What are You Paying for Credit Card Transaction Fees?
More and more Government Contractors are reluctantly accepting credit cards and purchase cards as a form of payment (the fact that it’s required on many contracts for low dollar amounts could be affecting that). Given the advantages of purchase cards, specifically GSA SmartPay cards, one wonders why the reluctance. SmartPay cards can act as the contracting mechanism for purchases under $3,000. For amounts above that, the SmartPay card is the commitment and payment mechanism – no Purchase Order required! Plus, you get paid in 1-2 business days (talk about improving your DSO)!
The reluctance comes in when you consider the transaction fee, which varies, but is typically 3.5-4% – sometimes more.
When you compare that to Government profit margins, transaction fees don’t leave much room, if any, for profit. According to the latest Grant Thornton survey, 60% of Government Contractors have profit margins of 5% or less. So, it’s not surprising that there is a reluctance to accept credit cards and purchase cards as payment.
Technically, you can pass the transaction fee along, but it needs to be a separate line item and it has to be the actual cost. So, again, there’s a reluctance to do that.
Fortunately, the rates are getting lower. By providing the line item information (aka Level 3 data), companies can qualify for a lower rate. Instead of 3.5%, you might be paying 2.5%. It might not sound like much, but that’s almost a 30% reduction. It gets better for large amounts, where even lower transaction fees are possible – maybe 1-1.5%.
Now, compare that to the cost of money, and I think the business case can be made to more enthusiastically accept GSA SmartPay cards as a form of payment.