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IMPROVE CASH FLOW 8 mins 10 Nov 2023 by Tom Maxwell
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I’d pay my mortgage on my credit card if I could. 

Thankfully for everyone’s sake there are regulations for this, but the point stands – consumers, both personal and business alike, want to take advantage of the benefits that credit cards provide. This includes the ease of using digital wallets like Apple Pay and Google Pay.

Before we start looking at the strategies for managing credit card payments, here’s the top level overview.

Key takeaways

  • If your competitors accept credit card payments but you don’t, then they have a competitive advantage over you.
  • Credit and debit cards dominate the United States payment landscape, preferred for their security, convenience, and rewards.
  • Late payments on invoices can significantly impact your cash flow – an issue service providers must consider.
  • Managing credit card fees effectively is key, with options ranging from absorbing fees to implementing surcharges.
  • Service providers need to balance fee management strategies with maintaining positive client relationships and perceptions.
  • Platforms like Ignition can simplify payment collection, improving cash flow and client engagement.

With these points in mind, let's look at how you can navigate the complexities of credit card payments.

Making the right choice for your business

As an accountant, bookkeeper, tax professional, or service provider, you have an abundance of options to let your clients pay by credit card, including via Ignition, which also supports transactions via Google Pay and Apple Pay.

With Ignition, you can collect payment upfront and automate payment collection from the moment a client signs your proposal. 

However, there are reasons why you may not want your clients to pay by card: 

  1. Credit card fees are expensive, especially when compared to the alternatives that don’t cost you anything at all (for example, letting your client pay by invoice).

  2. It creates variability and unpredictability in your cost of goods sold (COGs), especially when the credit card fees themselves can be different (think AMEX versus Visa or Mastercard).

If this is you, you are now in a bit of conundrum. Your clients might want to pay by card, but you don’t offer it. Or maybe you do offer it, but you’re considering turning it off because of the cost.

The reality is that your competitors offer credit card payments.

It gives them a competitive advantage because it’s easy to do business with them. And their clients can benefit from the perks that come with their card – and the ease of use and security benefits that digital wallets provide.

Credit card transactions are also among the fastest of the “pull” methods, with Ignition customers typically receiving the cash within two business days.

According to a 2023 Forbes report into credit card statistics and trends, credit cards and debit cards are the main payment method used by Americans. And digital wallets have “exploded in popularity” in recent years, says Forbes Advisor. 

“Paying by credit card can have several advantages, if you’re disciplined, including security benefits and convenience. Compared to debit cards, credit cards may also offer the option to earn increased rewards,” the report says. 

So what are your choices for accepting payment? 

Allow me to present the options available to you. This is based on observing the choices made by over 7,000 Ignition customers. The approach your firm chooses will always depend on what’s right for your business.

Option 1: Only allow clients to pay by bank transfer from an invoice

Most service professionals I’ve encountered think this is the cheapest option available to them because it’s “free”.

While it might be free when compared to processing fees, it may very well be the most expensive option when you look at it through the lens of cash flow and the time value of money

In Ignition’s State of Client Engagement report, we found that 94% of the 500-plus respondents need to chase clients for late payments, where the average number of days an invoice was overdue, past its due date, was 30.

Now of course, many of your clients are diligent payers, which is fantastic. But while that may be true for many of your long-standing clients, you have no payment history for any new client you bring into your firm. 

Not only that, from a customer experience perspective, you’re giving your clients a task to add to their extensive to-do lists. 

It’s no wonder that we see lots of late payments when this is the preferred method of payment collection.

Option 2: Only allow clients to pay by ACH/direct debit

This option might seem similar to Option 1, but in this scenario – for a smaller fee (compared to credit cards) – you’re in charge of when the payment is collected, even on a recurring or reoccurring basis. This is a significantly better outcome than Option 1, because it eliminates late payments. 

However, there are still a couple of downsides to this option. It takes longer to receive the cash, especially compared to cards. In the US, ACH pull transactions typically take six business days, compared to around two business days for credit cards. It also limits your clients’ choices, which doesn’t equate to an incredible client experience. 

Just over half (51%) of Americans surveyed said they would stop shopping with a merchant who doesn’t accept digital wallet payments, according to Forbes Advisor.

But if you want to use this option, Ignition can help. Simply switch off the option to accept credit cards in your account, or as you create a proposal for a client. 

Option 3: Wear the costs of credit card fees in your current pricing

In this option, you’re accepting that credit card fees are a cost of doing business and you’re optimizing for your customers’ experience with simple and competitive pricing.

The obvious downside is the thinner margins on your services. In the US, the fees on a $500 invoice can be as high as $18.

If you haven’t already factored in fees into your margins (we will get to that shortly), this can quickly add up to be the difference between a healthy and unhealthy business. 

Beyond that, given the variability of fees between payment methods and card types, it becomes more complex to conduct profitability analysis at the client level. It’s not impossible; it just takes more time. 

Option 4: Pass card fees on to your client (also known as surcharging)

This option simply adds the fees on top of your pricing as a separate line item on their invoices. The obvious advantage is the peace of mind that your margins are protected and predictable. 

Enabling surcharging also means that you’re not passing on the cost to all of your clients – only the ones who want to pay by card.

From a clients’ perspective it’s transparent and allows them to benefit from the perks attached to their card, such as points or cash back. 

It’s also fair to argue that it’s easy for a consumer to dispute a transaction on their credit cards, and banks will always err in their favor (at least initially), which opens up more risk to your business. As such, passing on the fees is a small but reasonable additional cost to your client.

Of course, like all the options presented so far, it comes with downsides. 

Passing on your COGs directly, as justified as it is, puts your pricing front and center and potentially under your clients’ microscope.

To be fair, some clients won’t even bat an eye-lid because they pass on fees to their customers, too. 

But some others may interpret this line-item as inconvenient at best, or nickel and diming at worst, potentially leading to dissatisfaction or even lost sales. 

Without a platform that supports surcharging, this option can present an administrative overhead, too. 

You’ll be required to add the surcharge to your invoices as an additional line item, and then account for these separately. 

This decision is entirely up to you. The good news is that if you want to surcharge your credit card fees, you can use Ignition to do exactly that (currently supported in the US and Australia, with more countries to come). You even have the flexibility to disable surcharging for specific clients should you choose to do so.

There is one more option though.

Option 5: Increase your prices to ensure credit card fees are covered in your margins

This option has you increasing your prices to the highest potential credit card fee. 

You won’t be charged more than 3.6% based on current market rates, but remember, at 3.6%, for every $1 you increase your price, your transaction fee increases by $0.04. As such, you may want to round up to account for this (and ensure the final price is not a strange number).

Just like wearing the costs, this option delivers the same benefit of simple pricing for your clients. You present one price with the flexibility to pay by whichever method suits them.

It ensures all of your COGs are accounted for in your margins, and if you do support both ACH/direct debit and credit card, and your client opts for the former, you benefit from increased margins. 

While I always recommend flexibility for your clients, this option also means you can accept credit card payments without any concern for the impact to your bottom line, and get cash in your bank faster. 

The downside of this option is the perception of higher prices. When comparing apples to apples, your services may well cost just a little bit more than a competitor’s. 

But let me counter this downside with a couple of important points:

  1. Unless your services are 100% commoditized, it’s nearly impossible to compare services with your competitors. That’s the beauty of services over products – there are so many factors that allow you to create unique value propositions. It might be the tech stack you chose, your location, how accessible (or not) you or your team are, the frequency of key deliverables, and so much more. If you’re ever in a position where you’re competing on price, you have the ability to articulate your unique value or de-scope the service before you ever get into a discounting war. 
  2. Service providers, particularly those in the accounting and tax profession, are chronically undercharging their clients. If you fear pricing conversations, remember that you can always start with new clients to test the waters. As a general rule, if your conversion rate is really high, keep raising your prices until it reduces. If you are losing 30% of your prospects due to price, you’ve probably got it about right. 

Where to from here

If you were on the fence about supporting credit cards, hopefully one of these options is the right one for you. You can even meet somewhere in the middle of these options with the right platform.

Whatever you do, make sure you select a platform that ensures you can easily collect the credit cards and securely keep it on file. Make sure it puts you in charge of collecting the fees (and not your client); will provide support in the event of a dispute, and make sure it simplifies the A/R process completely. Want to find out how Ignition does exactly that? Watch our instant demo.

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Meet the author

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Tom Maxwell

Head of Customer Experience  Ignition

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Published 10 Nov 2023 Last updated 19 Mar 2024