How to Cut Costs with a Better Process

This new payment processing business unit of mine is great for my blogging. I see things to write about every day. All businesses are similar while being completely different.

A cookie-cutter approach works very well for the processor.

For the merchant . . . Not so much.

My first line of inquiry is always the statement itself. It often raises more questions than it answers. I need those questions to better understand the business I’m trying to help. This first step is so important that if a prospective client doesn’t have access to his/her statement, I simply reschedule the discussion.

This post is a quickie case study. It’s fitting that this is the first such post. Steve (not his real name BT, and this story is told with his permission) read my previous posts in this series, connected with me on LinkedIn, then, was the first to send me a PDF of his statement.

Steve’s statement raised questions. I knew I was going to save him a good chunk of change, but something was amiss.

One, there were many Visa Debit transactions. That may sound strange to Americans. Why is too much Visa Debit a bad thing? It makes sense to Canadians, though. Here, Interac dominates debit. Interac is a not-for-profit group, so debit here is dirt cheap to process. We’re talking pennies regardless of transaction size.

Usually, card-branded debit signals a debit card used for a web purchase. That’s a good thing, but there were far too many of them.

Two, there were many “settled” and “standard” mentions on the itemized transactions list. The words “settled” and “standard” mean "surcharge" in credit-card speak. Often they simply indicate a strong web sales component. Often too, they point out some sort of error.

A little bit about Steve, a website view

Steve owns a wholesale meat and seafood distribution company. When Steve first set up the company, he told his bank he needed to accept credit cards. They sent him forms, he signed them.

Cookie-cutter plans are rarely good plans. Now, with web-based automated applications, it's even worse.

From his website, I saw that Steve sells his frozen products individually portioned, and vacuum packed through a group of independent sellers. Those sellers sell directly to consumers and foodservice outlets from refrigerated trucks.

I also noticed that Steve’s website allows people to order directly. Web sales may well account for all those surcharges. The strange thing was that the website didn’t mention shipping, not even to say it was free.

I was getting an inkling of what may be happening. I needed to talk to Steve.

A little bit more about Steve, from an Old-School talk

Steve considers his people in the refrigerated trucks his real customers. He deals with them, they deal with the public. Trucks either have a cellular-enabled terminal or an app-based swiper. It’s about a 50/50 split.

One mystery was solved. Swipers can’t process true debit because there’s no way to enter a PIN.

Then I asked about the web shipping thing. Steve explained. There is no mention of shipping on the web because there isn’t any. Remember that Steve considers the drivers to be the customers. If I order online, the sale goes to the driver who sells to me. If I’m a first-timer, it goes to the driver closest to me. Either way, the driver delivers and owns the account.

Okay, that’s great! But, it shows a possible flaw in the process.

The numbers

Here, Steve blew my mind. I was sitting in a pretty small facility. The only hint that it was bigger than appeared was the mountain of paper on Steve's desk. Basic questioning showed that this was the Head Office, but there were another 10 facilities across Canada. There are currently some 60 trucks on the road with 10 more on order.

I was confused. The statement didn’t show that kind of volume. Each office has its own bank and processing accounts. Overall, Steve processes about $9,000,000 a year, with an average ticket of $368. Individual sales are all over the map from $15 to $1,500.

Analysing Steve’s statement was challenging. I had to deal with those not-really-debit debit sales. I left them aside for a minute.

His statement told me he was grossly overpaying. The processing portion of his bill came out to about 0.40% over interchange, plus $0.25 per transaction. Steve was paying over $40,000 a year just in processing fees, never mind interchange rates.

We fixed that first.

We dropped his fee to an amount more in keeping with his volume. I kept the per transaction fee just to cover my butt but dropped it to $0.05. We chopped a good 70% off the processing portion of his bill, not counting whatever I could do about those strange not-really-debit debit sales.

They were next.

Swipers and web sales were the culprits

I have nothing against web sales. In fact, I love them. Steve was just going about them the wrong way for his business.

New and existing customers alike could order online, pay for their order and the truck would deliver the food. Yes, the very same truck that was equipped to take payments face-to-face, i.e. in a card-present, no surcharge way.

If the buyer wanted to pay by Interac debit, he/she couldn’t. The web (and swipers) can only process as card-brand debit.

Why this is important: Plastics processing is all about watching pennies and fractional pennies to save dollars. Based on Steve’s average ticket, he was paying a total of $5.95 for each not-really-debit debit sale. Compare that with a $0.05 flat rate. Now multiply it out by hundreds of transactions.

Starting with the swipers

I asked Steve why so many drivers used swipers. Steve said it was because the cellular terminals cost $90 a month each to rent, plus a $10 data plan fee.

No, they don’t, at least not anymore.

To be fair, they were pricey as all get out when they first appeared and Steve was an early adopter. Every time he needed another, he called his bank. The bank person checked the file, saw Steve paid $90, so he continued to pay $90.

We added 70 cellular terminals at $30 a month each (The $10 each for the data plans still applies). Now all his trucks will be cellular-terminal equipped for less than what it cost to equip just half of them.

Now, anyone who wants to pay by Interac debit can. When they do, Steve will only pay $0.05 regardless of the amount.

Now for the Web

I get why Steve made people pay online for their online orders. No one wants to deliver $300 worth of steaks to a Vegan as part of a sick joke. Prepayment solves that problem. It also brings up another problem, unnecessarily high fees.

No matter who starts the purchase process, it ends the same way. A driver equipped with a payment terminal delivers.

We don’t need a new process, we need the same process split in two.

• Existing customers can log in and order. They pay the driver upon delivery.
• New customers pay online for their first order. Subsequent orders are paid on delivery.

Steve will still pay surcharges and not-really-debit debit fees, but on the first order only. Let’s call that prankster insurance.

Steve put his web guy to work on that.

Conclusion

I’d like to tell you how much Steve saved from all the improvements, but I can’t.

I lost track.

So did Steve.

Steve must have been happy. He insisted on sending me home with a case of filet mignons and a case of rock lobster tails.

Yum.

Surf and turf, anybody?