Level 2 Payment Processing Explained (Because It’s Complicated)

November 28, 2016/0/0

As a new business owner, you’ve made the decision to accept credit and debit card payments. That means you will need to work with a merchant provider to come up with the most practical approach to accepting electronic payments, and ensure the funds are transferred to your bank account in a timely manner. As you discuss options with different providers, you’ll hear references to what’s known as Level 2 payment processing. Here are some things you need to know about this strategy, the benefits that it provides, and what you can do to keep the processing as simple and straightforward as possible.

Understanding the Basics

Level 2 payment processing is an approach to business to business credit card transactions that involves the collection of specific types of information. The amount of detail captured provides information that’s ultimately helpful for both the buyer and the seller. In order to make use of this approach to processing, you will need a credit card terminal or access to a gateway that is set up to manage these types of transaction.

What Type of Detail Is Captured?

There are several key details that are captured and recorded as part of any transaction using this approach. Each bit of data results in creating a simple resource that makes it easier to track seller activity. It also makes it easier for buyers to properly apply the charge to the correct department or budget line item within their business accounting records.

Some of the information that captured for Level 2 payment processing is the same data that you would capture for any type of credit card transaction. That information includes the name of the buyer. Depending on how the card is set up, it could be the name of the individual who is assigned a specific corporate credit card or a card that is in the name of the business proper.

Along with the buyer name, the transaction amount is also part of the permanent record. Depending on how the processor is set up, the detail may break down the purchases by unit price, quantity, and an extended price. You as the merchant can also decide to keep it simple by capturing only the total before taxes and not include an itemized listing of what’s purchased.

The tax that’s applied to the purchases is also included as a separate line item in the transaction detail. It’s not unusual for the detail to show a breakdown of the percentages used for local, state, and federal taxes related to the purchase. If the buyer happens to be a non-profit or other organization that does not have to pay taxes on those purchases, the transaction detail will reflect that status.

The final total and the date of the transaction also become part of the permanent record. You’ll find that many providers offer processing solutions that go beyond just the date. The detail will include the hour and minute that the transaction was completed.

Two other key bits of data are included with each transaction is the customer’s purchase order number. One is what is known as a purchase order number. That number can be a standing or recurring PO number, or it can be one that is issued specifically for this purpose. Along with the PO number, the merchant’s ZIP code rounds out the information captured for the transaction.

Maintaining Data on File

One of the easiest ways to simplify the Level 2 payment processing is to ensure you have software that captures any data that will relate to all purchase made by the customer over time. The merchant name and the taxes that apply are prime examples. The same goes for the merchant’s ZIP code. If the client provides what is known as a blanket purchase order (one that is intended to serve as authorization for all purchases made the customer or at least by a specific department in the customer’s company), that can also be saved and applied to each purchase.

Keeping any recurring or standing data on hand simplifies the transaction process. Instead of having to manually relate it to each transaction, the system applies it automatically. That saves you and your customer a great deal of time.

What Else Do You Get with This Type of Processing?

The major credit card companies do offer incentives for using Level 2 payment processing. Specifically, you’ll enjoy a modest discount on interchange rates on each transaction. The amount on a single transaction may not seem all that impressive, but project how much you save as you process several thousand transactions each fiscal year.

How about Your Customers?

You provide additional value to your customers by providing a quick and simple approach to Level 2 payment processing. Since recurring data is stored and automatically applied, clients don’t have to repeat the same information every time they want to place an order and arrange the payment. The detail that they receive on the back end also makes it much easier to post the transaction details in their Accounts Payable records.

For example, Department A and Department B have standing purchase order numbers that allow them to order and pay for up to a maximum amount for the entire fiscal year. Thanks to the detail you are providing about each transaction, it’s easier to post each transaction against the correct PO number and help department heads know when they are getting close to running out of allocated funds.

In this way, you make it easier for the department heads to review purchases on a weekly or monthly basis, know when the remaining balance approved for the purchase order is running low. That in turn provides them with the opportunity to do whatever needs is necessary to avoid going over the approved departmental budget. You are a hero because you help those department heads know what that they need to either temporarily trim expenditures to stay within budget, or obtain approval for a new purchase order to take the place of the old one.

There’s a lot more to learn about Level 2 payment processing and how it benefits you and your customers. Talk with a merchant provider today and find out how this more detailed strategy would allow you to complete transactions faster, have the money in hand sooner, and also help your client on the back end.