All major credit cards NOT accepted.

Credit card fees are devastating for the bottom line in B2B commerce, where profit margins are already thin.

While sellers might decide credit terms, customers generally choose how to pay. As card payments continue to replace cash transactions in our lives as consumers, buyers in many industries are bringing their purchasing habits to work.

Multiple financial institutions are involved in every credit card payment, and they extract value and diminish earnings. This can be very bad for business. Visa, the largest card network, recorded $33 billion of net revenue in 2023, primarily from transaction fees.

For leaders in the finance department, if you expect an ongoing customer relationship, you need to influence your buyer to use cost-efficient payment methods. This can be a serious challenge. Visa spent over $12 billion on client incentives last year to influence payers to use their solution. These rewards include points or cashback, and are appealing for buyers.

Despite a near complete lack of technology investment, trade credit still predominates in B2B commerce. As of Q1 2024, trade credit receivables amounted to $7.9 Trillion in contrast to $1.15 Trillion in total credit card balances, including consumer balances.

At Nuvo, we believe that technology-enhanced trade credit is the most efficient relationship type because financial intermediation is costly and sellers best understand industry dynamics and individual customers. Finance teams that care about company profitability can leverage trade credit’s inherent advantages and preference slower, more cost-effective payment methods. This approach empowers buyers with the purchasing power they need and avoids high transaction costs.

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The Drawbacks of Credit Cards in B2B Commerce

Credit cards pose significant drawbacks for B2B transactions:

1. Transaction Fees: Credit card fees, typically around 3%, either reduce profit margins for sellers or decrease customer purchasing power, depending on who pays the fees.
2. Anti-Seller Bias: Card issuers prioritize their cardholders, which puts suppliers at a disadvantage in the case of chargebacks and refunds and encourages bad behavior.
3. Cost Implications: The rewards offered by credit cards are often outweighed by the transaction fees, resulting in a net loss for the entire supply chain.
4. High Interest Rates: The high interest rates associated with credit cards further exacerbate the cost, making them an expensive payment option in B2B transactions.

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Overcoming Common Objections

Increasing profit margins is never easy, but reducing card processing costs is one of the most actionable. To successfully transition customers from credit card payments to trade credit, consider the following strategies:

1. Incentives: If customers use credit cards, creating incentives for preferred payment methods can be effective. For example, offering a 1% discount for ACH payments can encourage customers to move away from credit cards, and save as much as 2% in fees.
2. Fees: Introduce a fee for credit card transactions to cover the associated costs. This can discourage customers from using credit cards and push them towards more cost-effective payment methods.
3. Education: It’s important to highlight that the benefits of credit cards are always less than the fees incurred. Educating customers can shift their preference towards more cost-effective payment methods.
4. Ease of use: You need to make it as easy to pay via ACH and Check as it is to pay via credit cards. Capture ACH authorization in your business credit application and enable autopay.
5. Provide Flexible Payment Options: Offer a variety of payment options, including ACH, wire, check, in addition to cards, to accommodate different customer preferences.

If you’re tired of paying too much in transaction fees to move your goods, take a look at your trade credit process. Is it an attractive alternative to a credit card purchase? If not, educate your customer-base, offer incentives, and create a customer-friendly experience for accessing trade credit.

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