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Running on Credit

W2P businesses navigate the best approach to online payment processing

By Rebecca Trela

Last spring, print industry prognosticator The Industry Measure released a report that cast a grim shadow on the excitement of web-to-print. According to a survey, only 8 percent of all print and prepress establishments thought that adding web-to-print was a sales opportunity. A few weeks ago, the organization’s Printing survey reported that the market’s business conditions had declined, ever-so-slightly, for the fifth consecutive quarter.

Maybe many print business owners have missed the point of online ordering—it’s supposed to save time and make money, not give you more headaches. Many printers and print providers’ websites offer complex templates and distributed printing options to franchise organizations, and yet balk when it comes to payment. At the end of the order, an end user must print out an invoice and mail in the check. That’s old school, some print buyers say.

There is a high comfort level among buyers when ordering fairly simple items, such as business cards and postcards—the very orders that web-to-print was designed to handle, freeing a sales rep’s time to sell higher-margin work in person. “I often order postcards from Modern Postcard and I always pay with a credit card,” says Emily Walker, graphic design manager at the Mint Museum in Charlotte, N.C. “It’s the option we use for simple work that needs a quick turnaround,” she says, and sometimes the work won’t wait for the check to get in the mail.

“As a matter of fact, I’m waiting for business cards from Overnight Prints right now,” says Monica Doyle, marketing director for the University of California San Diego Extension, who also used a credit card for the purchase. Both buyers would be willing to investigate other options with their usual print contacts, but there aren’t many options available yet.

Essentials in the Modern Toolkit
Are end users demanding credit card processing with their online orders? Many distributors struggle with the question and where to place themselves in (or ahead of) the credit card curve. At the 2007 PSDA Small Distributor Summit in Pittsburgh, a quick keynote about the future erupted into a lengthy, heated discussion of where the customers are taking the print business, revealing an urgency behind the issue. Many distributors professed that they don’t offer the capability because the system seems “scary” or “expensive” or there isn’t a critical mass of customers yet asking for it.

The printing industry often has the advantage of watching business trends unfold in other industries before the effects trickle over. And in most other industries, internet credit card processing is seeing a meteoric rise in both B2B and B2C transactions.

Internet processing giant PayPal now has more than 100 million users, according to CNet, a technology news website owned by CNet Networks. PayPal originally began as C2C system transferring funds from one bank account to another, but later bought VeriSign and has become one of the largest credit card processors in addition to its transfer functions. Google Checkout, a new credit card processing competitor, launched an aggressive campaign for users with a $10 credit for signing up last year.

“Even though it has drawbacks that are frustrating for business owners, online credit card processing is a part of modern life,” says John Kuhlman, CEO of Grapevinehill.com, a shoe retailer that sells a lot of its merchandise through eBay. Even brick-and-mortar businesses, he says, need to step up their web strategy.

“The best way to handle it is to take control of your relationship with your processor,” Kuhlman says, likening it to shopping for a cell phone contract. “You don’t have to be afraid it’s going to be an awful situation.”

“We’ve instituted credit card payments for those traditional slow payers who go past 45 days,” says Doug Roberts, national sales manager at Graphic Dimensions, Atlanta, underscoring another reason credit card processing may make perfect sense now. In a contracting economy, more and more slow payers become late payers or non-payers. To recoup the company’s processing cost, Roberts says, it does not offer the prompt pay discount for the convenience of paying online. Right now, about 5 percent of the company’s business comes through the e-commerce system, but he anticipates that will jump to 30 or 40 percent in coming years. Many customers are switching to purchasing or credit cards because it helps them keep track of numbers or earn reward points. “E-commerce will be a savior to this business, or it will put you out of business,” he says.

Getting Started
Setting up credit card payment processing invariably requires a subscription service. A printer or a print service provider can contact a processor directly or utilize its services through an e-commerce software package. This is for ease of processing, but it’s also for security—processors must be PCI compliant, meaning they pass security standards established by Visa and MasterCard. Also, processors assume most of the risk and handle the customers’ card numbers so merchants don’t store that sensitive information.

Depending on a merchant’s volume, the web store owner will shop around for or negotiate a rate. (Negotiation is rare unless the seller is robust, like Amazon.com.) There will typically be a monthly bill to have the service ($20 to $50), a per-transaction flat fee (10 to 50 cents) and a transaction percentage based on the card a customer uses (1 to 4 percent, which varies by transaction).

Although Visa and MasterCard have more than 200 rates for different credit situations, processors generally pare them down to just a few, such as “qualified,” a low risk in-person charge; “mid-qualified” for over the phone and other key-ins, and “non-qualified” for Internet purchases, as well as some rewards cards and some business purchasing cards. Some credit companies, such as American Express and Diner’s Club, have separate rates from Visa and MasterCard.

The best approach, Kuhlman says, is to make a bullet-point list of your requirements and have the processing salesman explain how each of them will work for your business. For example, find out how often the processor’s fees will be subtracted, and how data will be reported from the bank (daily, monthly, etc.) Not reconciling the terms in the same way can wreak havoc on an accounting department.

“Don’t get drawn in by ads,” he advises. “If it says 30 cents per transaction plus 1.5 percent, check out how much business you have to do per month to get that rate.” Also, anyone doing a lot of international business is subject to much higher fees. He guesses that the $10,000 to $25,000-per month sales range gives merchants enough leverage to drop a percentage point in rates.

If the relationship with a processor is souring, don’t be afraid to cancel the contract, Kuhlman says. “If you’re going to save $5,000 over the next 10 months with a better rate, don’t get hung up on $20 per month.”

Some banks will require a seller to set up a separate account for internet purchases, for which there is usually a setup and a transaction fee, higher than normal business accounts.

Getting Better
Several other emerging trends make credit card processing more attractive. One is a software solution that integrates with ERP (enterprise resource management) systems for trade printers, further leveraging the efficiencies from “touchless” manufacturing and ordering systems. The other is a data stream that pushes information back to cardholders from credit transactions, called Level 3 processing.

Level 3 began as a service for government cardholders, but it has matured and spread to the rest of the purchasing card market, providing line-item detail on statements just like on a traditional invoice. It is available only for purchasing cards, but it works just like normal credit card processing, either from a provider or through the e-commerce software—it does not require setting up a discrete bank account.

“Level 3 processing has leveled the playing field for printers no matter their size,” says Denise Timblin, VP of credit card processing firm Blue Wave. “You can be a small business and accommodate the largest of clients. It gives your business more control, financial savings, increased sales and the flexibility to meet your customer demands.” She’s seen franchise organizations walk away from deals that couldn’t offer Level 3 processing, because the detail was essential for franchise model. The upside is, it frees the service provider from reporting the line item detail manually. Level 3 is considered a more secure method of transaction, and although it only applies to B2B transactions, it can drop a non-qualified card to a lower rate classification.

One of the biggest downsides to credit card processing is the manual reconciliation of receipts. “It’s a pain in the neck!” Kuhlman says. “I think we have essentially invented some accounting methods along the way to deal with the process.” The workload depends on how your bank processes the sales—if they’re done in a batch, accountants may be checking the lump sum against a list of orders.

Through a new program Four51 offers, that process will be automated, says Rich Landa, president. “We have a distributor who receives nearly 200 orders a month, and he has one person dedicated full-time to reconciling his bank accounts against his orders. That’s where the majority of the frustration is,” he says. Four51 released an ERP system in late January in conjunction with SAP American called BusinessOne. The system integrates back-office applications such as CRM management, inventory and accounting with e-commerce.

Smaller Solutions
In the case of many small distributors, only one customer (or a potential customer) wants to order with a credit card. In that instance, many turn to a printer who has already established relationships with credit card companies and banks.

“There are a lot of distributors we work with who find themselves with a foot in the door at a big customer. The prospect needs a unique print storefront, for example a bank that needs letterhead, envelopes, cards collateral, direct mail, etc.” For $250, says Lindsay Gray, CEO of Acculink, Greenville, N.C., his company can set up an online storefront with templates and can collect a credit card payment from the end user.

“We have already established the relationships with our bank, with the credit companies, and with a third-party credit verifier, VeriSign. We’ve paid these charges anyway, so it’s a service we can offer a distributor who needs to land an account.” However, he cautions, the program is limited to Acculink’s extent. For an e-commerce model where the end user would be buying items from disparate source (business cards, embroidered hats and promo products), the distributor needs to purchase a software solution and customize it without a vendor involved.

“The investment is where people are struggling right now,” Gray says. “Traditionally the manufacturer has had all the equipment and infrastructure to service the job, and the distributor has low risk. That model is changing, as with many other aspects of the digital world.”

Taking a Risk
Compared to check fraud, Landa says, credit card processing is fairly safe because the number is examined immediately. However, don’t fear chargebacks, either, Timblin says—the notion that the customer always wins is a myth. They are also very rare in B2B situations.

“It’s very difficult to evaluate upfront how much fraud protection a processor has,” says Kuhlman. “They all brag they have as much protection as is available, but part of the point is that they can’t publish the secret formula. Keep track of your incidences if you switch processors.”

The cost of having an accountant figure the numbers, as well as the cost of the system, must be weighed against lost opportunities from not having online ordering and internal costs of collecting bad debt. “So far we have been burned very little,” Roberts says. “We do not have a firm rule on how much it costs us to collect, but we guess that a 20 percent loss per month on the total cost in each uncollected order would be average. But there has been a positive response from many customers wanting to use credit cards to pay invoices, so we hope this part of our business grows,” he finishes.

Most reports suggest that it will, agrees Landa. “If you’re going to get into the online business, my observation is that you have to do credit cards. Distributors need to be looking at this in the long term, as it becomes an embedded part of doing business. It’s important to educate yourself before the customer asks about it.”

Rebecca Trela is assistant editor of Print Solutions magazine. Email comments to rtrela@psda.org.