Credit Cards, Profit, and Sales

Here's a spirited and detailed discussion about whether a cabinet shop should accept credit cards as payment. May 15, 2011

I seem to receive more requests from clients if I accept payment with a credit card. Most of these seem to be for smaller purchases (a vanity, etc.). I would like to hear from other small shops that accept credit cards as to the pros and cons of it. Are some credit card companies better to work with then others?

Forum Responses
(Business and Management Forum)
From contributor G:
There is a cost, to you, to use the credit card system. This cost must be passed onto the customer. Typically, the cost is greater than the benefits a customer gets in mileage. So, it's a loss for them.

However, if the ease of making a purchase is improved, the use of credit cards could lead to an increase in sales. If you can project your anticipated gain in sales, you may be able to justify the cost of using credit cards. Credit cards are great for generating impulse sales. These are generally lower priced sales that have not been predetermined by the purchaser.

Most of my work is custom and by its very nature requires a customer to carefully consider options and usually bids by other cabinet makers. The impulse factor does not really come into play. Many times, a deposit check comes in the mail, after the customer has done their due diligence and research. The credit card fee can add up to a significant amount on a 20-40k project. Also, I prefer to work for my customers, not the credit industry. Now, if I could just get the merchant service people to stop cold calling me.

From contributor J:
I've been using PayPal. It just doesn't make sense to pay monthly for a service I only use a few times a year. I just looked up my last transaction. It was $580 and after fees I had $564 in my account. That's 2.8% in fees. Not bad considering I probably won't use the service for another four months. Also, if you're web savvy you can put a button on your web site.

From contributor U:

I turned down a credit card request recently on a $2000.00 order. The customer emailed me this morning and they will be sending a check. We only get three or four request each year, not worth the hassle or fees. Also with all the debit and credit card fraud going on, I would rather not be handling the customers card information and possibly get associated with any of this mess.

From contributor S:
All of our business is done with credit cards (about 500K per year). Recently, changes in the law allow you to offer a discount for payment in cash. Merchant fees vary both in form and amount (for example, some people pay a monthly fee; some do not but pay a higher percentage). Your bank is the best place to get a merchant account and they will negotiate rates with you if you are a good customer.

What it all boils down to is whether you are willing to fork over (typically) 2.5-3.0% for the added business. In return, your customers get an "easy payment plan," that can stimulate sales (and almost always does). When I look at my own purchasing behavior, I realize that I am using a credit card for almost everything - certainly simplifies record keeping. I am guessing this is true of many of your potential customers and avoiding accepting credit cards is probably a mistake. One commenter suggested using PayPal; this is also a very good middle-of-the-road solution. One thing you can avoid is monthly charges for a terminal.

From contributor W:
Not accepting credit cards is definitely costing you business. You can build the costs (which run about the same as the PayPal transaction described above) into your quotes. If they use the CC, you are covered. If they don't, bonus for you. Rich people who can afford to hire you like to use credit cards. Poor people who can't afford to hire you might be able to finance the job using credit cards. Plus, once you get the card number you have a convenient way to collect balances due (with their permission, of course.) Well over half of my payments come by card.

From contributor U:
We don't take credit cards here. It has nothing to do with not wanting to conform to 21st century business practices. Our big issue is our margins are already thin - we can't afford to lose the 2%-3% in fees, and the market here is competitive enough that raising our prices that much could cost us a lot of work. To date we haven't lost any work because we don't accept credit cards that I know of.

From contributor F:
Regardless of your position on credit cards, most customers that choose not to purchase won't go out of their way to tell you why they chose not make a purchase from you, it could have started with a yellow page ad or a flyer and they decided to never contact you as they knew they needed to use credit at that time. It is hard to measure the group of potential customers that were lost. That is the reason most business consultants recommend taking many forms of payment to not impede the sales process.

From contributor W:
Thinking about the sales process, you can consider your needs first, clients' desires second, and rationalize your procedures all day. Or you can pay careful attention to what your clients are asking you to do, and then design your sales process to efficiently execute in a way that pleases them. Your ability to do that is worth far more than the 2-3% it might cost you to, in this case, accept credit cards. I would guess that every one of the commenterís pays careful attention to the quality of their work. Try paying attention to the quality of your business communications and procedures - there's a much greater return on investment to be had, and a much better way to distinguish yourself from your competitors.

I sell a premium product to strangers who never heard of me before they found my website, and probably won't be re-ordering when they are done. I'm not the local guy, I'm not the cheap guy, and I'm not the recognized brand name. I stay in business by providing an excellent experience from the first phone call to installation. Taking credit cards is part of that. People wouldn't be asking if they didn't want to use them. Why put up barriers to a sale at the exact moment when someone is trying to hand you money? You are seriously going to make this person call a leasing company and start that whole song and dance when you could be banking a deposit and cutting wood? I started accepting cards in the mid 90ís, sick of having clients who assured me that a check was in the mail disappear forever. If you can take the card, you can nail down that job over the phone. I do this every day. Go ahead and refuse to take them, but I assure you it is definitely costing you sales.

From contributor A:
The bigger concern should be lack of funds. If a potential customer does the CC request, I immediately raise my hairy eyebrow and start to wonder if this guy has any money. I never consider that I will lose the sale. I would hate to get in the middle of a billing dispute involving a credit card company.

From contributor G:
If internet sales become part of my future course I would set up a PayPal or CC account. But what I do is a different animal. I work on an intimate level with my customers. I visit their homes, pet their dog, talk about their children and mine. To me the goal of being in business is not to make money, but to serve my community.

From contributor W:
When I started accepting cards (before the internet), my business was 100% residential furniture - all of those transactions took place face to face, and I spent significant time in the client's home, and got plenty of thank you notes (and still get them, for that matter.) Nothing about credit cards prevents you from being as friendly with your clients as you wish. Also, you are going to have to trust your clients' ability to manage their own finances, so their choice of whether to use a credit card or not should be up to them. I don't see any reason you can't offer better pricing for cash or check if you wish. And you are welcome to be the change you want to see, if that is what makes running a business worth the hassle for you. All of the anti card reasons that have been presented have nothing to do with what the client wants, only with what the cabinetmaker wants. And my point has been all along: run your business that way if you wish. It is costing you sales.

From contributor S:
I think many, many people suppose that the profit earned by Credit Card companies has to do with the interest charges. In general, it doesn't. It has to do with the 2 - 3% they charge the merchant and it's certainly true that most people don't realize this. But things like Frequent Flier Miles and the like make consumers think they are getting even more for "free," and if they pay off their cards at the end of the month - it all looks like a really good deal - a no interest loan and some freebies. But I can assure you that what credit card companies say is true: if you accept them, you will close more sales.

Worrying about payment hassles with credit card companies is (for us) a non-issue. In the past ten years (and about 10,000 CC transactions) we have had three disputes and all of them were resolved by the credit card company in our favor.

From contributor K:
I offered credit cards for about 18 months on a suggestion from a close family member that it would increase sales. Out of that 18 months only one customer asked to pay with a card, and it was for a $2,500 down payment. Nobody else even mentioned it. I simply decided to quit the service, since at that point I'd paid out about $350 in transaction fees, monthly fees, etc., for one $2,500 payment, which would have been paid via check had I asked. I calculate that to be about 14%, unnecessarily.

If someone asked today, I would still offer it, but not for the same price, and they would need to pay via PayPal (I've had an account there for years). If they are willing to pay the 2-3% extra in fees, I have no problem with it. When I shop around for vendors, I'm primarily interested in who can give me the best value, not who accepts credit cards. If anyone has real data, or something besides assumption, that proves that customers actually choose based on credit card acceptance for custom cabinetry purchases, I'm interested in seeing it.

From contributor F:
You can offer a discount for cash payments so the credit card user sees the cost. I have a corporate customer that has used a credit card for over 100k purchases because they can't get budget approval in time to complete the job so they put it on the corporate credit card.

We did a kitchen for our former accountant a few years ago he wanted to use a credit card and we charged him the difference as our sister company that takes credit cards is not the one that made the sale so we ran the charge through so we had to do a transfer of the net amount. The key issue that is very hard to measure is the sale not made or the deal not closed. A credit card also makes it simpler for the customer to add on something at the end and pay for it when they want.

I purchased a new car in December 2007 and when I went in to pay for it (I was putting 35-40% cash not trade in down) I asked if I could use a credit card for part of the deposit. The sales manager said sure so I had him run 10k on the credit card which was a new card and was offering 5% back on the first purchase. He went to run the card and the bank doing the loan wouldn't let him take more than 5k. Nonetheless I saved an additional $250 and paid the credit card with no interest. I paid below dealer invoice on the car and he got me financing below the best rate from GM at the time. Not everyone that uses credit cards uses them because they can't afford to pay or don't understand the fees involved. I just think if you have a showroom and are making store front sales you need to consider offering credit card and in house financing as mentioned earlier.

From contributor M:
I enjoyed reading this, I am a small shop, most of our purchasing is done using credit cards and I realize a few thousand dollars every year in rewards from them and never pay any interest, if it hurts my score so be it, it's good enough for whatever I want and not using credit cards is a pain with no rewards. I regularly avoid suppliers and other businesses I know do not take credit cards or charge extra fees when they do. I hate writing checks, I hate credit card companies for the way the trap the ignorant and undisciplined and milk them for everything they have, I hate a lot of things but I am still open minded enough to see what they're good for and use them to my advantage - which would also be accepting one if I need to do so in my business (never happened yet).

I agree it doesn't necessarily cost everyone sales if they don't accept them - but if you can't understand it would cost him in his business and others in theirs you're probably never going to get it. Good points are made but some seem to be too hardheaded and blinded by hardcore anti-credit card stances to see the benefits, only the negatives.