Cash or Credit?

July 24, 2013

In the old days, if you didn’t have good credit or your new business didn’t have a credit history, you didn’t stand a prayer of a chance for being able to accept credit cards. If you were eventually able to show a high degree of creditworthiness, you were then allowed to set up a merchant account.

The merchant’s problems, far from being over now that he was given the green light for accepting credit cards, particularly for catalog orders where the customer was not there in person to swipe his card, were just beginning.

There was a huge security deposit that you had to give the company and they kept that deposit for a very long time. Then, there was the merchant terminal which, at that time, cost the earth. And then there was an extortionate setup fee with a limit on the amount of money you were allowed to earn each month. And they took a huge chunk of each transaction as their fee.

You would think that the company that was allowing you to accept cards would be delighted if you rang up a lot of sales because their merchant rate was exorbitant, but no, that wasn’t the case at all.

Every month you would have to call them and negotiate for a higher ceiling on how much business you expected to conduct for the coming month and how much money you were allowed to earn for that month. Fortunately, those days are past.

Studies show that merchants ring up more sales when the customer uses a credit card than when he pays with cash. If that weren’t so, there wouldn’t be point-of-purchase displays at checkout counters to trigger impulse buying.

So what is holding businesses up nowadays from accepting credit cards? As near as I can figure, there are a couple of possibilities. The merchant may not be aware that he doesn’t need to set up his own account to accept credit cards and he may not want to pay the extra fees of a third party credit card processor.

Some companies don’t charge setup fees but they all take a small percentage of your transaction fee. So, even though a merchant may increase his income by at least 20% by accepting credit cards, some merchants, who have been pocketing the full 100% of their transactions, still don’t want to pay those fees.

They might want to rethink their decision because I no longer hear clerks at checkout counters ask, “Will that be cash or credit?”

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