Checking The List Twice Before Using Credit Cards to Pay Invoices

Remember the scene in ‘National Lampoon’s Christmas Vacation’ where Clark Griswold’s boss – after being dragged in a big red bow to Clark’s house by Cousin Eddie to atone for canceling the company Christmas bonus program – says “Sometimes things look good on paper, but they lose their luster when you see how it affects real folks”? That’s what I think of when I hear about companies trying to make money on Accounts Payable through rebates from paying vendor invoices with a credit card.


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On paper, it’s a great idea: shop around for credit cards with the highest rebate potential. Have AP pay for as many invoices as possible with the cards, earn what can add up to sizeable rebates on those invoice payments, and (bonus benefit alert) “float” the need to pay with cash for another 30 days. But how does that affect “real folks” – the companies (your vendors) expecting to be paid in full for goods or services rendered and instead get stuck paying credit card processing fees that can take a significant chunk out of their profit margin?

Let’s crunch the numbers on an example to illustrate. Company X – we’ll call it North Pole Enterprises – has an outstanding $100,000 invoice for reindeer feed with The Magic Bean Company (the reindeer are in bulk up mode for the Christmas Eve journey). North Pole Enterprises has been a longtime client of The Magic Bean Company, and for years they’ve paid invoices on time by ACH. The reindeer get their feed, The Magic Bean Company gets paid in a timely manner, Santa has reindeer flying at maximum velocity, and everyone’s happy.

But then Santa’s CFO hears about a 1.5 percent cash back rebate margin for credit card payments (which sounds like a great way to make up for overtime costs) so he makes the change without thinking to alert The Magic Bean Company. They’re still getting paid on time, so what’s the big deal? The CFO is fully expecting to get a bonus in his Christmas stocking – over this decision.

The Magic Bean Company, however, is blindsided by this and thinks it’s a very big deal because their profit margin is suddenly tanking. According to a recent report, merchants typically pay average credit card processing fees adding up to 2 percent of the total purchase price. That would translate to $2,000 in fees paid by The Magic Bean Company on that invoice payment from North Pole Enterprises. Not to mention if The Magic Bean Company doesn’t have enough clout with banks, that amount can go much higher! With tight profit margins, you can see how losing a few percentages on Accounts Receivable invoices, by even a handful of clients, can be significant.

Now, The Magic Bean Company must scramble to implement a new credit card processing policy, and they’re pretty peeved with North Pole Enterprises – formerly considered a strong client relationship – for springing that level of change on their AR process with no warning. So, while it might look good on paper, is a credit card rebate worth damaging vendor relationships that could have a notable impact down the road? If you are going to make a change like this, it would be wise to consider how it impacts your supply chain. At DataServ, we believe in creating authentic partnerships, not only with our vendors and clients, but between our clients and their vendors. We don’t want to see anyone get a knock on the door from Cousin Eddie this holiday season.

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