Every business wants to avoid bad debt. When retailers and distributors can’t pay their bills on time, it hurts their ability to generate sales, which ultimately impacts the supplier’s ability to reinvest in their own business. It’s a no-win situation for everyone involved, but especially for manufacturers. But what if there was a way to maintain a healthy business relationship with clients without sacrificing production?
Enter the unlikely hero: the credit card. It may not be the first approach that comes to mind, but accepting credit card payments can be a solution to help resolve bad debt. Faster payments, ease of client purchases, and improved cash flow are some of the very real benefits suppliers can reap from going in this direction.
Before we explain this solution, it’s important to understand what bad debt entails. Bad debt refers to an expense that is unlikely to be paid by the borrower, and the creditor is unwilling to take action to collect it.
The Current Approach
Traditionally, suppliers and manufacturers provide their clients with a 30 to 90-day window to pay their bills. Invoices are sent via mail, and clients typically remit payment through paper checks. However, this process is far from seamless. Payments often get delayed, driving up costs for suppliers. Additionally, the economy has exacerbated cash flow issues for many small to medium-sized businesses, with as many as 30% attributing their struggles to inflation.
The Advantages of Accepting Credit Card Payments
Offering clients the option to pay with a credit card can be advantageous for all parties involved. Here are just a few benefits:
- Maintains Creditworthiness: Enables retailers and distributors to uphold their creditworthiness and buying power.
- Prevents Cutoffs: Allows suppliers to offer the option of pre-shipment payment, avoiding complete cutoffs due to non-payment or delayed checks.
- Faster Access to Cash: For suppliers and manufacturers, credit card payments provide quicker access to cash.
- Reinvestment Opportunities: The cash received can be promptly reinvested into the production of goods and services.
- Streamlined Purchasing Process: Accepting credit cards streamlines the purchasing process, fostering improved client relationships.
- Enhanced Cash Flow: Contributes to improved cash flow for suppliers and manufacturers.
Contrary to popular belief, the cost of accepting credit cards is not as high as many businesses assume. Retail and wholesale businesses often use credit cards such as purchasing cards, corporate cards, or business cards to pay for goods and services. When used for business-to-business (B2B) and business-to-government (B2G) transactions, these types of cards usually qualify for lower processing rates (known as Level II and Level III), resulting in significant cost savings.
Taking It a Step Further
Accepting credit card payments is just the first step in managing bad debt and facilitating client purchases. The next step is to advance the payment process by offering clients more options, such as self-payment on a website using any device. By accepting digital payments, suppliers can shorten the time from order to payment, reducing the likelihood of challenges arising for buyers. Simplifying the payment process also encourages timely payments, as evidenced by a Mastercard study that found 52% of B2B businesses prefer card or electronic payment options.
Suppliers and manufacturers who embrace the idea of accepting credit card payments and advancing their payment processes are better positioned to adapt and thrive during challenging times. By leveraging the benefits of credit card payments, businesses can effectively manage bad debt, improve cash flow, and build stronger client relationships. So, why not consider this alternative approach and reap the rewards it offers?