Market Perceptions of Card Use in B2B Transactions

Transcription

1 Market Perceptions of Card Use in B2B Transactions As electronic payment acceptance and use increases in popularity in the U.S. Commercial market, Comdata and MasterCard commissioned Kaiser Associates to conduct a primary research-driven market analysis study of buyers and suppliers to determine current sentiments surrounding method of payment for invoiced transactions. 1

2 Table of Contents Abstract... 3 Introduction... 4 Methods... 4 Buyers... 4 Suppliers... 5 Results... 6 Buyers Current Acceptance Practices... 6 Suppliers Current Acceptance Practices... 8 Buyers Payment Preferences and Perceptions Suppliers Payment Preferences and Perceptions Discussion

3 Abstract With so many payment options in today s digital world and the general transition of business operations to electronic systems, one could reasonably assume that the majority of payments in business to business transactions would be electronic. A study of 55 buyers and 222 suppliers conducted by Comdata, MasterCard and Kaiser Associates, indicates that paper checks dominate payment acceptance methods. Even though paper checks are used by the majority surveyed, buyer survey respondents preferred paying with card products regardless of company size. The large market firms in the study were more opposed to paper check use than smaller firms. The study also made apparent within the buyer population included in the survey that the virtual card outperforms other payment methods in operational efficiency, error and processing cost reduction, retain float and purchase control. The analysis suggests that suppliers need more education on potential cost savings that cards offer, which cost savings can include a reduction in both days sales outstanding (DSO) and bad debt rates. 3

4 Introduction In order to gain more knowledge of not only the Comdata-MasterCard customer base but also the U.S. Commercial market, Comdata and MasterCard partnered with Kaiser Associates to commission a research-driven analysis of buyers and suppliers to evaluate current market sentiments surrounding credit card use for invoiced transactions and identify perceptions of different payment options among survey participants. An electronic survey was sent via to Comdata Virtual Payments customers (Buyers). The Comdata Virtual Payments solution is an electronic, single-use account payment method (SUA) using a virtual MasterCard account number to pay suppliers. In addition to this SUA customer survey, Kaiser Associates and Comdata surveyed merchants, who are sometimes called suppliers or vendors, who accept SUA (Suppliers). Method Figure 1. Buyer Respondents by Industry. 1 Buyers An electronic survey was distributed and completed by 55 managers and associates via , which were aggregated from a pool of Comdata Virtual Payments customers. These 55 participants spanning nine different industries, as reflected in Figure 1. Of the 55 respondents, 49 supplied company revenue information. Twenty-two of the 49reported annual revenue of greater than or equal to $100,000,000, and the remaining 27 reported annual revenue of less than $100,000,000. As shown in Figure 2, the 55 survey respondents included 14 chief financial officers, three controllers, Figure 2. Buyer Respondents by Title. 4

5 two vice presidents of finance, 12 accounts payable managers, six accounts payable associates and 18 other job titles. These other titles included treasurer, accounting manager and financial analyst. Suppliers Figure 3. Supplier Respondents by Industry. An electronic survey was distributed and completed by 222 suppliers also via . These suppliers were chosen at random out of vendors that accept the Comdata Virtual Payments MasterCard product. These 222 respondents crossed nine industries and three revenue segments as shown in Figure 3. Seventy-six of those surveyed were in the wholesale/retail industry, and manufacturing was the next largest industry represented with 38 respondents. While all of those surveyed responded with their Figure 4. Supplier Respondents by Company Revenue. 2 company s industry, there were 216 participants that supplied their company s revenue. Thirty-seven respondents indicated their company makes less than $100,000,000, which is illustrated in Figure 4. Seventy-six of the 216 merchants that answered showed their company made less than $5,000,000, and 103 respondents said their company generated between $5,000,000 and $100,000,000 in revenue. The 222 supplier respondents included 43 finance mangers, 45 accounts receivable associates, 58 accounts receivable supervisor/managers and 76 with other job titles, depicted in Figure 5. Some of these other job titles included president, vice Figure 5. Supplier Respondents by Title. Revenue. 2 5

6 president of finance, credit/collections manager and controller. Results Buyers Current Acceptance Practices Fifty-Two Percent of Buyers Still Use Paper Checks Most Often Even Though 71% of Firms Realize Reduced Accounts Payable Costs as a Result of Virtual Card Use From the data provided, the 55 buyers ranked SUA as their preferred payment method even though 52% of them use paper checks most prevalently for transactions. Card products, which include purchasing cards, SUA, Buyer-Initiated Payments (BIP) and ghost cards, are used for 34% of transactions among customers. Buyers view virtual cards as the least costly method to process and pay invoices with 71% of the firms realizing reduced accounts payable costs as a result of virtual card use. Figure 6. Buyer Payment Use Methods by Company. 1 Other includes ACH and wire payments. 6

7 The data showed that survey participants in the transportation and finance, insurance and real estate (FIRE) industries use card products more than the participants in the other seven industries. (See Figure 7.) Sixty-three percent of survey respondents in the professional/scientific/technical services industry pay with checks, which is more than any other industry included in the study. Thirty percent of respondents in the manufacturing industry use ACH more than other industry participants. Even though the survey respondents in the agriculture/mining/construction industry had the greatest use of purchasing cards at 13% out of the other industries, 55% of the participants within this industry use checks as their payment method. Figure 7. Buyer Payment Use Methods by Industry. * The Software/ IT Solutions industry was removed due to a low sample size (n=1) After analyzing respondents answers, the participants were placed into two groups based on annual revenue companies making less than $100,000,000 and those making $100,000,000 or more, which is illustrated in Figure 8. The data suggested that smaller companies tended to use cards more frequently, which could potentially be due to more limited access to trade credit and financing. The study indicated that majority of buyers are still using checks for payments. Forty-nine percent of those with less than 7

8 $100,000,000 in annual revenue used checks, and 51% of respondents working for companies grossing $100,000,000 or more indicated they used checks. Figure 8. Buyer Payment Use Methods by Revenue. Suppliers Current Acceptance Practices Fifty-Six Percent of Supplier Transactions are Paid Via Check and Card Products Average 27% of Accounts Receivable Transactions For the 222 merchant survey respondents, checks remain the most prevalent payment method. Paper checks make up 56% of payments for these 222 vendors. However, Automated Clearing House (ACH) acceptance may increase as suppliers perceive it to be more convenient and less expensive than a check and card. A shortened Days Sales Outstanding (DSO) and improved remittance details are the most commonly realized benefits of card acceptance. SUA is the most widely accepted virtual card according to the surveyors data, but suppliers are split between SUA and BIP as the most preferred virtual card solution to accept. While 56% of transactions are still paid via checks according to the merchants included in this study, card products combine to average 27% of accounts receivable transactions. 8

9 When reviewing the vendor data by industry, the transportation and utilities industries accept cards more than any others surveyed. (Refer to Figure 10.) Eighteen percent of the transportation industry s transactions accepted were via ACH, and 24% of this same group accepted virtual card, which accepted the virtual card more than any other industry included in the study. The wholesale/retail industry accepted purchasing cards more than any other industry included in the study at 19%. Seventy-three percent of the agriculture/mining/construction industry s transactions accepted were via check. Figure 9. Merchant Payment Acceptance Methods by Company. 1 Other includes ACH and wire payments. When analyzing the size of the supplier, this differentiation seems to have little effect on payment acceptance. Look at Figure 11 and note that mid-size firms have the greatest opportunity to increase card acceptance. The supplier companies surveyed with revenue less than $5,000,000 showed a 29% card total transaction acceptance. All three segments still indicated that they accepted checks more than any other payment type with each displaying greater than 50% transaction acceptance. 9

10 Figure 10. Merchant Payment Acceptance Methods by Industry. Figure 11. Merchant Payment Acceptance Methods by Revenue. 10

11 Buyers Payment Preferences and Perceptions Virtual Cards Reduced A/P Costs at 71% of Firms Surveyed All of the 55 buyer survey respondents said they preferred virtual card, or SUA, over other payment options. Cards are preferred regardless of company size, but firms with more than $100,000,000 in revenue appear to be less inclined to use checks than smaller firms. Figure 12. Buyer Preferred Payment Method. The buyer survey respondents regard cards as the least expensive method to execute an invoice payment, especially when compared to check and wire. Buyers in the FIRE, manufacturing and professional services industries consider ACH similar to virtual cards in expense. Figure 13. Buyer perceived Cost of Transactions. Buyer survey participants cost-saving perception of virtual card extends to actual dollars. Buyers were asked, Have virtual cards reduced your organization s A/P costs? during the electronic survey. The data showed that processing benefits of virtual cards reduced A/P costs at 71% of firms. Smaller buyers experienced cost savings from virtual card 66% more often than larger buyers. Smaller firms, those with less than $100,000,000 in annual revenue, had 88% of respondents answer yes to 11

12 virtual cards reducing A/P costs, and 53% of larger buyers at companies making $100,000,000 or more in annual revenue answered yes to the same question. Virtual card performs well against the attributes deemed most important in payment method selection, but it lags on merchant acceptance. Buyers responded that they have little power to dictate the method of payment with their suppliers, which limits their success in expanding their virtual card program. Figure 14. Buyer Responses on Reducing AP Costs with Virtual Cards. Suppliers Payment Preferences and Perceptions Suppliers Regard Card Products as the Most Expensive Payment Method of All Options Across most industries, the suppliers surveyed preferred ACH to check and card. Suppliers in the utilities industry prefer card products. Seventy-three percent of all merchant survey participants preferred ACH, and 53% favored a purchasing card. Fifty percent preferred a check, with SUA at 37%. Ghost cards were the least preferred payment acceptance method at 32%. Supplier survey respondents perceived cards of all types to be more costly than ACH, check or wire. Card products are regarded as the most expensive payment method of all options. Survey results indicated that loaded costs of collecting funds, such as resource costs, float value and bad debt reputation, may not be attributed to payment method type. Firms in the utilities industry regard check and wire as more expensive than BIP and equal in cost to purchasing cards. 12

13 Figure 15. Virtual Card Attributes. Figure 16. Buyers Perception of Negotiating Power for Virtual Cards. 13

14 Figure 17. Suppliers Preferred Acceptance Method. Figure 18. Suppliers Perceived Cost of Transactions. When suppliers were asked about the benefits of card acceptance, they realized that card acceptance shortened DSO and improved remittance. The participants most unrealized benefit was increased sales. Large-market firms, which are those generating more than $100,000,000 of revenue annually, did not realize reduced invoice processing benefits from card acceptance, but vendors with annual revenue between $5,000,000 and $100,000,000 did. Perceived Cost of Transactions (1-5 scale; 1 = not expensive, 5 = expensive) 14

15 Figure 19. Suppliers Card Acceptance Benefits by Industry. Figure 20. Suppliers Card Acceptance Benefits by Revenue. 15

16 Discussion This survey suggests that the majority of suppliers and buyers pay with and accept checks more than any other payment method. Even though checks are used by the majority surveyed, buyer survey respondents preferred to pay with cards regardless of company size. Large market firms appeared to be more opposed to check use than smaller firms. The study also made apparent within the buyer population included in the survey that the virtual card outperforms other payment methods in operational efficiency, error and processing cost reduction, retain float and purchase control. The analysis showed that suppliers need more education on potential cost savings that cards offer, which included a reduction in both DSO and bad debt rates. A possible adoption tactic could be to have buyers mandate virtual card use, or SUA, as the method of payment with suppliers. More research will be needed as the payments industry advances and new payment technology becomes available. 16