PayStream Advisors’ financial process guru, Henry Ijams, spoke last Monday at the Inaugural BillTrust User Summit at Philadelphia’s Hotel Monaco. Joining him on the stage were Joe Lucas, Vice President of SRS Distribution, a growing independent roofing distributor, and Ken Bruch, Manager of Accounting and Treasury for Ultradent, a leading developer and manufacturer of high-tech dental materials. The three spoke on the “Tyranny of Credit Cards;” a discussion on the pains of accepting credit card payments and strategic remedies. Below is a brief summary of the presentation:
Utilizing purchasing cards (P-Cards/credit cards/rewards cards) is an attractive method of payment among suppliers because they yield faster payment, providing quicker access to capital that may otherwise cost more to achieve. However, the merchants that accept the payments generally fund the benefits that purchasers receive (usually a discount percentage of 1.9 to 2.5 percent). As Figure 1 illustrates, even though credit card payments can account for as few as 10% of annual collections, the total cost to process card payment often more than doubles the costs of processing check and electronic payments (ACH) combined. For these reasons, businesses need to think strategically to continue to receive the benefits of a speedy payment while avoiding the high processing fees to do so.
Using the correct tactics, an organization can influence customers to use the lowest cost payment method. Convenience fees are a perfect example; they are a popular and time-tested way to both absorb some of the costs of accepting credit cards as well as persuading customers to resort to lower cost transactions such as ACH.
Joe Lucas presented his own company, SRS Distribution, as a case study. SRS Distribution is a group of 18 branded regional roofing supply distributors with over 100 branches nationwide. They have over 1200 employees and distribute over 50,000 bills per month. SRS takes credit cards with no fee at branch locations when paying at the time of purchase. In June 2011, SRS went live with an online Invoice Gateway. They offered complimentary ACH payments but charged a convenience fee for credit card transactions. They also excluded credit card payments from early payment discounts or incentive programs. On average, SRS estimated that credit cards were costing 2.25% of purchases. They charged a convenience fee of 1.5% for these purchases and in 2013 achieved a savings of over $40,000 from this fee. The results of this change were quite compelling. ACH payments grew ten times as fast as credit card payments in just two short years. Only 8% of SRS clients were continuing to use credit cards when paying through the online gateway.
SRS Distributing presents a fine example of how strategic policies can help relieve the pains associated with accepting credit cards. Of course, this is just one of many options. Encouraging sales and customer service staff to promote low-cost payment methods or optimizing your web site and communications to promote the lowest cost option are also viable alternatives. Whatever the method, credit card usage will continue to grow and thus it is essential that an organization develop a strategy to combat the costs of accepting these payments.
PayStream Advisors will be publishing a report that discusses purchasing card strategies in greater depth in early Q2 2014. To read the abstract click here.PayStream Advisors’ financial process guru, Henry Ijams, spoke last Monday at the Inaugural BillTrust User Summit at Philadelphia’s Hotel Monaco. Joining him on the stage were Joe Lucas, Vice President of SRS Distribution, a growing independent roofing distributor, and Ken Bruch, Manager of Accounting and Treasury for Ultradent, a leading developer and manufacturer of high-tech dental materials. The three spoke on the “Tyranny of Credit Cards;” a discussion on the pains of accepting credit card payments and strategic remedies. Below is a brief summary of the presentation:
Utilizing purchasing cards (P-Cards/credit cards/rewards cards) is an attractive method of payment among suppliers because they yield faster payment, providing quicker access to capital that may otherwise cost more to achieve. However, the merchants that accept the payments generally fund the benefits that purchasers receive (usually a discount percentage of 1.9 to 2.5 percent). As Figure 1 illustrates, even though credit card payments can account for as few as 10% of annual collections, the total cost to process card payment often more than doubles the costs of processing check and electronic payments (ACH) combined. For these reasons, businesses need to think strategically to continue to receive the benefits of a speedy payment while avoiding the high processing fees to do so.
Using the correct tactics, an organization can influence customers to use the lowest cost payment method. Convenience fees are a perfect example; they are a popular and time-tested way to both absorb some of the costs of accepting credit cards as well as persuading customers to resort to lower cost transactions such as ACH.
Joe Lucas presented his own company, SRS Distribution, as a case study. SRS Distribution is a group of 18 branded regional roofing supply distributors with over 100 branches nationwide. They have over 1200 employees and distribute over 50,000 bills per month. SRS takes credit cards with no fee at branch locations when paying at the time of purchase. In June 2011, SRS went live with an online Invoice Gateway. They offered complimentary ACH payments but charged a convenience fee for credit card transactions. They also excluded credit card payments from early payment discounts or incentive programs. On average, SRS estimated that credit cards were costing 2.25% of purchases. They charged a convenience fee of 1.5% for these purchases and in 2013 achieved a savings of over $40,000 from this fee. The results of this change were quite compelling. ACH payments grew ten times as fast as credit card payments in just two short years. Only 8% of SRS clients were continuing to use credit cards when paying through the online gateway.
SRS Distributing presents a fine example of how strategic policies can help relieve the pains associated with accepting credit cards. Of course, this is just one of many options. Encouraging sales and customer service staff to promote low-cost payment methods or optimizing your web site and communications to promote the lowest cost option are also viable alternatives. Whatever the method, credit card usage will continue to grow and thus it is essential that an organization develop a strategy to combat the costs of accepting these payments.
PayStream Advisors will be publishing a report that discusses purchasing card strategies in greater depth in early Q2 2014. To read the abstract click here.
