Many companies I visit focus their strategic sourcing efforts on direct materials, freight/logistics, and some of the obvious indirect spends (office supplies, copiers, etc.). Spend categories like Financial Services, which could include payroll processing, insurance, treasury services, collections, lockbox processing, and merchant accounts, among others, are typically the domain of the finance department. Any inquiries into the cost associated with these services is met with a response such as “the relationship is more important than the price” or “pricing is regulated by “X” and can’t be negotiated” or the more probable “I hear steel prices are going up, what are you doing about that?”.

A key misconception in this area is that the service of processing financial transactions is substantially different between suppliers. While customer service, reporting, risk assessment, and system integration will definitely distinguish a provider, back end processing is highly transactional, and is usually done by a limited amount of companies.

In this environment, most costs are fixed, and each additional transaction processed goes to a supplier’s bottom line. Supplier motivation (and thereby buyer leverage) is based on getting as many transactions through their system as possible, and the price per transaction is of little consequence. A limited knowledge of the industry and some competitive proposals could easily motivate an incumbent provider to reduce their price substantially. In my experience, I have seen prices reduced by 50-75%, with no change in provider or degradation of service.

Obviously expending political capital to get into these areas may not always make sense, but a strategic sourcing professional with a little bit of knowledge could provide substantial savings without upsetting the balance of power.

This week I found an article that gives a thorough background on merchant account processing. You can find the article here:

The site also has a blog and forum that allows users to exchange ideas and ask questions. If you’ve spent anytime researching credit card processors, you know there are a tremendous amount of terms designed to confuse buyers and keep margins high. With savings opportunities north of 50%, a little homework can go a long way.
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Joe Payne

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