In Dee W. Hawk's book Birth of the Chaordic Age, Hawk describes the growth of Visa International from a simple credit card processing company to a global powerhouse. The title of the book is derived from two words, chaos and order. Today, builders and consumers have many choices in addition to Visa, among them American Express, Discover, Master Card, or in house charge cards.
After reading over the ProSales credit card survey from August of this year, I realize that Hawk's chaordic management style has created more than a credit card; How about a short-term currency?
Now builders can add 30 or more days to their in building supply account balances. Paying on a 30 day account with a credit card is now acceptable many places. The builder now has 60 days or more to pay an account balance. According to the survey results, 75.5% of dealers accept credit cards as payments on accounts. In some instances customers are telling building suppliers, if you want for me to pay my balance, you will have to accept my credit card.
Our industry already operates on a squeezed bottom line as we are still experiencing a deflation of lumber prices over the last two years, a decrease in housing starts, increased labor expenses, and increased insurance premiums. Now, we have to give anywhere from one to four percentage points for a customer to pay an account balance. Why?
If you had an opportunity to read the survey, you will find a common theme, "My competitor does it" or "My customer wants the miles for his family vacation" or "It helps cash flow." Most of the responses are customer driven.
I recommend some order to this chaos. Here are seven things you should consider in regard to credit cards:
- If you take credit cards on a 30 day account balance, verify that your credit card company will not charge the transaction back to you if your customer does not pay the credit card company. Read your contract.
- There is the fee difference between calling in the credit over the phone and swiping the card into a terminal. More efficient processing usually means lower fees. Make sure you a grasp on fees.
- If you compensate sales people and support staff based on margins, consider the payment of credit cards on account balances as a part of the costs.
- You may actually take business away from your competitors if you do accept credit cards on accounts. You may be able to sell your customer on services and not price.
- If you give a discount for early payments on account, consider not allowing the discount if the balance is paid with a credit card.
- If you are going to take credit cards as a form of payment on an account, post charges daily. Do not wait until the until the end of the month.
- Look around for the best rates. You should renegotiate your terms with your existing processor or shopped for lower rates on an annual basis. Do it now.
In order to better manage the chaos, some dealers are fighting back and tightening up with practices like, "We give a 2% discount if paid by the 10th of the month. If they use credit cards we will not allow them the 2% discount. "Or: "We charge a 2% transaction fee for payments on charge accounts." Or: "If a customer wants to pay with a credit card it has to be at time of purchase, not after 30 days."
Credit card companies are becoming marketing machines making it very easy for customers to obtain credit cards with highly desired perks, like free air travel, hotels, tools, and gifts. But, the independent building supply ends up footing part of the bill through transaction fees. The building supply margin has to be increase to compensate for this one to four percent cost. In addition to obtaining the survey click here and see "How to Add Two Points to the Bottom Line without Tipping off your Customers."
If you take part in an industry round table, I suggest you invite in an expert to lead the discussion. There has to be some order to this chaos.