Why B2B Suppliers Should Accept Credit Cards

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I learned from a recent experience as a supplier that, even in the B2B world, there are certain payments that are small enough to be authorized by VP-level of people in the customer organization. Such payments can be made in minutes by VPs using their credit cards and then claimed back from their company via their standard claims reimbursement process.

This experience exposed “frictionless payment initiation” as one more reason why suppliers should consider accepting credit card payments, especially for cross-border transactions. In fact, in such situations, acceptance of credit card boosts the chance of the sale happening in the first place.

On the other hand, when I wasn’t able to accept credit card payments due to issues being faced by PayPal in India, the following alternatives proved to be extremely painful and almost killed the sale:

EFT. According to their company policy, only the Group Chairman of the customer organization was authorized to initiate EFTs. When this person could finally find the time for this activity amid his busy schedule, they discovered that their bank – a local community bank in Illinois, USA – apparently lacked knowledge of terms like BIC involved in cross-border payments and hence had to regret inability to process such a transaction.

Western Union / MoneyGram. Could be used to make payments only to me as an individual, not to my company. So, this option was also ruled out.

Cheque. While this was the option that worked eventually, it took 35 days to sight good funds in my company’s bank account, not to mention that it attracted some fees.

While my experience possibly pertains only to a small percentage of B2B payment types, it does illustrate the merits of accepting credit card payments in such niches.

7-11 and other B2C merchants, who have long been accepting credit cards, have recently started protesting against the 1.5-2% merchant fees charged by banks for processing credit card payments. That being the case, you might find the title of this post a bit strange and wonder why we’re recommending B2B suppliers to start accepting credit card payments now.

Seasoned B2B sellers know that, even in the B2B world, there are many ticket sizes that are small enough to fall within the approval authority of VP-level of employees in many midsize to large customer companies. As a result, VPs can strike a deal quickly and make payments in a few minutes by using their credit cards and claim the expense back from their company via their regular claims reimbursement process.

As a result, credit cards deliver a highly frictionless buying experience.

As a matter of fact, for cross-border transactions that involve the flow of goods or services across national borders, the ability of the supplier to accept credit card payments might decide the fate of the sale itself: Accept credit card, the sale happens; refuse credit card, the sale goes for a toss.

On the other hand, if the supplier is unable to accept credit card payments for whatever reason (e.g. issues being faced by PayPal in India, more on that in a another post), the extent of friction found with most other payment methods might actually derail the sale, as we found out during a recent transaction with an American company:

Electronic Fund Transfer (”Wire”). According to the customer’s company policy, only the Group Chairman was authorized to initiate wire transfers. It took a few days for him to find the time for this activity amid his busy schedule. When he finally got around to doing it, we were shocked to hear from him that their bank - a local community bank in Virginia, USA – had no clue how to process a cross-border payment involving BIC and other terms it was hearing about for the first time. Unbelievable, but true!
Western Union / MoneyGram. Since this option can be used to only make payments to an individual, and not a business, it was principally unsuitable in the present B2B context.
Check. While this was the option that eventually worked, it took almost 30 days for the money to be credited to the company’s account. Besides, it attracted hefty charges to FedEx the check from the US to India and a payment processing fee of almost 1% of the transaction value.

While our experience might be one-off and hardly representative for many B2B payments, it does illustrate why B2B suppliers in certain circumstances should strongly consider accepting credit card payments.

This entry was posted on Saturday, March 26th, 2011 at 12:59 AM and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.