Wholesale Distributor Saves 44% with Level III Interchange Optimization

The Challenge

Frank M. is the CFO of a regional wholesale distribution company that supplies industrial equipment, fasteners, and safety products to manufacturers, contractors, and government agencies across the Southeast. The company processes approximately $4.2 million in annual card payments — nearly all of it B2B, paid with corporate purchasing cards, government procurement cards, and fleet cards.

The company's previous processor charged a bundled rate of 2.85% + $0.20 per transaction. At $4.2 million in annual volume, that translated to roughly $128,000 per year in processing fees. Frank had been told the rate was "competitive for wholesale," but he had no way to verify it — statements showed a single blended fee with no interchange breakdown.

The real problem was hidden in the card mix. Over 85% of the company's transactions were commercial and government purchasing cards. These card types have tiered interchange rates: merchants who submit enhanced transaction data (Level II or Level III) qualify for rates that can be 0.50% to 1.20% lower than the default commercial tier. The previous processor was not submitting any enhanced data, which meant every B2B transaction was settling at the most expensive interchange category.

For a $4.2 million B2B operation, the difference between default and optimized interchange rates represented tens of thousands of dollars in unnecessary costs every year.

The Solution

PaySec's analysis of the company's transaction data identified the opportunity immediately. With 85%+ of volume coming from commercial and government cards, Level III data optimization would have a dramatic impact. Level III goes beyond Level II by submitting line-item detail for each transaction — product descriptions, quantities, unit costs, commodity codes, and freight amounts. This is the deepest level of enhanced data, and it qualifies transactions for the lowest available commercial interchange tiers.

PaySec set up a dedicated merchant account with Network Offset Pricing, replacing the bundled 2.85% rate with transparent interchange passthrough. The key integration was connecting PaySec's payment gateway to the company's existing ERP system (SAP Business One). This integration automatically extracts line-item data from each invoice and appends it to the payment transaction before submission to the card network.

The ERP integration required no changes to the company's existing invoicing workflow. When the accounts receivable team processes a payment against an invoice, the gateway pulls the line-item detail automatically. The team does not need to enter additional data or use a separate system — the optimization happens transparently within their existing process.

PaySec also configured automated payment reminders and recurring billing for customers on net-30 terms who opted to pay by card, reducing the company's accounts receivable cycle and improving cash flow predictability.

The Results

The results were substantial from the first month. PaySec's Level III optimization combined with Network Offset Pricing reduced the company's effective processing rate from 2.85% to approximately 1.60% — a 44% reduction in total processing costs.

Over the first 12 months, the company saved more than $68,000 in processing fees. The savings broke down across three categories. Level III optimization on commercial and government card transactions accounted for approximately $52,000 of the savings — by far the largest driver. These transactions moved from the default commercial interchange tier (typically 2.50% to 2.70%) to optimized Level III rates (typically 1.35% to 1.75%), depending on the card network and specific card product.

The remaining $16,000 in savings came from the elimination of bundled markup on the 15% of transactions paid with consumer cards and debit cards. Under the previous bundled pricing, these lower-cost card types were subsidizing the overall rate. Under Network Offset Pricing, each card type pays its actual interchange cost plus PaySec's transparent margin.

Beyond direct cost savings, the company's average days sales outstanding (DSO) improved by 8 days after implementing automated payment reminders and recurring card billing. Customers who previously paid invoices on net-45 or net-60 terms now settle closer to net-30, improving the company's cash position and reducing the need for short-term credit facilities.