The Sonder Payments Blog

Enterprise Resource Planning (ERP) is a category of business management software—typically a suite of integrated applications—that an organization can use to collect, store, manage, and interpret data from many business activities. Most often ERP software includes tools for accounting, HR, CRM, sales, purchasing, inventory, project management, manufacturing and supply chain, and sometimes marketing.

ERP systems track business resources—cash, materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions and manages connections to outside stakeholders.

Enterprise system software is a multi-billion dollar industry; since 2011, IT investments have become one of the largest sources of corporate expenses in U.S.-based businesses. ERPs enhance business efficiency by facilitating error-free transactions and production. 

There is also ERP software made for small businesses. While it seems contradictory to the “E” in “ERP”, some software companies have started adapting the ERP model to a smaller scale– and for a more affordable price. 

 ERP systems typically include the following characteristics:

  • An integrated system
  • Operates in (or near) real time
  • A common database that supports all the applications
  • A consistent look and feel across module
  • Installation of the system with elaborate application/data integration by the Information Technology (IT) department, provided the implementation is not done in small steps
  • Deployment options include: on-premises, cloud hosted, or SaaS

There are several different types of ERP softwares, namely Locally-Installed, Cloud-Based, Hybrid, and Open-Source. Locally-Installed is ERP software that is downloaded onto your computer. It’s ideal for businesses with in-house IT and who need stronger security. Cloud-Based is hosted on the cloud and can be accessed from any computer with an internet connection, making it ideal for businesses with more mobility. Hybrid is a combination of Locally-Installed and Cloud-Based. Lastly, Open-Source is locally-installed ERP software that is downloaded onto your computer and has a source code that can be edited and enhanced. This is ideal for businesses with developer experience in need of strong and personalized customizations.  

Most ERP systems incorporate best practices. This means the software reflects the vendor’s interpretation of the most effective way to perform each business process. Systems vary in how conveniently the customer can modify these practices. In addition, best practices reduced risk by 71% compared to other software implementations.

Use of best practices eases compliance with requirements such as IFRS, Sarbanes-Oxley, or Basel II. They can also help comply with de facto industry standards, such as electronic funds transfer. This is because the procedure can be readily codified within the ERP software and replicated with confidence across multiple businesses that share that business requirement.

Perks of having an ERP software include: 

  • Increased Efficiency
  • Better Communication
  • Scalable Growth
  • Key Business Insights
  • Cost Savings
  • Global Support
  • Ensure Compliance
  • Better Security

Signs you’re ready for an ERP software:

  • Your accounting system is too complex
  • You have too many spreadsheets
  • You have difficulty sorting through business data
  • Your software programs don’t communicate
  • You’re spending too much money on multiple software programs
  • You want to expand into an international business
  • You can’t keep up with compliance
  • You’re ready for an IPO
  • You’re spending too much time on business processes

Switching over to an ERP software doesn’t cost much in the long-run, either. Your ERP will grow with your business, rather than being a source of complication when you try to expand. Having all your information in one secure database allows you to save time sifting through file cabinets in order to focus on more important things affecting your business. We highly recommend investing in ERPs if you identify even one of the signs that you’re ready for one. For more questions about saving time and money for your business, speak with a Sonder Payments consultant today. 

Interchange Fees make up the majority of the cost involved in accepting a credit card payment. Though interchange fees are collected by the card networks, they are paid out to the bank that issued the payment card. The average interchange rate for a credit card payment is around 1.81%, while the typical interchange for debit cards is 0.5% + $0.21.

For those who might not know, an Interchange Fee generally consists of a percentage of the total transaction plus some fixed amount, for example 2% + $0.10 per credit card transaction. Whenever a credit card or debit card transaction is processed, funds are transferred from the issuing bank to the acquiring bank (sometimes called the merchant bank). Card associations, like Visa and Mastercard, facilitate the process. For the service they provide, associations collect a fee from the acquiring bank.

Visa has the highest number of cards in circulation with about 52% of the market share as of 2016. MasterCard comes in at number two with about 32%, followed by Discover (about 8%) and AmEx (about 7.5%).

How Interchange Rates Vary

Every April and October, card associations Visa and MasterCard revisit their interchange rates and usually adjust them. You can see an increase or decrease in these rates, and sometimes they may not change them at all, but it’s always better to understand how these companies operate so you’re not confused when looking over your processing statements.

Another way that these interchange rates may vary is if your business changes the level at which it processes cards. Credit card processing methods fit into three levels: Level 1, Level 2 and Level 3. Each level is defined by how much information is needed to complete a payment, with Level 1 requiring the least and Level 3 the most. We’ll focus on explaining how each Level works, and what information is required of your business at each Level.

Level 2 Processing

Level 2 processing helps businesses reduce their processing costs by requiring them to provide additional reporting data for their clients. Level 2 processing is oftentimes associated with B2B because higher processing levels may be required depending on the types of cards accepted, the quantity being processed and the amount of information needed to be gathered to secure the transactions. Only certain cards like corporate cards, purchasing cards or government cards qualify for Level 2 or 3 processing.

Level 2 data can be better explained by quickly reviewing Level 1 data, which includes the following:

  • Credit card number
  • Expiration date
  • Billing address
  • Zip code

Level 2 requires the same data as Level 1 in addition to more detailed information for the benefit of your buyer. The data required for Level 2 processing in addition to Level 1 data is the following:

  • Sales tax amount
  • Customer code
  • Merchant postal code
  • Merchant tax identification number
  • Invoice number
  • Order number

Ultimately, Level 2 data processing saves businesses money on processing costs. Savings come from lowering the interchange rates that companies have to pay to the credit card associations per transaction. Interchange rates are set by credit card companies such as MasterCard, Visa, American Express, and Discover, and common reductions are around 0.50% lower than typical sales, but this can differ depending on the credit card association.

Thanks to the extra level of information required, Level 2 credit card processing is also more safe and secure than Level 1, as it reduces any potential fraud or chargebacks to your business.

Level 2 data adds huge value to B2B organizations processing high transaction volumes. Even with credit card associations that offer smaller discounts, every little bit adds up. With more than 1 million transactions going through the business annually, these savings come to a significant amount at the end of the year.

For additional help with understanding your processing fees, statement reading softwares like Staitment exist, using AI to determine which fees are negotiable or even unnecessary. Contact a Sonder Payments expert for more information.

Level 3 Processing

Level 3 processing is ideal for companies that do business with large corporations or government entities––in fact, this tier of payment processing was originally created to prevent branches of the government from overspending.

Level 3 processing enables B2B businesses to save money by giving their credit card companies more information than Level 1 or 2 transactions. The higher the level is, the more details it requires. And the higher the data level, the less it costs merchants to process transactions.

If you do business with large companies or government agencies, it may be worth it to do the research to find out if level 3 data processing is an option for you.

In addition to the data requirements in Levels 1 and 2, Level 3 processing requires the additional following information:

  • the postal code your company is shipping from
  • the postal code your company is shipping to
  • the invoice number
  • the order number
  • the freight amount
  • the line item details of the purchase.

Since higher data levels have lower interchange rates, it is worth your time to learn to qualify for Level 3 processing–– especially if your company does a lot of B2B transactions with large syndicates, or if you aspire to start doing business with the big guys, many of which only use Level 3 cards for major purchases.

It’s important to note that Discover and AmEx do not offer Level 3 data processing. This can help explain why Visa and MasterCard are significantly more popular than these cards.

Takeaways

If you want to lower your interchange rates and have already exhausted all of your options as a Level 1 processor, consider raising your Level to 2 or 3 by demanding more information from the customer at the point-of-sale.

Furthermore, if you’re a B2B or a business that works with government agencies, you should absolutely be at a processing Level higher than 1. There are huge benefits that come with saving less than a percent on a transaction in the long-run, and every business owner- big or small- should be taking advantage of them.

At Sonder Payments, We know that accepting card payments can be confusing sometimes, so we pair each merchant with a dedicated Solutions Architect, ensuring that you’ll have someone on your side when you feel lost.

Most of all, we hope to offer merchants peace of mind. Any business owner can have confidence in a partnership with Sonder Payments — our backend technologies process over 40 billion transactions annually. Visit our website to speak to an expert, and to learn more about your options when it comes to payment processing.