Credit cards are being employed in more and morebusiness-to-business (B2B) transactions. From the seller's point ofview, that can mean a lot of money walking out the door incredit-card fees.

A recently released reportfrom REL Consulting shows the use of credit cards in B2B hasincreased dramatically. According to REL, the information itgathers on large companies shows credit card use almost doubledbetween 2012 and 2013, to represent 9% of all B2B payments. RELestimates B2B sellers in the U.S. now incur an average of $2.2million in credit card processing fees per $1 billion ofrevenue.

“It's almost a hidden cost that a lot of organizations haven'treally noticed,” said Veronica Wills, a director at REL and leaderof its customer-to-cash practice. “The reason it goes unnoticed[is] a lot of organizations look at the profit for a particularproduct or service as being the direct cost versus what they sellit for, and the direct cost isn't going to include the cost of thepayment.”

The pickup in the use of credit cards was triggered by therecession and companies' efforts to manage their cash flow. Willsalso cited the rebates that card companies offer as they try tobuild the use of cards in the commercial marketplace.

“Buyers these days are trying to encourage more use of cards,and for higher-ticket items, because the banks that issue the cardsare sharing their revenue with buyers through something they callrebates,” said Nancy Atkinson, a senior analyst at Aite Group .“Basically they're buying the business of the buyer by sharing someof that interchange [fee] they get from the sellers. In some cases,purchasing departments go from being cost centers to profitcenters.”

Atkinson said accepting card payments can make sense for sellersas well, if it allows them to receive the payment earlier.

But the REL report cites credit card fees ranging from 2% to3.5%. Such fees can mount, particularly if the transaction involvesa big-ticket item.

Lyle Wallis, a vice president at the Credit Research Foundation,said that while credit card use has picked up, he is not seeingcompanies accept cards for big-ticket items.

Wallis argued that fees associated with credit cards are offsetto some extent by the savings companies realize by avoiding having to process paperchecks. “There are definitely costs associated with that becausethere are a lot of manual processes—you've got to process thechecks, you've got to key in the information,” Wallis said. “A lotof that is done automatically with credit-card payments.”

Credit Cards and PaymentTerms

Many companies don't have rules about whether they should orshouldn't accept credit cards, REL's Wills said. “They don't putthe policies and procedures around it to ensure that there's areally good trade-off.”

One key point is how acompany's rules about accepting credit card payments interact withpayment terms. If a company extends payment terms to its customers,for example giving them 30 days to pay for the purchase, and italso allows the use of credit cards, it is incurring not only thecredit card fee, but its cost for that money it is owed over the 30days, said Wills, pictured at left.

The REL report outlines several ways companies can try tobalance the cost of using credit cards with other businessconsiderations.

One approach is to give customers a choice between payment termsand the use of a credit card. “They can say to their customers,'We'll allow you to pay by credit card, but we're taking away yourpayment terms,'” Wills said. “That tends to be most popular becausethey feel they're not alienating the customer as much.”

In the wake of a 2013 settlement in an antitrust case brought byretailers against the credit card companies, sellers are free toimpose a surcharge on customers that pay them with credit cards.Wills said none of the companies she works with are currently usingsurcharges, and she linked that to the fact that some states havelaws forbidding surcharges. “If they're selling in multiple states,it's difficult for companies to understand how to apply that[surcharge] in certain states and not others,” she said.

But a survey on the use of credit cards in B2B transactionsconducted by the Credit Research Foundation and the Federal Reservefound that 13% of companies claim to assess a surcharge ifcustomers pay with a credit card, according to a report the foundation released earlier this year.

Wallis cautioned that he's not a lawyer, but said that one waycompanies deal with the differences in state laws is to note in thesales contract that the transaction is subject to the laws of oneof the states that allows surcharges.

The survey also looked at whether companies limit credit-carduse to payment at the time of delivery, or allow customers to usecredit cards in tandem with sales terms like net 30 days.Fifty-four percent of companies said they accepted credit cards forall terms of sales.

REL's Wills prefers an approach that distinguishes betweendifferent segments of customers. For some customers, a companymight not allow credit cards at all and might specify thatprohibition in the sales contract. It can differentiate dependingon the size of a customer's average transaction, saying no to cardpayments for organizations whose transactions are sizable, shesaid. Other considerations include whether the company is offeringthe customer credit terms and whether the customer is regarded ashigh risk.