Level 3 processing vs. check acceptance

When the card acceptance costs are paired with the benefits, suppliers should come out ahead. However, there is a different break-even point for each supplier. This is when card acceptance costs/fees are basically equal to the benefits, providing no monetary advantage or disadvantage. It’s the maximum transaction amount before card acceptance may no longer benefit the supplier—when the fees exceed estimated cost savings, depending on the terms of the merchant agreement.

A common break-even threshold is approximately $2,500 for traditional P-Card transactions. This likely explains why some suppliers resist higher-dollar transactions. To reduce the fees for “high-dollar” transactions, a supplier may be able to take advantage of reduced large-ticket interchange. The requirements related to large-ticket interchange, if/when part of an interchange rate schedule, will vary by network.

For a win-win situation, both the end-user and supplier need to benefit. End-user organizations should be sensitive to suppliers’ costs when identifying purchases best-suited for P-Card payment. Further, end-users should utilize an efficient P-Card procure-to-pay process.

Benefits of Accepting Card Payments

Broadly speaking, supplier benefits of accepting card payments include:

  • cost reductions, such as eliminating invoice creation, handling and mailing (this benefit is usually limited to traditional cards only, as electronic payables work differently); depositing payments; and collection activities
  • electronically-deposited funds
  • faster receipt of payments/improved cash flow
  • increased sales (i.e., competitive advantage), as many organizations solicit only suppliers that accept P-Cards as payment
  • meeting requests of current customers (i.e., customer satisfaction)
  • potential staff reductions within accounts receivable (A/R) and/or ability to redirect staff to more value-added activities

Maximizing the Benefits

Similar to end-user organizations, to reap the most benefit from P-Cards, suppliers needs to re-engineer their processes accordingly. They should not simply add P-Card payments to existing procedures associated with the traditional sales and A/R process. Further, they should appropriately automate the card process into their order entry and sales systems. Suppliers should also consider how to lower the interchange portion of the merchant discount fee. For example, providing Level 3 line-item detail might be an option. While these types of changes might involve investing in system upgrades or integration efforts, such changes will provide a return on the supplier’s investment for years to come.

In addition, suppliers might be in need of a better acquiring contract for card services.

Overall, suppliers need to be proactive in understanding the costs of all payment methods and pursuing improvements. End-users should be prepared to help educate their suppliers, especially if a supplier wants to impose a surcharge for P-Card payments. When a supplier is gaining the transactional savings and other benefits described above from card acceptance, it should not make surcharging a practice.

want to learn how your company can benefit from level 3 processing? Call our office at 888 790 3450 or email [email protected]

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