Accepting Credit Cards Speeds Payment
by MBA and MBA
With the recessive economy, obtaining payments from your clients can
be difficult. Implementing financially sound techniques can assist in accelerating payments
preventing bad debt. The average law firm spends nearly 120 days to collect monies due.
However, taking four months for collection is like giving your clients an interest-free
loan.
Collection days should be as low as possible. Certain of our clients
average 10 days or less for collection. To determine the average number of days it takes
you to collect on your invoices, calculate your total outstanding accounts receivable
(less current A/R) and divide by current month’s billings (or a 12-month average
billings), and then multiply that amount by 30.
One of the ways to eliminate high collection days is to use a credit
card in securing payment. An increasing number of firms are opening merchant accounts to
assist clients with easy payments and to accelerate collection.
Most major banks provide merchant services for credit card usage. The
rules vary from bank to bank, but generally are similar. Centurion Consulting Group
recently established a merchant account with Wells Fargo Bank. The Bank’s fees, which
may change, were segmented into the following:
Set up fee – a one time set up fee of
$50 is required unless you have an account with the bank already.
Minimum fee – of $25 a month
guarantees the Bank money even if you don’t have any credit card activity.
Variable fee – is a complicated
calculation based on the average amount of purchases and the total purchases for the
month; the way in which the purchases are made: telephone and PC without the credit card,
or imprinter with the card; and the type of credit card. We selected the telephone method
with MasterCard and Visa. The sliding scale ranges from nearly seven percent if the
average transaction is less than $20 and sales volume is less than $2,500 per month to
slightly over three percent for an average transaction of over $200 and total monthly
sales volume of over $25,000. Bank regulations forbid requiring a minimum amount of the
client to use a credit card.
Annual fee – is $45.
Transaction fee – is ten cents per
transaction.
Statement fee – of $5 a month is not
charged if the minimum is met with the variable and transaction fees.
Equipment – the manual imprinter
costs $35 to purchase. (Variable costs are less with the imprinter.) The equipment is
unnecessary if you opt for PC or touch tone phone processing. The latter two options do
not require the physical credit card for processing.
The three-year contract has cancellation fees of $300.
Most banks provide services with the four major credit card
companies: Visa, MasterCard, American Express and Discover. A simple two-page application,
which can be faxed or e-mailed, can be approved within four to five days. As soon as the
agreement arrives with your merchant number and you are instructed in the easy telephone
or PC method, you are ready to take your first credit card order
At the time of the transaction with the touch tone method, you take
the credit card information and call the 800 number to report the amount and to ensure the
credit card validity. After 24 hours the total credit card amount is deposited into an
account, which you designate at the sponsoring bank. During the first week of the
following month, you receive a statement of the bank’s fees, which are automatically
debited, from your designated account.
Because fraud is a significant problem, obtaining required client
information is imperative. Although credit card purchases were relegated to consumers at
one time, today many large companies use credit cards for major purchases, sometimes to
accumulate frequent flier miles for business trips or vacation time. |