Payment Card Services Program

Manage the Costs Regularly and Carefully

Most businesses accept electronic forms of payment - debit cards, credit cards, check cards, PayPal, gift cards, etc. Why? Customers want to pay with them, so it's good business from a customer service standpoint. It's good business for several other reasons as well.

Purchase Power. Accepting alternate forms of payment expands the customer's ability to purchase. The result? Customers buy more. More frequently and higher amounts per purchase.

Collection Certainty. Electronic payment systems enable instant verification of customer credit, and once a transaction is approved by the merchant card service provider, collection risk switches from merchant to processor. In other words, the merchant is guaranteed payment minus a small fee. Compare this to trade credit (i.e. net terms), which leaves the merchant exposed to collection risk and (for many companies) higher costs.

It can be said with conviction that sales via trade credit "terms" is inferior to electronic forms of payment such as credit cards in the following ways:

a. Credit Check: Providers of merchant payment processing systems have mastered the point-of-sale credit check process. It's instantaneous and accurate. Other dominant credit check methods such as those provided by Dunn and Bradstreet remain slow, expensive and inexact relative to the process provided by merchant payment processing companies.

b. Collection Cost: Trade credit usually requires printing and mailing of an invoice, progress billing and then manual processing of the payment once it is received. The labor required is costly. In contrast, electronic payment methods such as credit cards require no post transaction labor except monthly statement reconciling.

c. Collection Risk: Trade credit "terms" leave the merchant exposed to the risk that the customer will not pay for what he or she purchased. Electronic payments such as credit and debit cards shift collection risk to the processor.

Cash Flow Acceleration. A substantial benefit of collecting payment via credit card, debit card, check card, etc., is that sales proceeds are rapidly received. Proceeds from sales via credit, debit and check card are automatically deposited into the merchant's checking account within 24 hours. Trade credit is collected in 45 days, on average. Accelerated collection can be nothing less than life giving for companies who are growing and suffering characteristic cash flow strain.

Of course, every payment method has its own set of costs and risks. Cash sales require costs of deposit processing and the risks of pilferage and theft. Trade credit was discussed above. Credit, debit and check cards require equipment and an agreement with a processor - both of which cost money.

No matter how you accept payment for your goods or services, costs will quickly get out of hand unless they are professionally and competently managed on a regular basis. After all, a fool and his money will soon part.

This issue of The Business Owner contains nine articles that will help you become more knowledgeable in the area of merchant payment processing services. Read, study and begin getting the most for your money. After all, the only way to make a profit today is to get tough with each expense component of your business. The good news is there are many providers of merchant services and they are willing to compete for your business.

The following merchant service professionals generously contributed their time and expertise to the electronic payment/merchant credit card articles in this issue:

Dave Miley, an independent merchant level salesperson (MLS) based in Tulsa, Oklahoma. He works with small and mid-size companies in establishing optimal merchant service arrangements.  He can be reached at dmiley2@cox.net.

Steve Norell, president of US Merchant Service, a merchant level sales organization (MLSO) that specializes in merchant card processing programs for multi-unit retail organizations, franchises and associations. Mr. Norell is also president of the National Association of Payment Professionals. He can be reached at steven@usmsllc.com.

Mark Dunn, general manager of sales for Optimal Payment Corp., an independent sales organization (ISO). Mr. Dunn is also president of the Midwest Acquirers Association. He can be reached at Mark.Dunn@OptimalPayments.com.