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.

At the very least, accepting a card post-term 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 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 complement 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?

Quite 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, B2B and 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, 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 associations. Roger has also developed the insight for Merchant Services Salesforces and salesforces, in general, 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 roger@guide2interchange.com.