We all have our reasons, it seems; budgeting, financial reporting, reimbursements from our employer, fraud protection, miles, and points at REI are some of the many soundbites I hear from customers who are using their credit cards for what we refer to as “small ticket” transactions. Hey, I get it. Credit cards are easy to use! Corporate banks have made us feel that way, at least. But what the banks aren’t telling you is that businesses (small ones in particular, as they don’t have the negotiating power of the Costcos of this world,) pay for all of the above mentioned “benefits” of using a credit card in lieu of cash or a debit card. Here are a few fact that every consumer should know:
Mileage that you accrue using your Airline Rewards Card is paid for by the businesses in which you use them. These cards, along with Corporate Issued Cards (the ones you get from your employer) cost businesses owners the most.
If your card is stolen and you report it within a reasonable time period, by law you are not liable for charges made to the account. Know why? Businesses pay them. It’s called a “chargeback.” If a card is used fraudulently at my business, your credit card company takes their money back.
You know those lovely financial statements that American Express provides for you at the end of every year? Guess who pays for those? Yup, you guessed it! AMEX has one of the highest processing fees of any provider.
So where is this leading? Well, for me, it’s leading to a Debit Only policy beginning November 21st, 2011. Due to the recently passed Durbin Amendment, our processing fees have increased by 20% in the last month. That’s a big deal for small-margin businesses such as ours. And while the Durbin Amendment gives large ticket operations a lower cost per transaction, it penalizes small ticket businesses such as ours. This was a concession to the credit card companies in order to achieve a pass in Congress. Sorry politicians. If you thought small-ticket businesses would sit back and take it, think again.
I realize that in our busy lives we look to modern day conveniences such as credit cards to help us manage our lives. As a business owner, I’ve ditched each and every one of mine. Once I found out who really pays the price for these conveniences, the choice was easy. And you know what? Debit cards are every bit as convenient.
We use cash where ever we can, and debit for the rest. No credit cards — why pay a bank/credit card company to take your money? Seems to me that if they charge you for me to use a cc, and charge me for me to use it, the only one really making money is the bank. I’ve never been a fan.
i think your policy is totally fair and i will be more than happy to buy my treats with cash or debit card. thank you for explaining this as i will keep it in mind when purchasing from other small businesses!
Not sure I agree with your title about the Democrats not being on your side as the new laws were probably sorely needed to regulate that runaway industry. It’s just that the banks with their professionals are looking for loopholes in our law, and this is one they found.
If you have a smartphone or Tablet, have you checked out Square (http://www.squareup.com/)? It was started by the Twitter founder and I’ve seen more small businesses use them now including food carts. I’m not sure how the rates compare to what you currently pay, but I think it may be cheaper.
Hi Victor – OK, maybe not the best of titles, but Dick Durbin is a Dem after all, and in my opinion someone didn’t finish the math lesson. Or perhaps they didn’t care how it worked out? In any rate, I’ve researched The Square, which looks like a good deal for ultra small businesses that do less than $1K in processing per month, but for other businesses, the math doesn’t pencil out. You lose a lot of cash flow waiting for payments. Here’s a user review that made me dig deeper…
“Square deposits the first $1000 of your sales at the ned of the week, but then holds the rest of your money for 30 days and deposits it in some illogical increment. Let’s say you met your $1000 limit on the 20th; if you have a charge after that initial $1000 for example, on the 21st, you get some of it deposited 30 days later; if you had another charge on the 22nd, again, you get some of it 30 days later etc. You end up getting your money in small irregular increments which basically devalues your money. Think of having $100 but getting it in pocket change as $1 on one day, $7 a few days later; $4 a week later and so on and so forth.”
Interesting article about someone trying to find an affordable alternative to credit cards
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/11/10/businessinsiderthis-28-year-old-is-.DTL
i’d be more understanding about this policy if you required cash for a <$20 purchase, but allowed credit cards for larger purchases. i just don't carry around a lot of cash!
We’ve been doing just that, and most folks have been truly sympathetic. The cutoff for the increased fees is at the $15 level.