When does it pay for consultants to accept credit cards?
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Dear Your Business Credit,
I run a one-person consulting firm. Some of my clients have asked if I accept credit cards. What do you think -- should I? -- Catherine
This is a great question. I'm coming across more consultants who are considering the same question these days, with the economy recovering and opportunities for winning new customers improving in some industries.
One good reason to accept credit cards is that it's a convenience for clients who prefer to pay this way, says Mark Faust, principal of Echelon Management, a growth consultancy in Cincinnati, Ohio. Faust, who wrote the book "Growth or Bust!," says some consulting clients will prefer to pay with plastic because it's easier to keep records or because they want to rack up rewards points. "If nothing else, it allows them to track and manage their expenses in a way that is passive compared to the active work of balancing a checkbook," he says. "They only have to write one check at the end of the month, when they pay their bill."
In fact, not accepting credit cards may prevent you from working with clients who might benefit from your services but can't afford to pay in full right now, he adds. Say you're a consultant who advises companies on overcoming cash flow problems or a career coach who teaches out-of-work job seekers how to market themselves to employers. These folks may need your services, but may not consider retaining you if they can't find a way to finance the work. You might say to them, "For your convenience, you can put this on a credit card and string out the payments as long as you need," Faust suggests.
Accepting credit cards can also help you avoid chasing down late payments. The economy is healing, but many businesses and individuals are still experiencing cash flow problems in the aftermath of the recession. It's no fun pursuing them if a check has bounced or they simply have not responded to your invoices on time.
Even if you have not had a collections problem yet, chances are that you will at some point. The Cortera Past Due Index, which tracks late payments in business-to-business transactions, found that in February 2013, 17.8 percent of payments by businesses to other businesses were past due. In service firms, 18.2 percent of these receivables were late.
Faust keeps a $15,000 check on his wall to remind him of a time when a startup company's check for that amount bounced. Although the company made good on that payment, it eventually stiffed his company for another $45,000 -- a problem that, he says in retrospect, could have been avoided if he had steered the client toward paying with a credit card. "They eventually went under because of mismanagement of their funds," he says.
If you have a client pay by credit card for a consulting engagement, he suggests asking for an initial deposit equal to 50 percent of the total cost. "If we have a $30,000 engagement and it's three-month deal, we'll get $15,000 upfront and $15,000 six weeks into it. That's quite typical," he says. "Sometimes we'll get full payment upfront. That's a great protector right there."
Bear in mind that the pay-by-credit-card approach won't fly in every industry or situation. In some industries, it's most common for consultants to get paid by checks or, perhaps, ACH payments, if the client is a big company. I do some editorial consulting, and that's the case in my industry. In those cases, even if you offer the option to pay by credit card, you may find yourself with few takers.
That's worth considering when you weigh getting set up to accept credit cards. It takes time to research merchant account providers, and your time as a consultant is worth money.
And, of course, accepting credit cards isn't free. There are costs involved in both opening and maintaining a merchant account. (You can get an idea of the costs for on Merchant Account Guide).
If there are only rare instances when you will need to accept credit cards, it's probably not worth the time and effort to get set up. However, if you find that a growing number of clients are asking if you take credit cards, now may be a good time rethink that approach and give them a try.
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