According to PRNewswire.com, virtual card payments make up 50% of all B2B payments. Suppliers are accepting virtual card payments now more than ever before, but many still rely on outdated payment methods because they believe the fees don’t outweigh the benefits. Despite the most common objections for refusing to accept card payments, virtual cards offer clear benefits suppliers simply can’t ignore.
Why Won’t Your Suppliers Accept Credit Card Payments? And How To Change Their Mind
As a business owner, you’ve most likely received an invoice from some supplier, vendor or service provider requesting payment. Somewhere on that invoice there is usually a statement like the one below.
“Send payment via cheque to [ address ] or bank transfer to [bank code and account number]. Due upon receipt of invoice”
But as an individual, you’ve also experienced the simplicity of using credit cards and other form of digital payment methods. For example, purchasing items online for everyday use, or even Google ads and flights for your business, a credit card would allow you to pay within minutes.
So very quickly, many business owners come to the logical question of: “Why won’t my suppliers accept credit card payments? Even though paper and manual transfer systems are inefficient, why are B2B transactions are still struggling to let go of paper cheques, invoices, purchase orders and documents?”
We will examine some of the reasons behind this, and if there are ways to change how suppliers deal with credit card acceptance, allowing you as a business owner to now more efficiently make payments more efficiently and experience the financial benefits of using a credit card instead of cash and cheques.
Understanding the difficulties to set up credit card acceptance
If you’re a business that has set up a credit card point-of-sales for consumers, you’ll quickly realize the process to allow credit card acceptance is not the simplest. First, you have to reach out to providers for payment processing, and establish a merchant account for the funds to settle into. Once that is done, there will be additional work to integrate the collected funds into your normal business operations account. Building the reconciliation is not always easy.
Furthermore, there will always be some negotiation about how quickly the funds will settle into your account. Even though a sale is made on a credit card, the bank may hold your funds until they’re sure the customer won’t dispute the charge and take the money back.
For online payment gateways like Stripe or Adyen, the administrative process is easier, but then there would be the issue of technical set-up as establishing a website to accept payments is not usually the top concern of your supplier especially if they sell through offline channels.
Suppliers don’t want to pay the fees
There is also the unavoidable conversation of the processing fees. Being able to accept credit card payments also means that the recipient (supplier) would have to collect less because the net amount they receive is usually 2-4% less because of the fees.
We can’t ignore the fact that some of the economics and the price of acceptance has been somewhat of a barrier for suppliers. But the market is beginning to change, and card issuers and financial institutions are launching corporate-focused solutions to ease the friction of accepting card and electronic payments.
How do we change the suppliers’ view
From the two points above, it seems like it doesn’t make a lot of sense for suppliers to accept credit card; the process itself is cumbersome and costs more. So you, as a buyer, may be seemingly stuck with paying with paper cheques and manual transfers .
But actually there are important reasons that suppliers should accept credit cards, which are not immediately apparent. For example, Suppliers do want to receive electronic payments. They do want to automate their account receivables collections process and achieve higher straight-through processing rates. They do want their payments to clear more quickly.
1. Guaranteed Funds, Shorter Terms
Offering to shorten payment terms, however, provides a strong incentive that can help overcome any reluctance on their part. Instead of paying by cheque 60 days after invoicing, for example, offer to pay in 14 days by card. Getting cash faster provides a significant working capital boost to the supplier, allowing them to put those funds to use immediately. With shorter payment terms, the overall value of accepting cards may offset the expense of fees.
What’s more, these funds are guaranteed and the payment will typically be funded in 24 to 48 hours — as opposed to paper cheques, which can take more time to receive.
2. Simplified Accounts Receivable
Accepting payments and reconciling accounts is a far more efficient process for credit cards than for other forms of payment. When a business is paid by paper cheque, for example, that means someone must open envelopes, reconcile payments by scanner or by manual data entry, endorse the cheques and, finally, deposit them. Credit card acceptance eliminates that paperwork, freeing up the supplier to focus on more strategic efforts.
3. Increased sales
There are a number of research reports out there that finds evidence of increased sales for suppliers equipped to accept credit cards, not just on consumers but also B2B sales. One such study done by Visa noted that 32 percent of SMEs encountered an increase in sales when they began taking cards as payment and that businesses that shift from paper cheques to electronic card acceptance can save about $24 per every $1,000 in sales. Although the fees are still there, B2B buyers want the same convenience that consumers enjoy with their own credit cards. By not accepting credit cards suppliers are missing out on a lot of potential sales.
4. Credit implications and security
Credit card-equipped buyers tend to have good credit availability, so buyers are predisposed to work with suppliers that are efficient and easy to do business with. Plus, there is the whole security, data and analytics side of this shift that comes with electronic payments often unattainable with paper-based transactions.
Gradually changing credit card acceptance
The recognized challenges of supplier card acceptance exists, but are quickly being outweighed by the benefits. The combination of all of the above starts to present an attractive message for suppliers in considering digital B2B payments via credit cards. Suppliers need to get on board to capture all of these benefits and maintain positive relationships with their buyers.
What this means to you as a SME is that you could start to make a compelling case to suppliers to start taking your credit card for payments, allowing you to also experience the benefits of enhanced cash flow, ease of payment and reconciliation. This process is unlikely to happen overnight, but the momentum is gaining as digital payments permeate the consumer space. In the meantime, platforms such as Reap allow you to make these type of payments with credit card, even if your supplier doesn’t accept today.