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A Love/Hate Relationship with Credit Cards

(April 2011) posted on Thu Mar 24, 2011

The cost and benefits of using credit cards for your business.


By Criag Miller

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Finally, I hate credit-card companies because if you accept credit cards for payment, the bank may make almost as much money on a narrow-margin job as you do. One credit-card company had traditionally been the biggest offender in this area and so, eventually, we threatened to quit accepting its card. After some negotiation, the bank reduced our rate by almost a point and also removed the one-point additional charge when we can’t physically swipe the card. Given we sometimes get charges in the tens of thousands of dollars, this negotiated reduction represented huge savings. But I was dismayed that we had to threaten the bank in order to make this happen.
There, that feels better.

Now for the love part
Credit-card companies were our salvation when credit lines dried up, and they’ve become our line of credit for the past three years. If you don’t accrue late payments or carry large balances for long periods of time, it’s not a bad way to go. Plus, you can keep your interest rates reasonably low through various tactics like balance transfer and threatening to close your account. We will probably continue to heavily rely on credit cards as a line of credit even after the banks’ more-traditional credit departments welcome us back with open arms.

The only significant downside to this strategy is that credit agencies take a dim view of multiple credit cards with even occasionally large balances. But what’s the alternative? Factoring? Don’t get me started on factoring (selling my accounts receivable to a third party at a discount in exchange for immediate money) – that’s a road I won’t go down.

Cash flow can be a killer. About three years ago, we began requiring deposits on large orders to ease the cash-flow crunch. Our normal terms are 30 days. Labor makes up 20- to 30-percent of our cost and we have to make payroll every two weeks. For a customer to be paid in full within two to three days of a job completion is really nice, and credit cards can facilitate that.


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