The Big Bogey, Term
In the B2B supplier world, can offering Term to a buyer co-exist with the offering of cards as a form of payment? This is an interesting question and one we see play out over and over again in B2B businesses that fail to establish a credit acceptance policy that makes sense for their business. Unfortunately, term and card acceptance cannot exist where you will have a 100% happy merchant supplier, where they are happy to accept Card as a form of payment from all buyers.
Accepting a card post-term at the very least 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.
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 now many are starting to do the same to B2B merchants. “Mr. Merchant, do you have a statement, I think, I can save you a penny or two.” Sound Familiar?
Do we really believe that merchant suppliers who believe their cost of 3%-4%, are interested in saving a penny or two when they are hemorrhaging line-item cost? So why do Merchant Sellers do this? Primarily, because the industry has not shifted its selling practices developed in years of selling in the B2C segment. Sellers have without direction run with a process of selling they know, and which was quite frankly very good to them in B2C. In B2B selling price will only get you to the tolerance of the line-item budget for card. Furthermore, our 8% penetration into B2B payments shows we lag severely behind ACH (38%) and check at (36%) and the latter is dying faster than a bug hit by a windshield.
Secondly, suppliers have never been sold a credit strategy as part of their Card processing sale. “Hey there Mr. Merchant, you should accept Card payments, and here is how you should consider doing it and why.” This never happened because agents were again still caught up selling price as they did in B2C.
On the flip side, our Card issuing colleagues are in the market literally shoving Card products into the hands of businesses. Banks have figured out that the Card issuing business is a generous compliment to their lending portfolio. Rising interchange costs have fueled the explosion of benefits to Card users in the form of hefty rebates, cash back, and a barrage of rewards. So, if there is so much plastic in the market and demand for use of that plastic, why is there so little penetration versus other payment types?
Often suppliers will refuse to accept a Card as a form of payment from a buyer for the reason we have previously identified, card costs. Suppliers also believe that they can offer the buyer an alternative such as ACH, Check or Wire at a lower cost. And again, when Merchant Sellers are asked to defend their turf on this objection, they fall silent because many cannot work through the full cost associated with competitive payments. It’s not that these payments are actually that much less expensive, we have just been conditioned to think they are. ACH is .25 cents a transaction, so therefore it has to be less expensive, but if you don’t get paid until day 45 with ACH, then .25 cents is not the actual cost. It is that, plus the time value of money. Again, something most Credit sellers overlook.
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. Businesses believe that they can still collect that receivable, credit card or not. As a Merchant Seller, what are you doing about it?
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 $300 Billion worth of Card processing and became an expert in Bankcard Interchange and Discount Rates. Today, he is the President of Guide2Interchange a Sales training organization that has trained sales professionals all over the country on how to sell B2B in the merchant supplier space. Let him show you how you can too. He can be reached at Guide2Interchange@gmail.com