Credit Acceptance & Term. The fatal Double blow to Suppliers.
In the B2B supplier world offering Term to a buyer cannot co-exist with the offering of credit cards as a form of payment.
Now there’s a bold statement. Unfortunately, it cannot exist where you will have a 100% happy merchant supplier where acceptance is open and willing. If it does then at the very least, it doubles the cost of collecting the receivable. If you were the supplier, ask yourself this one question. Why would you want to finance the receivable for the Term and then agree to bear the cost of accepting a piece of plastic at the end of that term or even later? The simple answer is you would not. It is a losing proposition.
There is however one notable exception, that of a payment of last resort. In that the buyer has no way of paying you other than to shift the debt over to a Card Issuer. Beware though as getting paid is not certain, with new rules that exist in merchant agreements. Issuers reserve the right to claw back from the merchant if the Cardmember defaults with them. You might be thinking you are smart collecting your bad debt with a credit card only to have it come back and bite you in a few months. So just a word of advice.
If we really want to look at the reason why this issue has manifested itself, we need to look back at the way for years Merchants have been sold credit card processing. Agents and companies selling Network Cards have mainly sold in price, first to B2C merchants and then to B2B merchants. This is strangely odd considering the main components of Bankcard Interchange are published and fixed, with the base line the same for all merchants. There was a perception for years of lower Interchange for Visa & MasterCard that assisted the sales process. It still exists today. Ask a merchant what they pay to accept Credit cards and the answer is “about 1.5%”. The reality is few transactions get processed at this rate or close to it.
There has always been demand to compliment the pricing perception, and it hastened to create Visa and “Everywhere you want to be.” For a time, the strategy worked well. It is hard to find a B2C Industry not awash in credit card acceptance. Later still that same strategy carried over into B2B where suppliers signed on to add Bankcards as payment options but have generally failed to produce the penetration, we see with their B2C Counterparts. Think about this, there are restaurants around the country that have to have enough cash on hand at the end of the night to tip out wait staff because the cash registers are full of credit card receipts. 90-95% of sales are on Cards. T
his should not be surprising to us, we are a credit driven society and virtually every consumer in the USA has some sort of plastic in their wallets, be it charge, credit, pre-paid, debit. Even the underbanked have products that allow usage in this space. Conversely, we see businesses of all types also being issued Charge, credit, pre-paid, debit cards as well, yet their usage of plastic for a large percentage of their purchases is not there. Why? Because often when they try to use their cards at a supplier they are suppressed, sur-charged or switched.
So why do Merchant suppliers do this? Primarily cost. The suppliers have figured out that they just financed the Term and now the Cardholder wants to give them a card for additional expenses. The Second reason is the suppliers were never sold a credit strategy. “Hey there Mr. Merchant, you should accept Credit and here is how you should do it.” That never happened because the agents were still selling price.
Credit acceptance can be effective in B2B, but as an alternative to Term, not in addition to it. There is a very comprehensive value argument to be made that as an alternative to Term credit acceptance can improve a business’s overall DSO’s. The issue as I see it is large swaths of Salesforces in this space are still selling price.
At best selling price in B2B will get you just enough spending until the increasing line item cost becomes a topic of conversation for management and they put a stop to the process. Business’s believe that they can still collect that receivable, credit card or not. Bankcard Sales Management and staff should embrace a new way of positioning credit acceptance that can lead to open and willing acceptance. The US Payments market is about $10 Trillion, and Credit Cards only scratch the surface of this with their penetration. Lots of busy work for not so great a return.
Roger McNamara Bio:
Roger is a 25+-year veteran of the Payments Industry, most recently as the Director of Business Development with American Express in the US. He has worked on the largest Acquisition targets for acceptance across multiple Industries and across the globe that include : Airlines, Communications, Technology, Cruise Lines, Entertainment, Fractional Jet, Freight, Government, Healthcare, Insurance, Oil & Gas, Residential Rent, Restaurants, QSR’s, Retail, Services, Supermarkets, Travel, Vehicle Sales and B2B Wholesale. Over that time, he has sold more than $200 Billion worth of Card processing and became an expert in Bankcard Interchange and Discount Rates, how they are calculated and what merchants pay to accept Credit and how this is dramatically different from what they believe they pay. He is an expert in Merchant Statement analysis and payment processing and the rules and regulations associated with payments and the associations. Roger has also developed the insight for Merchant Services Salesforces to be able to better position their products and gain share particularly in B2B. Let him show you how you can too. He can be reached at Guide2Interchange@gmail.com