Accepting B2B Credit Card Payments
What is the key to superior payment experiences, higher customer satisfaction, increased cash flow, and greater revenue for business to business (B2B) merchants? It all lies with the accepting of credit cards.
Although throughout recent years there has been an overall increase in digital payments, many suppliers still prefer to not accept cards. The reason they prefer not to is simple. It costs too much.
In 2020, US merchants paid more than $110 billion in credit card processing fees.B2B merchants look at this as a significant obstacle facing them when it comes to accepting card payments. B2B merchants must also consider the typically higher dollar value of transactions than those of a business to consumer (B2C) purchase, which can make fees seem even more daunting. However, there are ways to help mitigate the challenges of accepting cards while taking advantages of the opportunities it presents.
Despite some challenges in accepting card payments, it is more crucial now than ever in the B2B industry as well as the B2C industry. Buyers in both cases are looking for the same convenience and opportunity for flexibility of payments. The goal of this article is to help a B2B merchant understand all facets involved with accepting card payments, and how to best maximize the opportunity that comes with it.
A Breakdown of Processing Fees and How to Reduce Them
After adding up all the various fees associated with accepting credit card payments, merchants can expect to pay between 1.3% and 3.5% of each transaction. The average of these transactions is about 2%. Keep in mind these numbers will vary depending on the industry category and individual merchant.
Of that percentage paid out, the breakdown of average credit card processing costs by party looks something like this:
Authorization fees: collected by the payment gateway (accounts for 3% of total cost)
Transaction fees: collected by the payment processor (accounts for 7% of total cost)
Assessment fees: collected by the credit card network (accounts for 10% of total cost)
Interchange fees: collected by the issuing bank (accounts for 80% of total cost)
How do you reduce the cost?
A key method of reducing cost is interchange optimization. The majority of the fees collected fall into the interchange category, which is collected by the issuing bank. The issuing bank collects these fees to mitigate the risk of extending credit to a customer. A way to lower the risk for the issuer and provide them more assurance is to send additional collected data on the customer.
The most basic amount of data you can pass along is known as Level 1 processing. As you pass more data along you can qualify for the higher tiers of Level 2 or Level 3 processing.
Level 2 credit card processing is commonly used for B2B customers to make purchases. This especially occurs as the value and frequency of the transactions increase. Level 2 data includes more information to benefit corporate, government, and industrial buyers. This helps make it easier to monitor and analyze their transaction data and trends. The data in Level 2 processing includes tax amounts, tax identifications, customer codes, and other data.
Level 3 credit card processing offers even greater control by requiring users to provide even more data on each transaction. This is the B2B option most often used by merchants dealing with large corporations or government agencies. The extra information required offers the highest level of security and minimizes fraud risk, thus allowing you to be able to take advantage of lower processing rates.
Why Should You Accept Cards?
Flexibility and Opportunity
An important reason to accept cards is simply the fact that many clients prefer it. Small to mid-sized businesses especially prefer this avenue. Many clients may prefer to use credit cards so they can reap perks like rewards, cash back, or points. You’ll also gain a competitive advantage to draw clients away from competitors who may not accept credit cards. All customers, whether B2B or B2C prefer to have a range of options to choose from while making a purchase. The more payment options you offer, the easier it is to do business and obtain clients. You can expand your client base while also improving acquisition and retention. By refusing to accept cards, your business could be losing a substantial amount of potential revue.
Streamlined Operations
Checks take a lot of time to receive and clear. A check that doesn’t clear can involve additional fees and delays in funding. Accepting credit cards help to reduce the amount of paperwork and costs involved. You also improve the cash flow of your business. Funding time can be cut from 20-45 days to 1-2 days with card payments.
By accepting credit cards, you can eliminate the problems of stopped payments, bounced checks, or incorrectly filled-out checks. By saving time and money you can increase the overall productivity of your business.
Credit cards also offer a perfect option for repeat clientele. Using card payments, you can securely store sensitive payment information, making it easy to perform repeat transactions at the click of a button. Implementing a recurring billing can further simplify the payment process between you and your clients.
Reporting and Analytics
A big advantage to accepting card payments in the increased transparency of each transaction. Each transaction will have a highly detailed record attached to it. Furthermore, having access to this data allows you to run reports that can help you to forecast future revenue or trends. Having access to this data can also allow you to track or filter payments by client, date, method, or amount. Electronic reporting also assists with accounting.
Many processors provide integrations that allow you to sync all of your data with various accounting CRM or ERP platforms. This process is much easier than with checks and money orders that must be processed by hand. Having a detailed overall view of your business’ finances allows you to see potential growth areas and optimize all current practices.
Time to Start Accepting?
You should. The perceived barrier of processing fees can be turned into an actual money-saver by incorporating level 2 or 3 processing to reduce the interchange rate. The flexibility and opportunity of accepting cards can help bring in new clients and increase your business’ revenue.
The streamlined acceptance process can increase cashflow and productivity. The increased reporting and analytics help optimize all aspects of your business. When you look at it this way, can you afford not to?