A successful payment acceptance policy encompasses flexibility, convenience, and, above all, economic efficiency. However, it can be hard to hit all of these marks in an ever-changing payments landscape.
During a recent PaymentsJournal webinar, Mike Passifione, Vice President of Payments for Billtrust, spoke to Albert Bodine, Director of Commercial Enterprise Payments at Javelin Strategy & Research, about what it takes to build an effective payment acceptance strategy. They discussed automation, dynamic pricing, and why businesses like to pay with credit cards.
Creating a Policy
The first step of any payment acceptance policy is identifying the target audience, timing, and locations for accepting payments. This could be at the point of sale, during cash-on-delivery transactions, e-commerce or in B2C and B2B environments. Ideally, you want to maximize your chances for customer engagement. And having the necessary technology to adhere to a policy becomes extremely important. Having a written policy that lacks full execution is the equivalent of not having a policy.
Despite the desire to satisfy customers, it’s essential to adhere to established protocols. “As an example, a rule of mine is I do not take a credit card payment for a late payment or from a customer over the phone after they’ve been invoiced,” Passifione said. “If I were a sales rep in that scenario, and I’m trying to please my customer, I might make an exception to that rule to get the money in the door and deal with the backlash later.”
Policies must strike a balance between meeting suppliers’ and buyers’ needs. As in any relationship, both parties must benefit. It’s the technology that will enforce this balance, rather than relying solely on your employees. . This approach sets the stage for success for your both your business and for the accounts receivable team.
Digitizing and automating the payments experience offers immense value, allowing you to consider the types of payments you prefer, such as ACH, card, check, or electronic data interchange—and how they are processed. Then, you can evaluate the types of cards and formats you accept, keeping in mind that each buyer may have preferences for interacting with merchants or suppliers.
It’s important to consider the costs associated with accepting each type of card. Can you establish rules that allow you, as a supplier or merchant, to benefit more from these transactions?
“You can say, ‘Yes, I’ll take that card, but I prefer if you pay me within 10 days of my invoice,’” Passifione said. “If not, I’m going to push you towards ACH, because that’s what makes sense for my company.”
Surcharging, too, has grown more popular in recent years in the B2B space. It can be the most punitive way of conducting a transaction because there is an impact on the buyer.
“The surcharge is an interesting development,” Bodine said. “When we originally came to market with virtual cards, the value proposition was, ‘I’m going to pay you in net 10.’ As the supplier, I’m going to be more OK with paying 200 basis points for those funds than they would be if it was net 30. When you go into a buyer-initiated payments scenario, you take that control away from the supplier being able to pull the payment when it’s ready. I have been seeing more surcharging as a direct result of buyer-initiated payment.”
Providing Options
According to Passifione, suppliers and merchants have many ways to control their costs and their acceptance policy without turning to a surcharge program. “A lot of folks are very happy to pay 250 basis points if it means they will get paid within 5 or 10 business days,” he said. “It’s a bit more of an equal playing field. There are things you can do around negotiating terms, as well. A Custom Rate program could get you even more card spend and grow your network.”
Many players in this space are eager to grow card spending, and more collaboration is taking place. “But they need to do it somewhere in between the traditional cost of a very expensive downgraded credit card and the much cheaper ACH,” Passifione said. “A perfect touchless payment that they can apply cleanly, somewhere in between that cost, starts to make a lot of sense for suppliers. I think that’s ultimately where we’re going to see a lot of B2B spend grow in the future.”
Bodine added that with dynamic discounting, it comes down to choice. “I find that suppliers are sometimes willing to pay for different choices,” he said. “The net 5 might be a lot more expensive than the net 15, but they might have the remittance data that goes along with the suit. That’s how you get to a more balanced relationship between suppliers and buyers.”
Differences Across Businesses
Across the buyer spectrum, you may work with enterprise buyers who engage with enterprise customers, often utilizing EDI, ACH, or wire transfers. Midsize customers typically access an online portal for invoice selection and payment processing, while some—particularly those from larger enterprises—opt for virtual credit cards.
Then there are smaller businesses. “In the building material space, as an example, a lot of small to medium-sized construction businesses need the float, and they want to use their credit card to make payments,” Passifione said. “They’re relying on that card issuer and the float and the rewards they get. As you get into the enterprise world, they may prefer to pay with a virtual credit card, but they don’t have to run their business and can quickly pivot to ACH.”
Despite advancements, more than 40% of B2B payments still occur with checks. However, checks pose significant fraud risks due to the exposure of bank account information.
“We should be encouraging buyers to move to an electronic fashion,” Passifione said. “We’re creatures of habit. We’ve been sitting in that 40% range on check usage for what seems like for 20 years. I’m hopeful that changes dramatically over the next 10 years.”
This issue is crucial not only because of fraud concerns but also because of inefficiencies. “Something we talk about constantly is the fact that we can figure out ways to reallocate your employees so that they are doing things that are beneficial for the business,” Passifione said. “They should not be stuck in a room trying to reconcile a $1 million ACH payment that came in the bank because you can’t find any remittance. There are tools to solve for that. These individuals should be doing more thought leadership, higher-impact opportunities, and dealing with higher-impact items that can help you grow the business.”
