The introduction of credit cards has been a topic of debate for a long time in the B2B world. Traditionally, businesses made their purchases by placing an order in person, through the mail, or over the telephone. The merchant would then ship the products and send the business a paper invoice for payment. Then, they would wait – sometimes for weeks – for the payment to arrive in the form of a paper check. Cashing the check and receiving funds added several more days to the process.
With the advent of the internet, B2B transactions could now be received and processed timely. Credit cards could now be used for small businesses and larger corporations. It would not only allow instantaneous payments but also cost more to process than the old paper invoice method. For most merchants, the ability to decrease the delay in receiving funds to just 1-2 business days, makes up for the extra expense. Accepting credit cards for B2B transactions also leads to a significant increase in overall sales, as a lot of companies are using credit cards exclusively for their business purchases.
The acceptance of credit card payments for B2B suppliers is critical. It is something that could be adopted, according to Jason Harrington from EmployBridge:-
“It’s such a convenient way to pay”
Credit card payments have gotten better and are the next big thing that could change the payment process as a whole in the B2B world.
The B2B market has still not explored the true potential of the credit card industry. The market could grow in leaps and bounds if credit cards are properly integrated into the payment system.
Once you accept credit card payments for your company, you could improve your cash flow as the money which you get would depend on the relationship you have with your bank. You would receive the funds sooner, sometimes the very next day. Also depending on your connections, it could help reduce DSO and improve the collection effectiveness.
The credit card solution is also integrated into the ERP system as the cash is transferred and immediately improves cash flow. As many companies still do not accept credit cards, the customers who are willing to pay through it face hiccups. Also, there are fewer charge-backs by increasing sales and accepting credit card payments. They provide great value and greater security.
Virtual cards and buyer initiated payments are introduced and are trending for both small increment companies and large buyers. In a virtual card payment, a client or a vendor can only charge the exact amount, not more or less. There is a fixed expiration date for a unique card number.
A huge issue that surrounds credit cards is PCI compliance. The supplier should be able to implement some PCI and standards. It is very costly to implement PCI compliance within one’s own network, also it takes time to implement some standards to take the analysis of all the data coming in.
The world of Credit Card fees is convoluted and there are no specific guidelines to understand interchange and processing fees. While it could be achieved on your own, it is complicated and sometimes the company has no idea how to do it.
Customers strive for cost reduction, so any additional convenience or surcharge fees would receive a backlash from their end, therefore suppliers push back on accepting credit cards.
The suppliers need to find a partner who has the expertise and provides a platform to implement a good credit card system. This ensures that the customer does not have to deal with complex processes that are done by the platform independently, and it takes just a few clicks.
Moreover, the sales and finance teams’ end objective is to ensure the company’s profits. Therefore, the difference in their modus operandi and lack of communication creates a difference, which in turn reduces the optimal productivity level of the company. Also, the sales team and finance team probably work on different systems, often with little or no oversight of what the other team is doing.
The finance team’s goal is to bring the cash in sooner, without paying attention to the cost associated with accepting credit cards. Whereas the sales team’s objective is to release the orders right away. This not only creates a sense of discomfort between the teams but also on the customer’s end.
Studies show that credit departments spend an inordinate amount of time approving orders. Software algorithms could be used to route orders for automatic approval within pre-set parameters. The idea is to eliminate all the orders which land in the credit hold queue and are quickly released after a cursory manual review.
A good start in making strides in credit management automation is through the creation of unique scoring models, which promote standardization when making credit decisions. The first step to creating your own scoring model is to compile a Scoring Model Team that would take on the task. The team should consist of members with different skill sets. A few months of brainstorming, development, testing, and realization would operationalize this project.
The automation through models can increase productivity by scoring monthly accounts up for review and extending the review dates based on the model’s recommendation. This automation allows analysts to spend more time reviewing larger and/or riskier accounts. Scoring would also enable the ability to perform focus reviews for possible credit limit increases on a large portfolio of accounts.
As technology evolves so do our financial habits. Obviously, people won’t be making payments via checks or cash anymore. Current trends show that internet usage is increasing worldwide, meaning more and more people would prefer to move towards online methods for everything in their life. This change is primarily being driven by millennials, hence virtual card payments, Cryptocurrency and similar forms of real-time and secure payment formats are going to be a common sight.
As in the B2B world, businesses grow at a much faster pace, therefore, they need payment methods that could process faster than usual methods. Therefore Automation is imperative to lead the way.
Revamping the entire payment operations and enabling credit card payments could seem a bit daunting at first and yet what most finance professionals fail to realize is how traditional payment methods are slowly increasing DSO and reducing operational efficiency. Payment through credit cards is still not a localized concept in B2B but there is a slow and steady transition towards enabling the concept.
Through this thought leadership idea, a lot of changes have been put in place and Credit Card processing is just becoming more and more successful.
Credit & Collections Digital Transformation Workshop
3 Tips for Faster Credit Reviews and Credit Scoring