I will admit I have had a love-hate relationship with finance departments across a number of my positions.
Finance’s job is to look at the bottom line and make sure we are managing revenue, expenses, cashflow and profitability, but on occasion they seem to do this with no thought about the people and processes actually involved. The question I ask is, do you actually want people to pay us or not?
One issue that has followed me across a number of jobs is the way people pay the business. All payment methods cost your business money.
Cheques need to be entered and processed, taken to the bank, reconciled and dealt with if they bounce. Cheques take a lot of time and effort to process and we generally prefer to take credit cards.
Credit cards are faster, for the most part payment is real time and reconciliation is still required, but it is easier to deal with. If the payment isn’t taken the first time, you can try three times. You do need to update card numbers and expiry dates. Banks also charge merchant service fees which can be anything from 1% – 4% of the transaction price.
Direct debit is cheap for processing, but in Australia you have to have a lot of paperwork filled in, entered and stored, create a file for the bank, and then get the money from the bank. If the person paying doesn’t have enough money, there are fees for both the customer and the business. Then if it does fail, there is a lot of following up to chase up payment and get the bank details for eventual payment.
BPay is good, but you have to create a unique reference number for the customer, you need to know what the customer is paying you for and have the ability to redress if they don’t pay. Each transaction costs between $1-$3 for processing with the provider, and more if you want to use facilities such as the post office for payment. BPay offers multiple channels for payment and flexibility for customers, but often requires database development.
Direct deposit is also low cost, but reconciliation is difficult as you don’t have unique codes to match payments against. It requires effort to work out if there has been more than one payment at the same price and which customer has paid you.
As a business, you want to make it as easy as possible for your customers to pay you, but if the finance department starts dictating payment methods based on costs, sometimes it doesn’t make for great customer experiences. These are some of the finance decisions I have been faced with:
- Customers should pay by credit cards – we won’t take cheques any more because they’re too difficult to process.
- We should start charging customers the merchant service fee and more for AMEX and Diners because they’re costing us too much.
- We have to offer direct debit – it’s better for cash flow and will enable us to get more customers.
- We have to offer BPay because we spend too much time reconciling accounts.
While I don’t disagree with any of these as strategies for better customer service, cost recovery and for offering additional payment methods, there are a few things I would like to stress.
1) New methods of payment are not a customer acquisition strategy. People won’t buy your product or service simply because you offer direct debit or direct deposit. If the core offering isn’t right, a variety of customer payment options will not attract more customers.
2) Charging customers merchant service fees is difficult to implement – you have to be able to add the fees automatically. You’re better off just building it into the price.
3) Unless you’re a utility, most customer have a choice in paying you or someone else. Is charging them to make this choice really worth it?
4) While cheques are expensive to process, many small businesses and older customers are still in love with their cheque books . Do you really want to make it hard for them to pay you?
5) As payment by BPay requires unique reference codes and the checking of digits, it’s very complex to implement for any payments that are not referrable to an invoice number.
6) If merchant service fees are an issue, only offer VISA and Mastercard as credit card options. This allows you to go to the bank and ask for a better rate. Most people with a Diners or Amex card generally have an alternate credit card anyway.
You need to look at what you are trying to achieve . You need to consider how easy you want it to be for customers to pay you, but also how much development you need to do to offer them a variety of payment options. My advice? Keep it simple, stoopid, and ensure you are actually encouraging customers to pay you!
Realised I forgot one key part to this. One thing you also must do is drive customers to your preferred method of payment. Do it via pricing – cheaper to buy online with a credit card, encourage and rewards customers to do what you want.