What Risks Can a Business Face When Making an Agreement for Customers to Use Credit Cards?
A business faces certain undeniable risks when it chooses to accept credit cards as a payment option. A business agreement that allows customers to use credit cards when purchasing services and tangible items may allow business owners to bring in more revenue by giving customers more payment options, but it also adds risk to the sales agreement.
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Illegitimate Credit Cards
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Stolen, forged, fake and overextended credit cards can cause financial problems for businesses accepting payments with them. Some credit card companies have insurance that covers illegitimate transactions, but many do not have coverage for stolen cards used to buy products. Once a transaction has been completed, it is difficult for a business owner to recoup losses from fake, stolen, forged and overextended lines of credit.
Unavailable Credit Balance
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Many credit cardholders do not have enough available credit on their credit cards to purchase an item. This is especially true with high-ticket items and costly purchases. If the transaction is made using a paper credit card slip rather than through an electronic system, the business will not know when a consumer has reached his credit limit until it's too late and the goods are out the door. Without using proper credit card equipment to verify credit availability, a business owner might never receive payment for the purchased items.
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Extra Fees
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Most major credit card companies charge businesses monthly, per-transaction and/or percent-of-sale fees for credit card purchases. In some cases fees are passed on to the consumer, but most of the time they are charged to the business. Using credit card equipment or online transactions can increase the amount of fees associated with accepting credit card as a form of payment.
Chargebacks
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Businesses must address the risk that credit card owners might issue a chargeback for the purchased item. A chargeback is a request for a refund for an item that was purchased with a credit card. If a customer wins the chargeback claim, the business is responsible for issuing a full refund for the purchase. Some dishonest customers claim that their credit card was falsely charged and request a refund. As a result, the customer keeps the purchased item and unjustly get a refund for the item or service.
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- Photo Credit credit card and hand image by Warren Millar from Fotolia.com
