By Bill Pirtle
SpotOn Transact LLC
During this time of planning for recovery from the COVID-19 shutdown, ISOs, merchant level salespeople (MLSs) and processors should consider focusing on the manufacturing sector, including auto suppliers and other businesses offering 30 to 90 days to pay.
Manufacturers typically face a long lag between the sale and the payment. To encourage faster payments, they offer 2/10 net 60 (customer can take 2 percent discount if paid within 10 days or full amount within 60) or 5/15 net 90 (5 percent discount if paid within 15 days or full amount in 90 days). But can they afford the 60 to 90 days to get paid coming out of a shutdown?
Many industries self-finance to avoid paying 3 percent in card processing fees. But now and post COVID-19, this will invite financial problems. Commercial roofers and HVAC contractors, for example, can receive over $250,000 on some jobs. Manufacturers can have deals with auto companies in the millions of dollars.
You may think few processors would want to mess with single transactions ranging from $100,000 to millions of dollars, but the card brands have Level III processing to make transactions like these safer for processors by entering more data. Because the company enters critical data from the purchase order and invoice number to the quantity and part numbers, transactions have much less risk and thus much lower cost.
Companies that can benefit from Level III processing include commercial service businesses such as paving companies, excavators, crane operators and more. If you are an MLS, ask your processor if they want Level III business. If you own an ISO, find a partner that seeks this type of business. If you want additional salespeople, seek some of the many who lost their construction jobs to COVID-19, and train them to sell. Their connections may help you land more business.
Visa also has two other programs for higher savings and more security. Straight Through Processing (STP) allows businesses to initiate payment of an invoice through Visa to the selling company. For transactions over $100,000, the interchange rate is 0.80% + $35. A marketing piece for Visa outlines five benefits for the customer to pay through its STP program:
To use the Visa STP, the business needs to be set up by the processor. While the STP program may be great for commercial HVAC companies and roofers with payments between $1 and $100,000, manufacturers will more likely benefit from Visa’s Large Purchase Advantage Fee Program, as the ranges go from over $10,000 to over $500,000.
All card-present transactions regardless of amount, and all card-not-present transactions of $10,000 or less go through at regular purchasing card rates. Thereafter the rates range between 0.70% + $49.50 for sales of $10,000.01 to $25,000.00 and 0.40% + $58.50 for sales over $500,000.
Manufacturing companies that allow 60 to 90 days for payments are creating a burden for themselves that some will not survive. Payroll and payroll taxes will not wait; plus manufacturers still need to buy raw materials to produce more orders.
Processors offering these programs incur much lower risk, as Visa has reduced the possible chargeback reasons to three for the STP program:
Understandably, underwriting is cautious. While fewer companies focusing on this may allow for higher profits, one hit of a $1 million transaction would be brutal. As with the construction industries, manufacturing sales reps were hit hard by COVID-19. Processors engaging in this vertical should be open to people who represented the manufacturers, because the good relationships they developed over decades could benefit processors tremendously.
This is truly a situation in which all parties can win. Processors and MLSs can open an expanding market in construction and manufacturing. Manufacturers can receive income to pay employees and buy materials in days versus months. And buyers can streamline payment process, saving money and improving their reconciliation.
Bill Pirtle authored Credit Card Processing for Sales Agents in 2012 and is working on a second edition. He is currently employed by SpotOn Transact LLC as a recruiter. He can be reached at email@example.com.
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