Growth is used as a sign of a business’s success․ A business with more customers‚ more deals‚ more locations‚ or more business on the internet is seen as successful․
Growth also changes a company’s financial structure․ As sales and transactions increase‚ systems and processes that have worked for many years at lower throughput levels can become costly and wasteful under higher throughput conditions․ However‚ this may happen behind the scenes in payment processing․
Additionally‚ for many companies, a payment provider has been picked early on in the company’s life cycle‚ and unless it fails to process payments‚ there seems to be no reason to change․
However‚ as growth occurs‚ the cost of processing payments‚ payment technologies‚ customer expectations‚ fraud risk‚ and the volume of transactions can change‚ and so those in charge of the business must treat payment processing as a continuously changing piece of the financial strategy‚ rather than just another process in the background․
Payment costs increase with business growth
One reason to pay attention to payment processing costs is that they are proportional to card volume․
In the case of a business processing $50‚000 in card payments a month‚ this may not seem like such an important cost difference․
Even if the company is processing $250‚000 per month‚ the percentage difference can still make a meaningful difference to the company․
In other words‚ a 0․30 percentage point difference in monthly card volume on $250‚000 would amount to about $750 a month or $9‚000 a year․
That doesn’t mean that all businesses save that much․ The true cost of payment processing varies based on multiple factors․ It does show why small percentages can become meaningful when you talk about volume of transactions․
The executives will meet periodically to review expenses such as payroll‚ rent‚ inventory‚ insurance‚ and marketing‚ as well as payment processing as the company grows․
Understand How Processing Costs Are Structured
To effectively manage payment costs‚ businesses need to know how much they are being charged․
The percentage quoted by a payment provider may not reflect the actual cost of accepting cards for the company‚ because merchants can pay different rates depending on pricing models․
Two common pricing models are flat-rate pricing and interchange-plus pricing․ In flat-rate pricing‚ the processor charges a flat fee according to an agreed schedule‚ while interchange-plus pricing separates the underlying interchange charge from the processor’s markup․
Companies who want to assess their payment costs and determine if interchange-plus pricing or the flat-rate pricing structure is more affordable for their transaction volume can․․․
However‚ neither of these pricing methods is the right fit for all businesses․ Sales volume‚ average transaction value‚ payment methods‚ and customer behavior all contribute to the total fees paid․
It is most important for business owners to understand how their pricing works‚ rather than what number they see on their monthly statement․
Growth Can Change What a Business Needs
Processing costs are just one reason to rethink payment infrastructure․
As a result‚ a growing business may evolve well past the original merchant account holder of record․
For example‚ a retailer with a single physical store may only need or want a terminal able to process card transactions in normal circumstances․
Years later‚ there may be multiple locations‚ ane-commercee website‚ contactless payment options‚ the ability to order online‚ and the ability to buy online and pick up in store․
The company’s payment requirements have completely changed․
As the organization grows‚ separate systems can create challenges with reporting‚ refunds‚ inventory management‚ and financial reconciliation․
The payment infrastructure should scale as the company grows․
The Customer Experience Matters
Payment processing is commonly referred to in financial or technical terms‚ but is experienced directly by customers․
Checkout is the last step between interest and making a sale․
But the customer can find the company’s website ‚ find the product they want‚ come to buy the product‚ and still not buy from the company because the process of checking out is unclear or not secure․
Growing companies should therefore be aware of payment friction․
Customers expect their preferred payment method‚ whether it’s a standard card‚ a contactless card‚ a digital wallet, or a fast online checkout‚ depending on the context and the customers․
It’s not about having every payment method actively available‚ it’s about understanding what your customers’ preferred payment methods are and making those transactions as efficient as possible․
Volume Grows‚ As Does Reliability of Payment
This is annoying for five transaction payments․
The same problem that affects thousands of transactions can become a serious operational problem․
As firms scale‚ reliability becomes more important‚ as even short payment interruptions can have an outsized impact on revenue․
This is especially important for ecommerce companies that may be making payments at any time․
Companies need to know how well their payments infrastructure can handle peaks in transaction loads‚ especially for businesses that have seasonal peaks‚ promotions‚ or are suddenly inundated by online traffic․
However‚ a system based on earlier transaction volume in the company may not be relevant to its future․
Declined Transactions Are More Than Just Error Messages
Not every attempted payment becomes revenue․
Legitimate transactions may also be declined if there is a problem with the customer’s payment mechanism‚ incorrect information‚ technical issues or fraud controls․
For companies with thousands of transactions and growing‚ even small differences in authorization performance can add up․
Companies should therefore look to monitor declines and not treat them as inevitable․
Patterns may provide useful information․
If drops are spiking after a technical or other change‚ the business may want to investigate their checkout process‚ and if the fraud controls are rejecting genuine customers‚ their security settings․
The aim should be fraud protection‚ but to allow good customers to purchase whenever possible․
As Volume Grows‚ So Does the Cost of Chargebacks
A higher number of transactions may also correspond to more disputes․
Indeed‚ the full cost of a chargeback to a business may be more than the value of the sale due to the loss of sale‚ merchandise‚ shipping‚ processing, and employee time․
Companies experiencing growth should track their chargeback volume‚ as well as their reasons․
An increase in disputes may be a sign of a problem elsewhere in the organization․
Failing to ensure the shipping label is clear can confuse customers about where they are being billed. They may raise disputes about legitimate charges when they do not recognize the billing descriptor․ Confusing subscription policies can lead to disputes over recurring charges․
Payment data can therefore be used to identify customer-experience and operational problems that might otherwise remain hidden․
Payment Data Can Become Business Intelligence
Modern payment systems yield large amounts of information․
Transaction volumes‚ average purchase amounts‚ payment methods‚ declines and refunds‚ chargebacks‚ and sales trends can help business leaders better understand their business․
For example‚ payment data might reflect an increase in use of mobile payments, or a company could learn that its average transaction size is increasing․ Or a company could discover that one of its sales channels has an unusually high rate of refunds․
Management’s use of payment data should be put in the context of other business metrics in order to get a more complete picture of performance․
As a result‚ payment processing becomes more than just a way of receiving payment; it becomes a source of business intelligence․
What about cash flow, then?
Growing businesses often need large amounts of working capital․
Inventory requirements‚ payroll‚ marketing budgets‚ and the need for additional technology or other facilities may also change․
That has made incoming revenue increasingly important in terms of timing․
Businesses should also be aware of the time that processed transactions take to reach their bank accounts‚ and whether settlement times are predictable․
Predictable revenue can help smooth cash flow as a company grows‚ especially if it grows quickly․
A payment processing strategy should thus include both the cost of processing and the speed with which cash flows․
Don’t Choose a Processor Based on Price Alone
While a reduction in processing costs can help profits‚ the lowest price option is not necessarily the best․
Business leaders need to consider overall value․
Security and reliability‚ customer service‚ reporting‚ integrations‚ fraud management‚ payment methods‚ settlement time, and checkout performance can all have an impact on a business․
A company can save money on a transaction‚ but lose far more if customers fail to complete the transaction due to broken technology․
That’s why payment processing should be treated as other critical infrastructure for your business․
Price matters‚ but performance has an impact․
Make Payment Reviews Part of the Growth Strategy
Businesses do not have to change payment providers as they grow․
They should‚ however‚ periodically review whether their current setup still makes sense․
Examining yearly payments can provide a helpful starting point․ Business leaders can consider transaction volume‚ processing costs‚ pricing‚ declines‚ chargebacks‚ settlement cycle‚ customer payment methods‚ and technology needs․
As part of the review‚ where the business would like to be at the future date․
A company that is expanding its ecommerce capabilities‚ either by opening new locations or increasing the number of transactions it processes‚ may require different capabilities․
It is generally easier to put in place the payment infrastructure ahead of the period of growth than to fix it․
Final Thoughts
Payments are processed in the background‚ transactions are approved, and the funds go to the company delivering the product or service․
For growing companies‚ however‚ leaving the payment infrastructure on autopilot can lead to needless costs and inconveniences․
As the amount of transactions increases‚ differences in cost‚ customer expectations, and risk around fraud change‚ data is more valuable, and reliability comes into play․
Business leaders should therefore consider payments as part of their growth strategy․
The goal is not to find the payment environment with the lowest possible transaction costs but one that is scalable‚ cost-effective‚ secure‚ reliable‚ and convenient․
As companies grow‚ they examine the makeup of their marketing‚ technology‚ staff‚ and supply chains․ Payment processing is part of that․
