Managing transaction costs has long challenged middle-market companies, especially those operating on thin margins where a 3 percent credit card processing fee can significantly impact profitability.
“Historically, businesses had to choose between the speed and convenience of card payments and protecting their margins,” says Josh Fogle, Senior Vice President, Director of Treasury Management at S&T Bank. “Today, a combination of regulatory changes and more advanced technology is allowing companies to do both — accelerate cash flow while maintaining profitability.”
Smart Business spoke with Fogle about how organizations can rethink payment acceptance to strengthen working capital without running afoul of card network rules.
What’s changed and how can businesses benefit?
The foundation of the current environment is rooted in regulatory changes — including the Dodd-Frank Act’s Durbin Amendment governing debit card fees and a 2013 class-action settlement with Visa and Mastercard that opened the door for merchant fee pass-through options. These typically fall into three categories: surcharge, convenience fees and service fees. Convenience fees and service fees can be applied to credit, debit and prepaid cards, whereas a surcharge cannot be applied to debit or prepaid cards.
While these options have existed for several years, adoption lagged due to the complexity of applying them correctly. Strict card network rules made compliance difficult without the right systems in place.
That’s where recent advancements have made a difference. Modern payment platforms now build compliance directly into their software, automating how fees are applied. This allows businesses to confidently pass along eligible costs while staying within regulatory and network guidelines — something that was previously difficult to manage in scale.
Who’s taking advantage of these strategies?
Despite increased availability, many organizations are still unaware of how to properly implement these tools. Some businesses currently attempting to pass along fees may be doing so in a non-compliant manner simply due to a lack of technical knowledge. This creates a potential risk, but also an opportunity to reassess their approach.
One of the most notable shifts is happening in industries that historically avoided card payments altogether. Manufacturing is a prime example. With high volume transactions and tight margins, absorbing processing fees was often not viable. Now with the ability to pass along those costs the equation has changed. Customers are often willing to pay the fee in exchange for the flexibility and benefits of terms offered by their card provider, and the business benefits from significantly faster payment cycles compared to traditional invoicing. This shift has turned card acceptance from a cost center into a tool for optimizing working capital — an approach that can apply across industries with the right processes in place.
How can businesses stay compliant and maximize return?
The first step is partnering with a trusted financial institution to conduct a comprehensive review of your current merchant services. Not all merchant services providers offer the same level of capabilities, particularly when it comes to automating compliance with card network rules. State laws vary, so consulting with your banker or legal counsel before implementation is essential. A thorough review should focus on whether the business is unnecessarily absorbing fees or exposing itself to compliance risks. From there, transitioning to a provider that offers integrated, compliant workflows, a business can effectively change the cost-benefit analysis of its payment systems.
The goal is to move beyond viewing payments as a cost of doing business. With the right strategy and tools, companies can accelerate cash flow, improve liquidity and protect margins all at the same time.
The payment landscape has evolved. Organizations that adapt their approach can stay compliant and turn payment acceptance into a meaningful advantage for their bottom line. ●
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