How To Reduce Credit Card Processing Fees

Credit cards may be a useful way for media companies to obtain
prepayment for advertising fees and collecting on sales efforts. But
they have a way of eating into the bottom line, and processing the
charges can be time consuming. Raycom Media found a way to reduce its
interchange transaction fee charges by providing its credit card
companies with additional data about its customers.

Credit cards have become a very useful tool for credit and
collections managers. Advertisers can make a down payment on an ad buy
using their company credit card, which spares both parties from the time
and paperwork often required for cutting a check.

In addition, collection managers can often get a partial or
full payment on the balance of a past-due account while they are on the
phone with the customer. In fact, a growing number of TV stations have
incorporated credit card payments into their online customer relations
portals.

But what TV stations and other media providers don’t like are the
added costs associated with accepting credit card payments. While the
easiest solution would be to create a surcharge that would pass the
burden along to the customer, most credit card companies explicitly
forbid the practice and threaten to de-authorize any company that
attempts the pass-through.

That’s not to say there aren’t ways to reduce the impact of
credit card fees. For instance, the finance department at Raycom Media
has found a way to reduce its fees by an average of $10,000 per month.
“Credit cards may be a useful way for media companies to
obtain prepayment for advertising fees and collecting on sales efforts.
But they have a way of eating into the bottom line, and processing the
charges can be time consuming,” observes Sherry Spivey, a regional hub
credit and collection manager for Raycom Media.

Spivey was a member of a team within Raycom Media that found a
way to realize that savings of more than $120,000 per year in credit
card service fees. In an article appearing in the current issue of MFM’s
The Financial Manager magazine she shares their strategy.

The team zeroed in on an opportunity to reduce its interchange
transaction fee charges by providing its credit card companies with
additional data about its customers.

“This extra information allowed us to move up most of our
transactions from what MasterCard and Visa call ‘Level I’ to the much
more cost effective ‘Level II’ or ‘Level III’ payment tiers if a
commercial, corporate, purchasing, business or government card was
used,” Spivey says.
She went on to explain the difference in the three tiers:

• Level I, which is generally used for
  business-to-consumer transactions, requires only the date, merchant name
  and transaction amount to complete processing of the transaction.
• In addition to the Level I data, Level II requires a tax amount,
  customer code, merchant postal code, tax identification number as well
  as merchant and state codes. Both Level I and Level II card data can be
  submitted using any method available to process card transactions.
• Level III transactions require even more detailed data, “similar to
  line items on an invoice,” Spivey notes. In addition to the data
  required for Level I and II processing, Raycom would need to include
  item product codes, descriptions, quantities, tax rate as well as the
  postal codes for the shipping address and destination address. In
  addition, Level III transactions must be processed using a Web-based
  virtual terminal or PC-based software program certified to process the
  additional data for settlement.

While moving up to Level II or III would provide the savings
the company wanted, it needed to determine the other direct and indirect
costs that could be associated with the effort.

“We discovered that although our current credit card
processing provider could support Level II and III transactions, its
method of doing so would create a data-entry burden for the staff
members handling the transactions. The vendor could not provide any
customized automation of the data elements by default,” Spivey says.

Since its existing vendor didn’t provide an easy method for
obtaining the additional data that would be required for the cost-saving
Level II and Level III transactions, it identified and evaluated other
card-processing vendors that could supply an automation solution for
populating the required data fields. Any new vendor would also need to
meet the company’s reporting requirements and make the transition as
seamless as possible by “limiting the learning curve” for staff members.

The research paid off. “After an extensive evaluation, we
selected a vendor that could meet our needs and provide efficiencies to
support a change,” Spivey says. Better still, the company exceeded its
savings goal. In the first month, the company experienced a cost savings
of $11,500, with 98% of transactions qualifying for the best rates. In
the months following, its savings averaged “just over” $10,000 per
month, with 97% of credit card transactions qualifying for the reduced
rate.

But these results may not be the same for everyone. “The key
is to review your business practices and determine what’s feasible, from
the standpoint of cost savings and the productivity of your staff
members. Thoroughly investigate options available and work to turn the
changes you envision into reality,” Spivey reminds TFM readers.

If you would like to learn more about Raycom’s credit card payment
initiative, a copy of Spivey’s article is currently available on MFM’s website.

Credit Card payments will also be one of the featured topics
at the upcoming BCCA Media Credit Seminar, which will be held on
Tuesday, Nov. 12, at the McGraw-Hill Building in New York City. The
session will be led by Michelle Powell, VP of corporate development,
Lenexus LLC, a wholesale credit card services provider that works with
national and state-wide associations.

he BCCA Credit Seminar will also feature:

• A discussion of the economic outlook for 2014 by Richard Hastings, macro strategist for Global Hunter Securities LLC.
• An update on legal issues, including recent bankruptcies, presented
  by Wanda Borges, attorney/partner, Borges & Associates; Bruce
  Nathan, attorney/member, Lowenstein Sadler PC; and Ken Rosen, partner,
  Lowenstein Sadler PC.
• A discussion of the Barter Process led by Stuart Raskin, SVP corporate finance, Active International.
• A presentation on using financial statements in the credit
  department, by Wendi Rosenblatt, director of financial planning and
  analysis for Hearst Television.
• An interactive discussion of agency processes with panelist Bill
  Paladini, CFO of JL Media; Kevin McEvoy, CFO, PHD; Kathleen Bishop,
  director, finance shared services at OmnicomMediaGroup and David King,
  CFO, Sherwood Trading Group;
• We will also provide an overview of EMCAPP — The Electronic Media Credit Application EDI.

In addition to these formal sessions, the event will serve as
an opportunity for media credit professionals and executives from
across the country to come together and share ideas and best practices
for the changing media credit and collections function. The seminar will
feature a closing reception that is open to reception-only registrants
as well as our seminar attendees. More information about the seminar and
an online registration may be found on BCCA’s website: www.bccacredit.com.

As the example of Sherry Spivey’s article demonstrates,
learning from the lessons of our peers can save steps in researching,
implementing and optimizing money-saving initiatives. The members of
BCCA, the media industry’s credit association, are looking forward to
sharing their insights on other similar opportunities at our upcoming
Seminar; we hope you can join us. As Spivey concluded in her article
“You never know what you might find out you didn’t know.”