Customer Payment Methods & Associated Costs To The Supplier

Factual Questions
1

British Telecom altered its pricing structure in May of this year.

Prior to this change, a customer who paid his bill by Direct Debit was given a discount of £3 per quarter on his line rental. Now, all customers pay the same line rental but non-DD customers are charged an extra £4.50 per quarter. This appears on the bill as a separate item with the legend Payment Processing Fee - £4.50. There are exceptions to this rule but the vast majority of non-DD customers must pay this additional sum.

On querying this fee with BT, I received a reply which attempted to justify the £4.50 charge by claiming that (1) greater costs accrued to processing payments made by other means than Direct Debit and (2) that “on average, customers are more likely to forget to pay or not pay, and this leaves us with a bad debt of around £100 million a year”.

Regarding point (2) I don’t see why I, and other good but non-DD payers, should subsidise forgetful or bad payers. I’ve been a customer of this company for 24 years and I always pay on time. For the past 7 years I have paid online via the BACS transfer system. That is an issue I intend to press home to BT.

On point (1) I call bullshit. I can’t see how the costs associated with receiving online payments can be greater than the costs associated with receiving payments via Direct Debit. Every quarter a bill is produced and a debit sits on my part of the database. Whether I pay by DD or by online transfer my credit cancels this debit, the amount owed is now zero and the account is not flagged because everything is normal.

Of course I may be wrong about this so I’d like to know, on average, what is the actual cost to a supplier for processing a payment made by (a) online transfer (b) cheque © debit card and (d) credit card.

Many thanks.

2

Not an answer about your specific query on cost, but an observation from my stints of working as treasurer of a small charity and for a local party branch.

It seems to me that the main drawback of

a) supplier/organisation ordered payments (specifically, direct debit)
b) customer/member ordered payments (such as transfers between bank accounts, checques, Paypal, etc)
is data entry and, in particular, making the connection between false/misleading/incomplete reference information on the payment on the one hand, and the bill or other payment obligation on the other hand.

Let’s say Company sends Bill Door invoice # 656587000867 dated 5 June 2007, for the amount of 26.88 GBP

Case a) (direct debit):

Company’s accounting software prepares a dataset for this month’s 2 million direct debits customer payments, with reference information inserted. This dataset is transferred to Company’s bank for processing. Company’s accounting software marks the corresponding invoices as paid in the accounting database.

50,000 of these direct debits bounce - target account has been closed, no funds, etc. Company gets a dataset for these bounces from their bank and feed it into their accounting software. The accounting software changes the respective invoices from ‘paid’ to’unpaid’

There’s minimal human involvement in all of that (plausibility check on datasets, and handing them back and forth between Company and their bank). All the rest is done by software. Specifically, no manual data entry for each individual payment.

Case b) (customer-initiated payment)

Company will get one of the following:

b1) requires simple data entry
[ul]
[li]payment of 26.88 GBP under Bill Door’s name with reference information: “Your invoice # 656587000867 dated 5 June 2007”[/li][/ul]

b2) Not ideal, but can be handled automatically

no payment - accounting software starts collection process after a predetermined timeout

b3) This will often happen and take a lot of work
[ul]
[li]payment of 26.88 GBP under Bill Door’s name with reference information: “Your invoice of this month” (note: Company has 500 different customers named Bill Door)[/li][li]payment of 26.88 GBP under William Door’s name with reference information: “Your invoice” (note: Company has 1000 different customers named William Door, all the wong person)[/li][li]payment of 26.88 GBP under Irene Door’s name with reference information: “Your invoice” (Irene Door being Bill Door’s wife)[/li][li]payment of 26.88 GBP under Bill Door’s name with reference information: “Your invoice dated 6/5/2007”[/li][li]payment of 26.88 GBP under Bill Door’s name with reference information: “Your invoice # 6565870867”[/li][li]payment of 26.88 GBP under Bill Door’s name with reference information: “Your invoice # 656578000867”[/li][li]payment of 28.68 GBP under Bill Door’s name with reference information: “Your invoice # 656587000867 dated 5 June 2007”[/li][/ul]

3

Thanks for the insight.

I appreciate there is a cost attached to processing any payment, e.g. a cheque, which may be accompanied by inadequate or incorrect information as in your example. There is also be an overhead in some telephone processing of debit & credit card payments since, unless the system is automated, somebody has to key in an account number and card details on answering a call. Whether such costs approach £4.50 is, of course, open to question.

Online payments are set up so that the transfer includes the customer account number in addition to the money so, really, these are failsafe and surely do not attract human intervention.