Reader Comment: Credit Cards Not Huge Expenditure for My Business

by Kevin on March 8, 2009

I just received a fantastic comment on a controversial article. I told you back in July that I Like Dave Ramsey, But He is Still Wrong. There has been a fantastic on-going discussion via comments on this post — I encourage everyone to read through and form their own opinion.

I have been willing to admit I was wrong on a few parts of his plan, but his anti-credit card stance is still foolish in my eyes. A few commentors had argued that credit cards cost businesses so much money due to the fee structure that if we didn’t have them, prices would be lower.

Then comes Ross, who owns a business, saying:

I have to say that I couldn’t agree with Kevin more on how to use credit cards. I have to respond to the merchant side of the discussion. I own a restaurant that takes credit cards debit cards whatever means that ends up in the bank.

First of all the cost of taking credit cards and debit cards is approx. 0.7% of my overhead. I can tell you that an increase in credit card fees is going to have my prices raised is a waste of my time. Prices, for me, are mainly affected by food and labor which add up together to be approx 60%. An increase in either of those two categories is what is going to cause a price increase.

Or to put it another way if it were absolutely free to take credit cards my prices would not be going down based on an elimination of such an insignificant expenditure.

Also taking checks which I am assuming is considered in this topic as cash is also not free. The bank charges processing of checks also the number of bad checks that are written any given week. Which approx 1/3 of that balance does not get collected. As a merchant at least when I swipe the card and it goes through I know that it is in the bank.

I know, I know. I am biased toward this comment because it agrees with my point. There have been other great comments. But this one addresses the business issue specifically, and that’s why I like it.

Ross owns a business. Specifically he owns a high transaction business like a restaurant. He’s not selling ten cars per month. He’s selling lots of meals every day. Transaction costs with credit cards must be eating him up, right? Apparently not.

What do you all think? Any other business owners out there that can comment?

{ 7 comments }

Mike S March 8, 2009 at 7:50 am

I too am a DR fan but, I’m w/ Kevin on this one.

I’ve always believed “cash only” would cost a business more than “credit.”

What would happen if Wal*Mart would only accept cash payment? Think about the huge expense of storing the cash securely? How much more would it cost to transport the cash safely and securely? Think about the additional labor, technology, etc. to protect the cash from internal/external theft.

Lynn March 8, 2009 at 12:54 pm

I work in my family’s small business and I totally agree with Ross. We look at credit cards as being “instant” money. We would much rather pay a % and have the money in 2 days than wait for 30-60 days for the payment (if we are lucky to have it that quick). Our bank actually charges 30 cents per $100 cash we deposit — they obviously don’t want us to deposit cash either. Crazy, right? (Happens to be one of the big banks that is being bailed out — as far as I am concerned all fees should be eliminated) My only complaint as far as credit cards in our business is that unlike a restaurant, all of our charges are over the phone and entered manually so we get an extra surcharge. Also, most people pay with rewards cards or commercial cards so that increases the credit card rate too. But all in all, we like to take credit cards. I think DR’s opinion of CC’s is OK if you really analyze his target audience. I am not his target audience so I disagree with him on it.

LAL March 9, 2009 at 9:13 pm

Would you really want to wait for your checks to clear as a business that works with only cash? I have to wonder how do you estimate the money lost for checks that bounce?

Ross March 12, 2009 at 12:15 am

I can only speak for my business, because frankly everyones is a little different. Cash for us would be the least expensive to take, since our bank is 10 blocks away in a relatively small town risk of external theft is relatively low. There has however been internal theft usually by employees that I have caught and some I have not. That is hard to calculate the cost of. The problem with checks even though the majority is collected at some point, it may take months to receive the income back on the bad checks, and as anyone knows in business time is money. Of course we try to negotiate the best possible rates for taking cards, but my main problem with credit cards is that their statements are very confusing on what exactly you are getting charged for. There is aprox. 20 lines of different charges from swipe charges for all of the major 4, plus debit, plus percentages for all 4, to statement fees etc. As a total percentage of sales very low, but hard to know what is going on. I generally don’t like how credit card companies work, but I will use them for my benefit, without paying interest, and as far as business it is a reality in todays economy that it is very hard to do business without taking credit cards. Why do you think Mcdonalds has started to take cards in the last few years even though there ticket average is extremely low. Because they have to to compete.

Kevin March 14, 2009 at 4:14 pm

@Mike: That’s a great point. Imagine the tons of cash WalMart brings in! Electronic payment makes sense there.

@Lynn: Thanks for the additional feedback from another business owner! That’s crazy about the bank charging you for cash — is that the best deal in town? No other place you can go to get a better deal? I guess if you didn’t take a lot of cash it wouldn’t be that bad.

@Ross: I have read complaints about that in Inc. Magazine as well — hard to read statements from the merchant account company. You’d think someone could come up with an easy to understand system that would either save businesses money… or they would pay a premium for?

And I bet McDonald’s has negotiated really low rates from their processing fees. But I could be wrong.

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