Accept it - the benefits of corporate card acceptance far outweigh the costs
Research shows that B2B transaction profitability can be boosted by +3%.
Abhishek
VP & Global Head, B2B Acceptance at Visa Business Solutions
Abhishek
VP & Global Head, B2B Acceptance at Visa Business Solutions
Business-to-business (B2B) payment preferences are continuing to shift, as more corporates move away from paper checks and adopt Automated Clearing House (ACH) and commercial cards. According to a recent study, 32 percent of companies have decreased their use of check payments, choosing instead to move to electronic and card payments.¹
Forrester research shows that accepting commercial cards delivers a net positive economic impact of 357 basis points per transaction over alternative ways to pay.
Commercial cards offer an opportunity to reduce DSO to between 5 and 15 days.
In the past, many businesses avoided accepting commercial cards for B2B receivable payments because of the persistent belief that the cost of acceptance far outweighed the benefits. In fact, a recent Forrester Consulting study commissioned by Visa, The Total Economic Impactᵀᴹ of Commercial Credit Card Acceptance, which surveyed approximately 160 U.S.-based companies with more than $1B in annual revenues, found this to be a myth. While there are certainly fees associated with accepting commercial card payments, the Forrester research shows that accepting commercial cards delivers a net positive economic impact of 357 basis points per transaction over alternative ways to pay for a “typical” business.²
Beyond the cost saving benefits, businesses are increasingly turning to commercial cards because they are easier to use, more secure, offer opportunities to monetize their payments, increase cash flow and improve working capital management. At the same time, companies accepting cards also reap important benefits, which make cards a win/win for both sides of the transaction.
Impacting the bottom line
One of the more compelling results of the Forrester study revealed that accepting commercial cards is an effective revenue generating tool. Survey respondents indicated that revenue generation represented 50 percent of the total value of card solutions.
By offering cards as a payment option, a typical business can attract new customers, protect existing revenue from competition and also potentially increase sales to existing customers. Corporate cards also make it possible to profitably add smaller customers, and are especially effective for online marketplace and e-commerce models.
The survey also found average transaction values often increase, as does the frequency of purchases. Respondents indicated that adding cards led to a 2.8 percent increase in incremental revenues, as well as an increase in customer satisfaction. Clearly, adopting commercial cards is good news for the bottom-line.
B2B PAYMENTS ECOSYSTEM
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Report: The Total Economic Impact™ of commercial credit card acceptance ➔
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Webinar: Operationalizing the benefits of commercial card acceptance ➔
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Turning past-due collections into a thing of the past
Even in today’s low-cost funding environment there is an incremental advantage to reducing DSO with commercial cards. Typical DSO ranges from 30 to 60 days for non-card payment methods. Commercial cards offer an opportunity to reduce that much further - to between 5 and 15 days.
Because this reduced DSO also has the effect of freeing up the customer to make more purchases, it can result in improved revenue for the business. Beyond the growth opportunity, it stands as an important way to strengthen the business relationship with valued customers. By systematically offering corporate card payment as an option, the way is cleared for suppliers to receive value.
Similarly, the benefits from process improvements allow organizations to lower costs. Respondents realized several important process improvements through card-based payment acceptance:
- Reduced invoice exception handling and improved reconciliation processes as only three percent of card payments went to exception handling compared with 12 per cent of all other payment methods.
- Reduced payment-related inbound and outbound call volumes by 15 per cent as a result of better reconciliation and payment tracking.
- Faster onboarding of new customers achieved at a lower cost when compared to the $500 average for a new customer on ACH or check.
Commercial card adoption makes good business sense
One thing becomes abundantly clear when comparing the costs and benefits associated with commercial card adoption to traditional payment methods - cards make a lot of sense. Commercial cards can facilitate both revenue protection and growth opportunities, while also improving receivables collections and delivering process and DSO improvements.
Historically, some businesses have limited card acceptance because they had a one-dimensional view of the economics, which focused solely on fees. The Forrester study demonstrates that the total economic value that can be unlocked through card acceptance can significantly outweigh the costs. Businesses that have previously limited card acceptance would be well-served to reevaluate their payment acceptance strategy.
- Visa-commissioned Middle Market Study: Barlow Research Associates panel of 207 middle market companies fielded Jan 28/29 2021
- For the purposes of the study, a typical business was defined as earning $5 billion in annual revenue and had an average transaction value of $5,000.
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