Off the Cuff: Credit Cards — Plastic Primes the Pump

Accepting credit cards improves cash flow and reduces headaches, giving you more time to focus on growing your business.
Nov 10, 2008

By Mark L. Venit, MBA, Contributing Writer

Most apparel graphics companies take credit cards, but it’s clear that very few make it a practice to encourage their customers to use them. Why? Conventional wisdom says that accepting credit cards consumes an unacceptable percentage of your profits. This logic measures costs against benefits — but without really weighing and understanding the benefits. 

Think about if someone made you this offer: “If you turn over all of your receivables to me, 1) I’ll guarantee to pay all of your invoices within a day or two; 2) you’ll have virtually immediate use of your receivables; 3) you’ll never have to send monthly statements again; and 4) you’ll never have to chase your money or make collection calls again.” The role of this “someone” essentially is what taking credit cards on all your orders would do for your business. Would you take this deal at about 2.5% per invoice to get all these benefits? In addition to better cash flow, you also get lots of peace of mind.    

The Mechanics and Costs
When you process a credit card electronically through a service provider, you pay a transaction fee of 15 to 25 cents and a percentage of the gross sale — roughly 1.3% for Discover, 1.7% to 2.1% or more for Visa and MasterCard, and about 3% for American Express. Affiliating with trade groups, your local chamber of commerce and local business organizations are fast routes for getting low rates (see sidebar at end of article).

The percentage you pay is determined by several variables: size and transaction frequency; whether you see the cardholder, handle the actual credit card, and/or get a live signature (versus taking card payments over the phone or online); projected annual volume; and whether you handle transactions
electronically or manually. 

The hardware for a manual card machine, or “imprinter,” costs less than $50 new — and even less on Ebay. Swipe systems run $750 to $1,000 or can be leased monthly.

Most companies in the decorated apparel industry conduct a high percentage of their business over the phone, especially with repeat customers. But even small orders for a few dozen decorated items can amount several hundred dollars. Since it costs a service provider just as much to process a $15 Denny’s guestcheck as it does a $600 embroidery sale, most any service provider would deem your company an attractive card-processing customer — one deserving lower rates.

Most of the companies I work with not only encourage their customers to pay with credit cards, but request — and usually get — or mandate full prepayment from customers who pay with credit cards. In most cases, the customer doesn’t receive his credit card bill for two weeks or longer and has two to three weeks to pay the bill, oftentimes gaining more time to settle up than the usual net-30 invoicing allows. For customers who accumulate airline points or other card dividends, they’re happy to pay with credit cards.  

One Less Worry
Several of my clients conduct all or most of their apparel and promotional products business via credit cards. Getting paid with plastic gives you peace of mind knowing the invoice has been paid and you don’t have to worry about when your receivable will arrive or whether a customer’s check is good. You also won’t have to compromise a C.O.D. policy with that customer who stops in to pick up his order but forgets to bring a check. While a dissatisfied credit card customer still has recourse to dispute a charge, it’s uncommon and not an issue for companies that deliver good work when promised. 

For the customer with not-so-hot credit, buying your products with a credit card lets him avoid the embarrassment of doing the “credit application thing” and precludes your risk of getting stiffed.  

Beyond all the aforementioned benefits, you’ll get a customer who’s likely to spend more and remain more loyal. As a consultant working with nearly 600 decorated apparel companies for 26 years, I also can state unequivocally: “Show me a company that proactively encourages its customers to pre-pay orders with credit cards, and I’ll show you can company that generates higher sales-per-transaction and higher annual sales volume.” 

Can you charge extra for credit card orders or, more precisely, get away with it? Except for government agencies, this is illegal in every state and province in North America. Moreover, this practice is contractually forbidden by every credit card company. (Note: you can give discounts to customers who pay with cash).
   
Imagine the cash flow joys you’d experience if all your customers paid — or prepaid — with credit cards. Your cash flow would improve dramatically, you could pay your vendors more promptly, and you’d spend less time chasing receivables and hassling slow-pay accounts. The ultimate benefit? Having more time to focus on managing and growing your business. 

Mark L. Venit, MBA, is president of Apparel Graphics Institute Ltd., Ocean Pines, Md., which provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. He also is the chairman of ShopWorks Software LLC, a provider of industry-specific business software. Venit teaches pricing, strategic marketing, salesmanship and other business management topics at the Imprinted Sportswear Shows. You can reach him at markvenit@cs.com.

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