Accepting payments in a timely and efficient manner is crucial to the success of any business, yet organizations often struggle to define solutions to improve existing procedures. U.S. Bank’s recent survey of 300 U.S.-based finance professionals uncovers several problems with business-to-business payments while also illuminating ways businesses can cut costs in this area.
Nearly three-quarters of finance professionals polled said that keeping payment acceptance costs low is highly important to them. These same professionals say it’s hard to demonstrate they can save money with a better approach to payment acceptance. More than half of respondents said they struggle to demonstrate sufficient return on investment. Fortunately, there is a demonstrable way to make these processes more cost-efficient.
Frustration With the Costs of Card Acceptance
Accounts receivable teams must continually evaluate and prioritize new methods of payment, a situation that presents additional demands on their time and increases the costs associated with commercial card acceptance. U.S. Bank’s research shows that many are unhappy with the results. Just 7% of finance executives are highly satisfied with their strategies to mitigate commercial card acceptance costs, and 41% are unsatisfied.
The numbers are even worse among C-suite executives, 13% of whom say they aren’t at all satisfied, with 40% saying they’re somewhat unsatisfied. The effectiveness of their card acceptance programs is causing concern at the very top of organizations.
What’s stopping leaders from being satisfied with their strategies? Executives surveyed said that interchange rates and fees are the most challenging issues in accepting B2B commercial card payments, followed by the overhead required to manage, collect and transmit the additional commercial card transaction data.
In the survey, 73% of respondents said keeping payment acceptance costs low is highly important as they try to control their expenses, yet just 7% of finance executives are highly satisfied with their strategies to mitigate commercial card acceptance costs. That’s where Level 2 and Level 3 processing comes in.
Lower Interchange Rates With Level 2 and 3 Processing
There are ways to reduce costs in acceptance processes, centered on capturing the comprehensive level of transaction detail required by Visa and Mastercard. Collecting additional transaction details at the time of payment authorization can help better authenticate the commercial card transaction and provide useful information for the commercial card issuer and the card holder. That means the transaction carries less risk of dispute, which may qualify the eligible commercial card payment for lower acceptance rates established by each card brand and reduce interchange rates by as much as 125 basis points.
These available lower interchange rates for Visa and Mastercard branded commercial cards are known as Level 2 and Level 3 processing. Here’s how the various tiers are defined:
- Level 1 processing requires standard transaction details such as payment amount and date of the payment.
- Level 2 processing adds applicable sales tax and a customer identifier to the transaction.
- To qualify a commercial card payment for Level 3 interchange treatment, more than 20 fields of line-item detail required by the involved card brands, must be captured and sent with every commercial card transaction authorization, including information such as tax ID, shipping ZIP, freight amount, item description, quantity and product code.
To realize Level 2 and Level 3 processing and those corresponding acceptance rate programs established by Visa and Mastercard, businesses must accept either purchasing cards, corporate cards, business cards or government spending accounts (GSA) issued by Visa or Mastercard.
Under the Visa and Mastercard Level 2 and Level 3 acceptance programs, businesses can achieve significant interchange savings by gathering and passing on Level 2 and 3 data with their commercial card payment acceptance. Typical card-not-present (CNP) interchange rates from Visa for corporate cards range from 2.7% for Level 1 data, 2.5% for corporate card payments including Level 2 data and 1.9% for corporate card payments including Level 3 data. In the case of higher-value transactions above specific thresholds established by the card brands – considered ‘Level 3 large ticket’ – published commercial card interchange rates drop to 1.45%.U.S. Bank’s survey shows that many businesses are missing out on these available interchange rates through the commercial card acceptance programs established by Visa and Mastercard. While 70% of the professionals in the survey said they transmit Level 2 data to their payment processor, only 58% said they send Level 3 data.
Time Is a Deterrent
Although Level 3 processing creates the greatest cost savings for commercial card payments, many organizations are deterred by the detail required to qualify transactions for it. For every commercial card transaction, 25 established data fields must be correctly completed and arranged in the correct order for every commercial card transaction. In addition, the authorization and settlement must be completed within 24 hours to avoid costly transaction downgrades.
When U.S. Bank asked finance executives from the organizations that send Level 3 data about the time their team spends assembling and entering that data, only 15% described it as insignificant, while 9% described it as very significant. On the other hand, non-C-suite finance executives overstate the time spent on collecting these details as significant or very significant, with 45% saying this. This suggests that individuals who deal with day-to-day receivable processes are more aware of the true time commitment to collect and transmit Level 3 data with their commercial card payment activity.
There’s no denying that the time spent entering and completing the necessary transaction data is a cost of its own. But lost time is not these executives’ only concern. When U.S. Bank asked them what challenges they face in transforming their B2B payments approach, their top response was a lack of organizational skills. Can employees keep up with the constant changes in and rules applicable to B2B payment types? And can the organization keep its training programs up to date?
This concern about a lack of expertise and familiarity with the card brands’ Level 2 and Level 3 programs is well-founded. If mistakes are made entering Level 2 and Level 3 data, eligible transactions will not qualify for the available lower interchange rates, resulting in higher acceptance costs. Even worse, mistakes may often go unnoticed for months, with potentially significant savings lost.
Exploring the Potential of Payments
In addition to the data on Level 2 and Level 3 reporting, U.S. Bank’s report, Powering Potential with Payments: The Commercial Card Optimization Opportunity, also includes additional findings:
- 30% of the organizations that accept commercial credit cards now accept virtual cards for B2B payments, and 55% have seen increased payments made with them in the past three years.
- Organizations with annual revenue above $500 million were much more likely to say they saw a “significant” increase in commercial card payments in the past three years.
- 57% of finance executives say that improving their commercial card processing approach would increase staff productivity, and 54% say it would improve staff morale.