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Can you update a client's credit card expiration date?

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Your Business Credit
Your
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

Ask Elaine a question or read her prior answers in the 'Your Business Credit' archive.

Question Dear Your Business Credit,
My husband has a small law firm. He keeps credit card information on file for clients, and he is allowed to charge the card if they don’t pay their bill. The problem is the credit card is expired and he is past due with payments. Can we put the new expiration date on? Thanks. – Amanda

Answer Dear Amanda,
Guessing at new expiration dates is a gray area in the contracts between merchants and card issuers. Rather than guessing, I would recommend that your husband try to contact the clients to find out the new expiration date.

Here is why: From a business perspective, it is much better to be direct than to surprise clients with a charge – even if they know they owe the money. Although it is not fair for them to keep your husband waiting for his payments, there could be a legitimate reason they cannot pay at the moment, such as a serious illness, and they may need to work out a payment plan. Running the card on file removes their ability to do that and could annoy them – potentially causing him to lose good clients.

Let’s say these are one-time clients he does not want to keep and simply wants to get paid and move on. Can he guess at their new expiration date and try to run the card?

When I contacted credit card companies to find out their policies for a previous column, “Merchant guesses card expiration date to renew subscription,” they tended to discourage merchants from guessing. One reason is because if the merchants guess wrong, the charge will not go through.

Updating consumers’ credit card information without telling them may also lead to chargebacks, depending on how your husband’s contract with them is drafted. The Fair Credit Billing Act offers consumers protection from unauthorized credit card charges.

But there is a way around this. Generally, credit card companies encourage merchants to use card updater services to update numbers the official way. All four of the major card payment processing networks – American Express, Discover, Visa and MasterCard – offer them.

These services come with a fee, however, so your husband would have to decide if it’s worthwhile to use them. If he has many clients who fail to pay, the services could be a useful tool in his business arsenal. If this is an occasional problem, maybe not.

So how can he prevent situations like this in the future? If he is not doing so already, I would strongly recommend he ask for deposits from clients when feasible and that he bill at regular intervals during an engagement, rather than waiting until the end. If he uses invoicing software, it may be possible to send automatic reminders by email to clients that a payment is coming due or is past due. That way he doesn’t have to be the one calling to collect the money.

Your husband could also assign a staff member to create a small database of clients’ credit card expiration dates and, in advance of their expiration, contact them to update the information you have in your files and sign new contracts with them if necessary.

It’s not easy to operate a business if clients are not sending their checks to you on time. By being proactive, your husband can minimize the risks of late payments and of not getting paid at all.

See related: Does a business have a right to charge a card on file?, Businesses must beware unauthorized card use

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Published: November 7, 2016


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Updated: 12-03-2016


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