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Trends in NACM credit card acceptance survey.

Statistics indicate that, when extending terms, credit professionals usually ask for information on the who, what, when and where--what they don't seem to ask very often is how the payment will come in. Nearly 63% of credit industry respondents do not inquire about their customers' method of payment, according to newly released data from the Trends in Credit Card Acceptance survey created by NACM partners Vantiv and United TranzActions. But that is important because, if a customer pays with a credit card instead of cash or check, it could affect the seller's bottom line, explains Rudet Fountain, executive vice president of NACM and former vice president of NACM relations for United TranzActions.

Fountain finds this percentage significant because it indicates that only one-third of NACM members who responded request payment information prior to the sale. Knowledge about the type of payment beforehand, he says, can greatly benefit sellers. For example, if creditors sell their product at 5% over cost and the customer's credit card charges them a 2.5% fee, profit is automatically cut in half.

"If I don't ask you up front how you are going to pay, then I could get blindsided later on," Fountain said, explaining this is one behavior that credit professionals must change. In a typical transaction, if a merchant asks for payment 30 or 60 days later and anticipates a check, they may be surprised when the customer pulls out a credit card to make payment. "If somebody pays with a credit card, then why not get paid tomorrow?" Fountain inquired. "What we have to do is build our systems differently so we can charge the card at the time of invoicing--and that's a fundamental shift that needs to be in place."

Fountain attributes a merchant's lack of awareness regarding advanced knowledge of payments to it simply not being part of their usual practice. For some businesses, it may also be a refusal to accept a new reality or recognize that times are changing. "That's a big fallacy today," he argues. "Why would you expect that things will be the way they were and customers will pay you with a check? A good percentage of the time, we know that customers may likely use credit cards. And it sure would be helpful to know that up front."

Year-over-year, credit cards sales for B2B transactions are increasing by about 15%--so, for every dollar taken in, the following year, it will increase to $1.15. At the present time, credit card payments remain the least frequent method of payment for B2B merchants, as only 3% to 5% of dollars collected each month come via credit card payments. The opposite is true in the retail industry, where businesses fully expect most transactions to be paid through credit cards and merchants build extra costs into their goods or services. However, Fountain expects that over the next few years, B2B merchants will see a significant growth in the usage of credit cards among their customers--possibly up to between 35 and 40%.

"Pretty much anywhere we go, we can use our credit card," Fountain said, citing fast-food restaurants and parking meters as prime examples of where credit is accepted. "That wasn't true 10 years ago. If [the credit card companies] need more business, the next logical place to go is in the B2B sector, and there's a lot of money out there."

Fountain anticipates that credit card companies will provide businesses with more incentives to use credit when making payments. Just like with personal credit cards that offer points or special products, similar enticements are offered to businesses. If a B2B customers can get money back every time they pay with credit, than there would be less of an incentive for them to pay with cash or check.

In the survey, NACM members were also asked if they charge customers a surcharge fee to offset the credit card processing costs. Nearly 85% of the respondents answered "no." However, when asked if their company would like to have a solution that easily gives the ability to add a surcharge to credit card payments, 62.69% answered "yes."

"The survey indicates, quite significantly, that most companies would consider surcharging in the future," said Matt Fluegge, B2B executive consultant and manager of NACM relations with Vantiv, adding that unlike in the world of retail, "were selling much narrower margins. If you are going to pay with a credit card, we would like to surcharge you ... but our competitor might not do that, so it opens up another a whole can of worms with regard to a competitive edge."

According to other results within the survey, 88.94% of respondents accept credit card payments from their customers. Of those surveyed, those who do not accept payments cited the following reasons among others:

* Too expensive (10.55%)

* Executive management or ownership will not allow it (5.36%)

* Product margins are too small (5.19%)

* Proper systems, procedures or people to accept cards are not in place (3.85%)

* No industry competitors accept credit cards (1.34%)

When asked if they feel they would lose sales by not accepting credit cards as a form of payment, more than 72% answered that they did. "There is a really high percentage obviously that are accepting cards," Fluegge said. "I do think it's accurate that a company will lose sales if it doesn't accept credit cards."

The majority of respondents (72.21%) said they accept credit card payments for those customers who are on account and paying off invoices or statement balances. About the same percentage (76.84%) did not have a policy that indicates credit card payments would be accepted only at the time of the order or sale. About 66% agreed that accepting credit cards improved their company's financial performance, such as with their days sales outstanding, reducing bad debt or receivables insurance or more sales.

"Credit cards allow you to get paid," Fluegge said. "It's another line of credit that somebody is using to pay the bills, and it does increase potential and helps get money in the door."

Jennifer Lehman, NACM marketing and communications associate, can be reached at jenniferl@nacm.org.
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Title Annotation:SELECTED TOPIC
Author:Lehman, Jennifer
Publication:Business Credit
Date:May 1, 2015
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