Over the years, accepting credit cards has been fraught with liabilities. With the Airlines Reporting Corporation, to be absolved of liability, you needed to have a manual imprint of the card—despite the fact that your client might be miles away and all transactions were processed electronically. This was more of a way for ARC to push liability away from themselves than anything else. Then came the PCI compliance issue where even if we were passing along credit card information to a supplier for processing, we were still liable. Today’s liability is the chip card compliance issue that requires merchants to have a special terminal to read the chips that will be standard by the end of 2015. If not, then the merchant is responsible for any fraudulent charges. This does not even begin to address the transactional costs of accepting a credit card. But on that front, there is some great news!
While many agencies pass the processing along to the suppliers, there are many that handle the processing in-house to maintain control and receive faster payment from the suppliers by offering a net remit for product sold. But, the cost doing that will range from about 2.5% to 5% or more. In a 10% commission based world—that can be a huge chunk of change. American Express has always had higher processing fees than MasterCard, Visa, or Discover. Their merchant agreement also included a lot of other requirements—notably that a merchant could not dissuade a customer from using American Express in any way. Doing so would run the risk of losing your ability to accept the card, and potential monetary penalties if caught. Your only choice was to accept American Express and deal with it—or not.
Earlier this month, American Express was found guilty of violating federal law by requiring such behavior from their merchants. Now, you can tell a client that you prefer Visa. Now you are able to tell your customer how much American Express will cost you versus Visa or MasterCard. You can also offer discounts or incentives to use your preferred card. The only thing you can’t do is talk smack about American Express!
So what does this mean to you? Most clients are reasonable and most do not realize how expensive American Express can be. Let’s look at the bottom line of a $20,000 trip earning 12% commission:
- CASH or CHECK – $20,000 at 12% will yield a commission of $2,400.
- VISA, MASTERCARD, or DISCOVER – $20,000 at 12% will yield a commission of $2,400. But you need to deduct 2.5% of $20,000 to cover the processing fee or $500. So, now your net commission is $1,900.
- AMERICAN EXPRESS – $20,000 at 12% will yield a commission of $2,400. But average American Express rates are 3.5% so the fee is $700 resulting in a net commission of $1,700.
It does not take a CPA to see how to save a few dollars and in what has become a 10% industry, every dollar helps. The savings on $1 million of processed transactions can be significant—$10,000 annually just between American Express and the others. Can you think of any uses for a spare $10K to your bottom line?
Go forth now without fear of American Express!