge. Just know that your old terminal that you've had for many years which works just fine may be causing you to pay higher rates.
Rate:
Rate is the most confusing part of accepting credit cards, the goal of this information is to explain things in a easy to understand way, so I will keep it simple.Visa and Master Card are an association and they set the interchange rates on every card type. Your credit card processing company must pay those fees on your behalf. So let's say the interchange rate for a Visa Corporate Card type 1 is 2.25% and .10 your credit card processing company will mark up that rate by a certain amount of basis points and that's called the discount rate. So you might see that for a Visa Corporate Card Type 1 your credit card processing company charged you 4.00% and .25 for the transaction. The end result is the credit card company made 3.75% and .15 in profit on that corporate card transaction. So how do you know what is the profit on each? You don't unless you really know how to read a credit card processing statement well. Good luck! It's really confusing to read a credit card processing statement and all statements are designed differently and again unless your more than a pro you will have a hard time trying to figure out your rates.
The easiest way to get an idea of your bundled rate is by dividing the your fees by the amount your processed and move the decimal point two to the right.
ExampleTotal Fees $800 Total Amount Processed = $20000 800 divided by 20,000 = 4% (which is a very high rate)
There are 3 ways credit card processing companies will usually set your rates up. Lets take a look at them. Most of the time believe it or not the business is set up incorrectly causing the merchant to pay high surcharges and fees. This is usually due to an inexperienced sales rep. most sales reps are poorly trained and hit the feild without knowing what their doing, it's important to have a knowledgeable sales rep. If they can't read your statement and explain to you where it really makes sense then chances are you will pay more than you should.
Rate Type 1: Rate Plus Transaction:
Rate Plus transactions is perfect for your business if you process monthly up to $50,000 and most of your cards are swiped at your terminal. Since there are many different card types out there and you have no control over which credit card type your customer will pay you with their will be a enhanced bill-back for cards that are not qualified If your business type is a retail store this is perfect for you.
Type 2 3 tier
Qualified Rate - Cards that are considered qualified ; present and swiped ( locked into a rate)
Mid Qualified Reward Cards and Keyed in entries ( locked into a rate)
Non Qualified ; Corporate cards, cards your old terminal did not qualify correctly due to the magnetic reader -or just Non Qualified.
Type 3 - Interchange Plus -
Interchange Plus is for business processing over $100K per month. example 40 basis points over the interchange rate. There are also Visa and MC assessment fees added in.
That's the basics of accepting credit cards. Please go to www.completemerchantservice.com to get more information on credit card processing
Company: Science Company
Very good posts. I am leading an effort to expand credit card usage across several sub-business units as well as align those businesses with a corporate policy. The question has bee asked "I want to offer credit cards for my small, risky, and infrequent customer, but what do I do when a multi-million customer wants to pay via credit card? I know I have to offer it to them per credit card guidelines, but what are the other options?"
How do other large corporates advise their large customers when they want to pay via credit card?