For every business, payment methods matter. It might not be so obvious, but an inefficient payment solution will cost you money. And at a time when inflation is high, interest rates are at a fifteen-year peak and the cost of doing business continues to rise, making payments work for you should be a priority.
The direct costs of doing payments
When you consider the costs of collecting and processing payments, you might think of the direct costs, such as transaction fees, foreign transaction (FX) fees and refunds.
These are important to consider from a cost perspective, but also in terms of value. For example, if your customer experience depends on instant payment authorisation or you rely heavily on a certain billing format such as subscription, putting more money into a specific payment system can make a huge difference. It can therefore make sense to invest a bit more if you are getting the best solution for your business needs.
Direct costs, however, are only the tip of the iceberg. This is something which may not always be glaringly obvious. Because payments are tied to so many other parts of your business, there are plenty of indirect costs lurking just under the water.
Pat Phelan is the Chief Customer Officer and Managing Director for UK & Ireland at GoCardless.
Revealing the indirect costs
Indirect costs can include the time and money spent chasing late payments, dealing with manual processes and the revenue that is lost to fraud. All of these inefficiencies can become an unnecessary drain on time and resources.
For example, our recent Costs of Collecting Payments Report reveals that the majority of businesses large enough to require someone for payment strategy have 20 or more full-time employees handling recurring payments . But, when you factor in technology that is available today, 26% of time spent on customer billing and 28% of time spent on credit management could be automated.
And if we take fraudulent and failed payments as an example, it becomes clear how indirect costs add up.
Fighting fraudulent payments
Dealing with fraudulent payments eats up 3.34% of revenue, and the time spent dealing with it is equivalent to one whole month of every year -- roughly broken down to 3 hours 17 minutes per week. Your business could be using this valuable time elsewhere. To put it in perspective, you could cycle from John O’Groats to Lands’ End and back again in a month. Add this time lost to the actual amount you’ve lost from the fraudulent payment, and the true cost will be revealed.
Failed payments
Often the true cost of late and failed payments isn’t obvious, and many don’t know that some payment methods have a higher chance of failing. Bank payments, such as direct debit or payments powered by open banking where money moves directly from one bank account to another, are much less likely to fail than payments made with digital wallets and credit or debit cards.
Recovering failed payments can be a huge drain on resources – 25% of the overall cost of taking payments is spent on the time it takes employees to recover failed payments. What’s more, 11-15% of failed payments end up as bad debt or involuntary customer churn. By reducing late and failed payments, your business can save time and retain revenue.
Introducing robust payment methods
A robust payment method will give you cheaper payments that work harder for you. Automating manual processes, including administrative tasks, helps to reduce staff costs, saving you time and money. Chasing payments can be a thing of the past, with payments paid on time and failed payment recovery entirely automated.
Less employee time spent on reporting, reconciliation, and the like means more time can be spent with customers and on growing the business. And with newer forms of payment, such as those powered by open banking, you can prevent fraud while still catering to your customers’ need for speed and convenience.
Payments that pay
In today’s world, lowering cost is a top priority for every business. And by taking a long, hard look at the direct and indirect costs of collecting payments, you’re one step closer to assessing whether your payment strategy actually works for you. If you, for example, have to spend hours chasing late payments or dealing with fraud, it may be time to explore something different. The bottom line is: these are not things you need to put up with. Taking payments doesn’t have to be a pain and fortunately, there are lots of innovative solutions to try.
