As corporates increasingly go online to buy or sell products and services buyers want control and easy payments solutions while sellers want broad distribution and quick payment. One of the biggest difficulties for online business-to-business (B2B) merchants, however, is reconciling payments for transactions that are not settled immediately, such as travel and hotel reservations.
While the front end for purchases works smoothly, the back end is another story. The travel industry faces some of the greatest challenges, because travel agencies and hotels have to match payments long after the purchase was made and may even need to figure out whether the purchaser used the room nights at all. The merchant must determine which account was used for the purchase and may need to figure out whether payment was made by credit card, telegraphic transfer, electronic funds transfer or via another channel.
As an example Glassman cites a Korean travel management company, which had difficulties reconciling payments for hotel rooms. On the front end, customers used a card and paid for their room. On the back end, the agency had to deal with apportioning rooms to different clients from the block of rooms it bought at each hotel, using different price points for different customers, and had to match all the details for each customer. The agency also had to confirm what service was provided at what rate and whether there were any extra charges.
The process proved to be so complex that the travel agency had to meet with hotels regularly to review paper records to do the reconciliation and then agree on a number before sending funds for settlement. Even after waiting 30-60 days or longer for payment, the hotels had to figure out how to apply the payments to outstanding invoices and sometimes had to write off revenue if they couldn’t answer questions from the agency.
Using virtual cards from MasterCard’s Purchase Control system for every room booking made reconciliation far simpler for the travel agency and helped it ensure the hotels were paid correctly. When the agency used a different virtual card number for each transaction, the numbers enabled it and also the hotels to track transactions, reconcile amounts and settle payments faster.
According to Glassman, while travel agencies have perhaps some of the biggest challenges many other companies have similarly have inefficient mechanisms in the back office for reconciling payments and could benefit from a similar solution.
More Benefits from Using Cards
Along with the challenges of reconcilement, another significant barrier to using cards for B2B payments has been relatively high merchant service fees, with the fees paid rising significantly as the transaction amount goes up. MasterCard has put a special-purpose interchange rate in place for accounts payable, especially for large transactions, so the cost of merchant service fees for companies making B2B payments is more affordable than before. Furthermore, for industries where cards make payments immediate, purchasers that use their card often do not need to negotiate terms such as the 2/10-net-30 form of trade credit.
Glassman said that corporates also benefit from using cards as they can place strict limits on card usage and receive alerts when there are unusual transactions, which enhances their control over payments.
The net result of these new solutions from the card scheme, combining special interchange rates and control on payments on the front end with transaction-matching capabilities and rich information on the back end, is easier reconciliation and a solution that can enable e-commerce merchants to process their transactions far more effectively.
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