A recent study commissioned by Visa™ examined the potential return on investment and economic benefits for business-to-business [B2B] transactions. The authors make a case for merchants and their customers for commercial card acceptance. Beyond convenience, the cited revenue growth; improved business process management; understanding of the benefits of accounts payable automation [for customers;] and a fuller understanding of the benefits of accounts receivable for merchants.
In the survey of companies, the benefits reported were 2x the cost of commercial card acceptance. Such benefits reported in the Visa™ study showed a nearly 7% return per transaction versus the costs of just 3.25% per transaction. The net benefit is over 3.50%.
- Payment protection and revenue growth
- Increase Accounts Receivables collection
- Decrease Days Sales Outstanding
- Process improvements and reduction of overhead
- Interchange and processing fees
- Implementation and program costs
There are several key factors to be considered when adding commercial card acceptance to your methods of getting paid:
Payment certainty with guaranteed payments
- Improving revenue management after considering the cost of money over time, especially if there are delays in payment. Customers still take the discounted terms for “prompt” payments through accounts receivable ages 60+ days.
Improved Days Sales Outstanding [DSO]
- Lowering DSO as a key performance indicator of credit sales for getting paid quickly. A higher DSO suggests the company is experiencing delays in receiving payments.
Business Process Management Improvements
- Reducing overhead in credit and collections, bookkeeping and ease of reconciliation. The Pandemic work-fromhome model makes centralized accounting functions complicated as the payment by check handling from home offices becomes impractical.
Security and Accuracy in Remittances
- Eliminating manual handling of other forms of payments, i.e., paper checks. Manual processes, such as payment reconciliation, exception handling, and debt collection, become more difficult.
Commercial Payment Card Acceptance
- Preferred by customers; recommended by banks. With the emergence and growth of payment card loyalty and cash-back programs, more payers are looking for simplicity by consolidating accounts payable while participating in such reward schemes.
The reasons vary, but merchants believe that adding commercial card acceptance to their mix of payment options will improve their company revenue. Customers demand convenience, of course, but also a simpler, more secure option. When customers pay by commercial payment cards, automation can post the payment in real-time, and AR can be updated the same day. Those same customers want to take advantage of loyalty and rewards programs. Still, they will also take advantage of float with a future AP date. Cash-back benefits are often sought to help pay for operating costs, equipment purchases, and in some cases, to provide year-end incentives and bonuses for employees.
The inherent benefit to a merchant is an increase in sales with higher value items and perhaps more frequent purchasing. Credit and Collections are undoubtedly a substantial benefit to a merchant as payments by commercial cards are usually paid out in full. Avoiding slow-pay on invoicing and minimizing the excessive risk of an aging AR are significant reasons for moving toward commercial payment card acceptance.
Traditional checks are often perceived by suppliers to be reliable, cheaper, and time-efficient compared to commercial cards. Such a perception is flawed as check payments are highly manual processes with an increased rate of human error, increased susceptibility to fraud, and ultimately cost-inefficient.
Business models for AR/AP automation are evolving rapidly. Business-to-business (B2B) payment preferences are shifting as more corporations move away from paper checks and accept traditional and virtual card solutions. To move forward with commercial card acceptance, CFO’s and owners must first set objectives for their enterprise and identify the costs, benefits, flexibility, and risk factors that affect the investment decision.