The number of credit cards in American wallets and purses is more than double the population, according to a Time magazine article on the beleaguered industry. Do those 640 million credit cards add up to missed opportunities if your business won’t accept a single one of them?
In an article published in PRO last year, Kenia Fulton, who owns the marine pump-out company Marine Waste Management with her husband, Rodney, in Davie, Fla., said to expedite payment and as a convenience for customers, they began accepting credit cards.
“As soon as we started accepting credit cards, we experienced a jump in business,” Fulton was quoted as saying.
Another portable restroom contractor, contributing to the PRO Online Discussion Forum (at www.promonthly.com), said accepting credit cards is the best way he has found to prompt event planners to pay for units at setup.
“Most organizations are willing to provide you with credit card information,” the forum poster wrote. “If they don’t want to be billed by using the credit card, tell them you will send them a monthly invoice, but get the credit information for security reasons. That way if they don’t pay by the invoice, you can apply it to the credit card.”
So, taking credit cards is all good, right? Not so fast. Another poster on the same forum thread cautioned against taking cards, saying: “Be careful taking a card. We take them, did a job some time ago (where the) husband paid with a credit card. His wife came home, thought we’d charged too much and called the card company, had the money transferred back into their account. (We) never did get paid.”
Yes, like just about everything in business, and life, there are pros and cons to accepting credit cards.
Advantages to accepting cards
• In the eyes of some potential customers, the fact that you accept credit cards “legitimizes” your business; gives it credibility.
• Accepting credit cards can land your company business from customers who want to build reward points. A wedding couple may want to put every expense possible on a charge card so they can fly free to their honeymoon destination. Taking charge cards might mean a contract for you; Puerto Vallarta for them.
• Accepting credit cards makes it easier to successfully up-sell customers. A few more bucks for an upscale restroom unit may be easier for a customer to say yes to when they are putting it on a credit card.
• Accepting credit cards can improve a businesses’ cash flow. No more waiting for checks in the mail.
• Accepting credit cards cuts down on bad checks and collection costs.
Disadvantages to accepting credit cards
• The cost of equipment. The old school method of processing charges involves putting the card on a tray, covering it with a triplicate receipt and running an imprinter over them. Today most merchants swipe the card through a scanner instead. This has decreased fraud, but increased costs since scanners cost more than imprinters. An imprinter, which is still useful for businesses that sell in places where they don’t have access to a telephone line, will cost about $25. A four-year lease on a scanner terminal can run $50-$70 a month. The equipment can be purchased, but you still have to pay the bank to connect to their system. That extra cost may actually make renting cheaper than buying. For face-to-face sales, you may need a receipt printer too. This will cost about as much as a scanner terminal.
• A percentage of each sale put on a credit card goes to the credit card company — not in your pocket.
• You could get stuck with a lot of chargebacks. That is the problem the unhappy forum writer was warning about.
WHAT’S A CHARGEBACK?
When the card company credits the cardholder’s account because of a mistake made by the merchant, it’s called a chargeback. While the issuing bank is supposed to warn the merchant about a dispute before initiating a chargeback, they often don’t follow that protocol. To dispute a chargeback you need documentation. For example, if the customer claims he never purchased your services, the best documentation you can have is the signed receipt. If the reason given is the service was not provided as agreed upon — restrooms weren’t delivered, cleaned and/or picked up on schedule — you’ll also need driver logs and anything else you can come up with to prove that they were, which may be difficult.
Chargebacks can be trouble because credit card companies keep track of which merchants they come from, and if your company gets too many, they’ll cancel the account. Plus they can be costly. Since you can’t take your service back like you could a product, you’ll likely end up eating the cost of a chargeback.
GETTING STARTED
If you decide to accept credit cards, you’ll have to decide which ones you want to accept: Visa, MasterCard, Discover, American Express or all four.
To get a merchant account, you need to go to a bank or other lending institution. If you have a well-established company or a long-term relationship with a bank, opening an account should not be difficult, but you will be asked to supply financial information about yourself and your business.
Shop around for the best rates. Banks and credit card companies will charge between 2.5 and 5.5 percent of your credit sales, depending upon your overall sales volume and the average size of individual sales. The higher your sales volume and the larger the average size of your sales, the lower the percentage you’ll have to pay.
GETTING PAID
If you establish a credit card account, you’ll send credit card sales receipts to the bank at the end of the day so you can get paid. If you use the older technology, you’ll have to take the receipts to your bank. If you use the newer technology, you can send the receipts electronically. This process is called “settling” your accounts.
When the bank authorizes the charge, they notify the credit card company. The credit card company then collects the money from the bank that issued the card, sends it to your bank, and bills your customer. Once your bank has the money, it will put it in your account, minus a processing fee, called the discount rate, which is split between your bank and your credit card company.
If you don’t want to be responsible for keeping all of that straight, you can do what Marine Waste Management does: use a PayPal online account to handle all transactions. While more expensive than conventional credit card processing, Fulton says PayPal automatically performs recordkeeping and is more reliable.
However you decide to handle the recordkeeping, read the credit card company’s policies carefully before you get started and follow them to the letter to avoid doing anything that would cause you to lose your account.
