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Payments processing strategy: Calculating the costs of payment acceptance

In our new white paper, Payments on your terms, we discuss the ways in which suppliers can guide their buyers towards specific payment channels. But which channels to guide buyers toward takes strategic analysis and planning.

Buyer preferences must be considered, but so should the costs of payment acceptance across each channel – and that can be difficult to calculate.

Each payments channel carries with it hard and soft costs. Hard costs are easier to calculate; they are fees and expenses charged by outside companies like your bank, credit card networks or outsourced A/R firms. Soft costs are more difficult to isolate; they are your overhead costs, opportunity costs and the cost of extended DSO.

Let’s review the costs to consider for each payment channel.

Paper Check

Hard costs:
– Bank lockbox fees
– Value-added keying fees
– Outsourced Cash Application (if applicable)
Soft costs:
– Manual, in-house cash application (employee manhours + overhead)
– Time to cash application x costs of tied-up working capital
– Risks to working capital posed by bounced checks

ACH

Hard costs:
– ACH transaction fees
– Outsourced Cash Application (if applicable)
Soft costs:
– Manual, in-house cash application (employee manhours + overhead)
– Time to cash application x costs of tied-up working capital
– Risks to working capital posed by claw-backs or insufficient funds

Credit Card

Hard costs:
– Interchange fees
– Costs of PCI-compliant hosting provider
– Outsourced cash application (if applicable)
Soft costs:
– Manual, in-house cash application (employee manhours + overhead)
– Time to cash application x costs of tied-up working capital [credit card is generally the best performer on this metric]
– Contacts from financial institutions attempting to gain card acceptance (employee manhours + overhead)


Understanding your costs of payment acceptance across each payment channel is the first step toward developing an effective payments strategy. To learn more, read our new white paper, Payments on your terms: The financial professional’s guide to the modern payments landscape or reach out to a payments expert directly at [email protected].

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