Running a successful business hinges on the ability to efficiently handle payments. While many view payment processing as a necessary cost, implementing a few straightforward changes can bring these costs under control. Here, we delve into five expert strategies to reduce payment processing expenses.
1. Grasp the True Cost
Payment processing extends beyond mere transaction facilitation; it encompasses the entire life cycle of transactions. From initiating a transaction to applying the payment and addressing exceptions, every step incurs costs. Companies often fixate on per-transaction fees, losing sight of the overall expense. To compare payment methods effectively, consider two calculations:
- Per Item: Divide total fees for a channel by the number of sales transactions for the same period to determine the cost per sale across the entire life cycle.
- Effective Rate: Divide total fees by total sales for the same period to ascertain the effective rate for processing.
2. Promote Cost-Effective Payment Channels
Analyzing the above calculations helps identify the preferred payment channel. Encourage customers to use this channel through various means, such as placing less desirable methods deeper in the payment interface or offering better terms and prices for the desired payment method.
3. Minimize Exceptions
Identify and address exceptions, like bad account information, using available tools. E-commerce merchants can employ tools that analyze user data to gauge transaction risk. Specific payment channels offer tools, like ACH validation, to reduce bad accounts by cross-referencing account information against shared databases.
4. Transfer Costs Responsibly
Explore permitted methods, such as surcharging, to recapture some costs. Adding a fee to cover expenses is an option, but careful consideration is needed, depending on the industry. Dual pricing and cash discounting also align with this concept, allowing consumers to choose their preferred payment method while contributing to cost coverage.
5. Leverage Embedded Payments in Your Software
Check in with your software vendors to see if they offer payment processing services. iStream collaborates with integrated software vendors (ISVs) to streamline payments. This partnership offers advantages to businesses such as wholesale pricing options, integrated receivables that eliminate reconciliation efforts, and a fusion of payment expertise with your business’s industry-specific needs.
Implementing these expert strategies empowers businesses to not only understand but actively manage and reduce payment processing costs, ultimately contributing to improved financial efficiency.
Looking for additional information on Payment Processing Costs, please see our latest post on Benchmarking Payment Costs.