How to Help Suppliers in Europe See the Value of B2B Credit Card Payments
The last time you paid a supplier in Europe, did you pay via an electronic bank transfer? If you answered “yes,” you’re in good company. In most European countries, the SEPA Credit Transfer1 (SCT) program is by far the method most often used to pay suppliers. According to one estimate, roughly 99% of all B2B payments in the Eurozone are made using SCT payments. Launched in 2008, this kind of bank transfer quickly earned a reputation as a fast and cost-effective payment method - if not the fastest and most cost-effective.
Fast-forward 14 years. Fast and cost-effective payments have become table stakes in an ecosystem that’s been transformed by digitization. Today’s finance leaders need to do more than just ensure payments arrive on-time. They are charged with future-proofing financial health.
What can B2B credit card payments do that bank transfers can’t?
Does your current payment strategy:
- use your liquidity in the most efficient way in a low-interest environment?
- support supplier liquidity without impacting your own cash position?
- promote more efficient ways of working in processes like payment runs and reconciliation?
- reduce and eliminate the risk of payment fraud as more and more employees work remotely?
- prevent non-approved spend with one-time suppliers?
If you’re achieving any of these goals through paying suppliers with credit cards - congratulations! You’re ahead of the curve, particularly in the DACH region. Many finance leaders are slowly discovering that B2B credit card payments offer all these advantages. However, I’m willing to wager that in their life outside work, those leaders - and you - find paying by credit card incredibly convenient, whether you look at it in terms of cash management or user experience.
By doing more business with card-enabled suppliers, your company receives all of the convenience buyers are accustomed to in their private lives - plus even more visibility into and control over pre-approved spend.So the question is, “How can I show my suppliers that this typical ‘B2C experience’ works just as well in a procurement environment?”
Why won’t my suppliers in Europe accept B2B credit card payments?
To reap all the rewards that using credit cards offer, your suppliers need to accept this method of payment. However, suppliers often will not. One key reason is interchange fees. Every card payment, whether with a physical card or virtual one, is subject to an interchange fee that suppliers incur when they accept cards as payment. Add to this: assessment fees (measured in basis points based on the transaction amount) and processor fees (a fixed monetary amount). Some corporate cards will also charge a brand usage fee.
Sounds like a classic “not right now” scenario out of sales, right? It’s actually a fantastic opportunity for you, the buyer, to have better conversations with your suppliers.
How can I convince suppliers to accept B2B credit card payments?
When talking to suppliers about accepting credit card payments, you’ll see the most success when you expand the discussion beyond pure numbers to show what’s in it for them. Suppliers have genuine concerns about efficiency, risk, and security – but this payment method addresses each one and offers value to both buyers and suppliers.
Improving the bottom line through B2B credit card payments
Many suppliers in Europe are understandably hesitant about the upfront costs of accepting credit cards as payment. Here’s the thing: The costs (interchange and processor fees) are easily outweighed by the reducing the typical DSO (Days Sales Outstanding) in Europe from 47 days to just two or three. To achieve the same result with traditional bank transfers, suppliers would need to offer an early pay discount of around 5-8%* because they know buyers normally wait until the last possible minute to release a payment as a way of protecting their cash flow. B2B credit card payments can also help lower fees by leveraging Level 2 and Level 3 data.
Increasing efficiency and driving growth using B2B credit card payments
Suppliers might not be aware of all the operational benefits of B2B credit card payments. They turn reconciliation, for example, into a much more streamlined process – an easy win-win. Each charge item can be easily reconciled automatically, which avoids faulty remittance information that can occur with bank transfers. Disputes can be addressed much faster, leading to a better customer experience. That’s a critical KPI for suppliers these days. The buyer/supplier relationship never has been more important to address growing competition in global markets and handling frequent, sustained disruptions.
When suppliers accept credit cards for B2B payments, they’re setting the stage for growth. Credit cards are extremely user-friendly. Once buyers know they can do business with suppliers who make transactions easier, they’re likely to spend more with those card-enabled suppliers.
Mitigating risk with B2B credit card payments
Suppliers will also be in a better position to manage risk when they accept credit cards as payment. No bank information is transferred during these transactions, which lowers the risk of payment fraud. Equally important: The default risk is completely outsourced to the issuer of the credit card.
After a long period of slow change, B2B credit card payments are quickly evolving. What’s next? Stay tuned for our next post on virtual cards, an exciting outgrowth of physical credit cards. We’ll explore how virtual cards help drive financial transformation for organizations.
* This figure is based on our years of conversations with Coupa Pay customers. To create better solutions, we help our customers take a supplier's point of view and consider what suppliers get out of different scenarios. If we’re looking at virtual cards, we’ll ask something along these lines: “How do you, as suppliers, weigh the value of having cash in your hands earlier? If you're a small supplier, would you rather borrow funds at >5% from your bank to cover liquidity shortfall? Or is it better to pay the 1-3% on interchange to have the cash right away?
1SEPA Credit Transfer, European Payments Council AISBL, 2022.