The benefits described above are not uncommon among companies that have migrated to electronic payments, but achieving these benefits requires companies to choose the right electronic payments partner.
Given that electronic payments are a newer concept to most U.S.-based payables and treasury departments, and companies are unaware of the critical components of an electronic payments program, there are many electronic payment providers taking advantage of the situation.
Below are six critical considerations for choosing an electronic payments provider:
1. 100-150 basis points (1 to 1.5%) are industry standard on virtual card rebates:
More and more companies are earning thousands of dollars a year from virtual credit card rebates. These rebates transform accounts payable from a cost-center to a profit-center. However, some electronic payments solutions providers have companies believing that “basis points don’t matter.” Companies should never receive less than 100 basis points (or 1 percent back) on their virtual credit card spend. It is clear why the electronic payments solution providers that offer as few as 20 basis points do not want companies focused on rebates. These providers also do not want companies to know that they are pocketing more than 150 basis points on card transactions that they facilitate on a company’s behalf. For one firm, an 80- basis point difference would have amounted to $360,000 a year in money left on the table. Unfortunately, the money lost to lower basis points is not made up elsewhere and the electronic payments solution provider is not delivering a value-added service worth sacrificing hundreds of thousands of dollars a year in rebates.
2. Zero transaction fees on your vendor virtual card payments:
Credit card issuers do not charge electronic payments solution providers a fee to make virtual card payments. However, some electronic payments solution providers sock companies with fees of up to 68 cents per transaction to initiate card transactions. This is pure profit for the solution provider. Some solution providers justify the fees as being essential to their customer service, but in reality, they are making large profits from the virtual card spend, so they should never need to charge these transaction fees. Other solution providers are actually using money received from these fees to promise guaranteed rebates to companies. It doesn’t make any sense for a company to receive a guaranteed rebate that is a fraction of what they are paying the payment provider (especially since these fees should never have been charged in the first place)!
3. No rebate cap on a single virtual card transaction:
There should never be a cap on the amount of money a company can earn as a rebate on a single virtual credit card transaction. In fact, most credit card issuers encourage companies to use virtual cards for large-ticket purchases. That has not stopped some electronic payments providers from capping the amount of money a company can earn on a single transaction at a measly $50 or less! Assuming a $100,000 purchase (increasingly common in today’s environment) and a rebate of 100 basis points, the company would be missing out on $950 by using an electronic payments solution provider with a cap of $50 per transaction.
4. Do not force vendors to accept cards:
As with most things, one electronic payments option is not right for all vendors. Some electronic payments solution providers force your vendors to opt-out of virtual card programs, an arduous process that often results in disgruntled vendors. In addition to a negative impact on trade relationships, requiring vendors to opt-out of receiving card payments is likely to result in higher cost of goods as disgruntled vendors raise your prices to recoup the fees they pay to accept your card payments. A better approach is for vendors to opt-in to your electronic payments program and offer them a range of options to make the program as appealing as possible. Companies can achieve high vendor adoption rates by leveraging enrollment programs that include e-mail and mail campaigns to drive adoption among small vendors, and phone campaigns to any vendor with which a business spends over $5,000. With each campaign multiple follow-up calls to hold-outs (“gentle persistence”) are recommended, as well as repeating campaigns every six months to capture new vendors. Furthermore, companies should offer vendors a range of electronic payment options, including virtual card payments, ACH payments for vendors that will not accept virtual card payments or for situations where card payments are not practical, and a secure self- service web portal that vendors can use to accept electronic payments and receive detailed remittance data.
5. No co-mingling of funds:
Any corporate auditor would never allow a depository institution to co-mingle their company’s funds with those of other businesses. However, some electronic payments solution providers do just that with the funds they collect from businesses for making payment on their behalf. When you consider that these so-called trust funds are typically administered by unregulated third-parties, there is no telling how the money is managed or whether it is only being used to fund electronic payments transactions.
6. Beware of unrealistic spend estimates:
Be leery of electronic payments solution providers that include mortgage payments, investor disbursements, utility payments or taxes in their calculation of your potential annual credit card rebates. It is unlikely that any of the recipients of these types of payments will be willing to “eat” the interchange fees associated with virtual credit card payments. Electronic payments solution providers should eliminate payments to these types of entities from their annual rebate calculations. In the case of a West coast construction company, eliminating payments to these types of entities resulted in a potential eligible spend of $44 million out of the company’s total spend of $310 million. Companies should also eliminate vendors that it spends less than $3,000 per year or more than $3 million a year as they are typically poor candidates for virtual credit cards. Some electronic payments solution providers also have access to a database of companies known to accept virtual cards. This data helps companies fine-tune their spend calculation and better target their enrollment efforts.
Clearly, there is a lot riding on choosing the right electronic payments solution provider. With the wrong partner, companies risk missing out on lucrative rebates, paying unnecessary transaction fees, alienating their vendors, being saddled with higher costs of goods, and putting their money at risk.