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Credit Card Policy for A/R

Tim Northup's Profile

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

Bryan Frey
Title: VP Finance/Corp Controller
Company:
(VP Finance/Corp Controller, ) |

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.

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, 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.

Jim Schwartz
Title: Corporate financial advisor
Company: Wabash Financial Strategies
(Corporate financial advisor, 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.

Michael Cade
Title: VP Business Operations
Company: in-between
(VP Business Operations, 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

Sharon Davis
Title: Controller
Company: Johnny B Electric
(Controller, 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?

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

Yes, the same CC fees apply.

Kurt Kipfer
Title: CFO Emeritus
Company: International Medical Group, Inc.
(CFO Emeritus, 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.

Dabney Wellford
Title: CFO
Company: Wellford Consulting
(CFO, Wellford Consulting) |

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.

Jason Corey
Title: CFO
Company: BendPak Inc.
(CFO, 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

Topic Expert
Anand Goel
Title: CEO
Company: Optimized Payments Consulting
(CEO, 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
anandatoptimizedpmts [dot] com
404-542-8520

Mary Schick
Title: Chief Financial Officer
Company: MiniCo Insurance Agency, LLC
(Chief Financial Officer, 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.

Susan Johnsen
Title: Controller
Company: Paula LeDuc Fine Catering
(Controller, 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.

Carol Reithmiller
Title: President
Company: Carol A Reithmiller, CPA, PLLC
(President, 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.

Steve Gordon
Title: Senior Consultant
Company: Solutions
(Senior Consultant, 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.

Van Haas
Title: CEO
Company: Peak Cost Containment, Inc.
(CEO, 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

LAURIE BIESTER
Title: Senior Analyst
Company: Science Company
(Senior Analyst, 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?

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