Lowering merchant fees on large sales

Your Business Credit columnist Elaine Pofeldt
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.

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Question Dear Your Business Credit,
Can I put a maximum allowed to charge on credit charge purchases? I would like to take credit cards on purchases -- say under $10,000. We sell machinery that costs thousands of dollars. I don't want to pay high fees to the credit card company for, say, a $35,000 purchase. Thank you.-- Pam

Answer Dear Pam,
Swipe fees can really eat into your profits, so it's not surprising you want to avoid them on the big-ticket items. The short answer to your question is yes, it does appear that you can set a limit on credit card purchases.

In my previous column, Can I impose a max on credit card customers?, I interviewed J. Craig Shearman, vice president of government affairs and public relations for the National Retail Federation in Washington, D.C. He said he was not aware of any federal law that prevents merchants from imposing a maximum size on credit card purchases. He recommended that merchants check with their state attorney general's office to see if there are any other laws that apply to their locale.

Before you impose a maximum, though, I'd take a look at your sales records and do a cost-benefit analysis.

Figure out how many of your customers who make purchases above $10,000 are paying by credit card -- and what percentage of your annual revenue they contribute. If you can recall who made the purchases, consider why they are using credit cards. Are they financing the equipment because they don't have the cash on hand to buy it outright and want to spread out the payments over time -- or are they trying to rack up credit card rewards? Do they want to know that if the machinery doesn't work, they can turn to the credit card company for help with their complaint?

Then ask yourself an important question: If you told them you no longer take credit cards, would they say "Thank you very much" and go to a competitor who does take credit cards? My guess is they would, unless you are the only provider of the machinery you offer. Determine how much revenue your company would lose if they left.

If it is a substantial amount -- and you still don't want to accept credit cards -- you will need to figure out how to keep them from walking out the door. Say the main reason they're financing is they can't afford to buy the equipment outright. Maybe you could partner with a company that will issue leases to your customers for the equipment. If so, look at how any costs for your participation will compare to what you would have paid in swipe fees.

Since customers are unlikely to feel comfortable walking into your business with $10,000 or more in cash, you might also consider encouraging them to use checks more. You might want to look into companies that offer echeck processing at the point of sale. Zipmark, for instance, enables merchants to accept electronic checks from customers' bank accounts and offers verification service to determine the likelihood they will clear. Fees start at 50 cents per transaction.

Another player, forte, enables merchants to transfer paper checks to echecks at the point of sale. To use the starter package, it will run you 2.9 percent plus 25 cents per transaction, but check-processing fees are 25 cents per transaction if you pick the $24.95-a-month merchant plan.

If your customers are turning to credit cards for consumer protection, consider strengthening your warrantee. That might give them the confidence to skip using their credit card.

Practices like these may help you stem the possible loss of customers if you cap credit card transactions at $10,000. Then again, you might find that giving customers a discount if they pay cash is a more powerful incentive for them to avoid credit cards, especially rewards cards. You can read more about how that works in a previous column, Can my business add a surcharge for card-paying customers?.

Regardless, in your shoes, I'd give serious thought to whether it is in the best interests of your business to do anything that might discourage big purchases. Few business owners can afford to give customers a reason to say no to buying from them.

See related: Merchants can usually add credit card fees, Can my business require a minimum purchase for credit cards?

*Correction: As originally published, the fees for Zipmark services were misstated in this story. See CreditCards.com's correction policy

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Updated: 03-24-2019