Cash vs. Credit? An Owner’s Tale.

When I opened my business about four years ago, I had to make a decision that every restaurant/wine bar faces.  Cash or Credit?  The advantages to cash are obvious, total control over the money, instant access, and sales reporting.  The downside is that the majority of customers use credit cards, especially corporate expense accounts.

An analysis of my business shows about ten percent of transactions to be in cash, the rest credit.

The problem lies with the credit card processing company, the middle man if you will, who runs the service of processing all the credit card transactions for the business.  They make money by charging a percentage off of every transaction, anywhere from 1.5% to 3% MC/Visa or more for the privilege of using AMEX.  On top of that there are numerous associated fees as you could imagine.  Just compare it to your cell phone bill with monthly charges, taxes and hidden fees driving the bill up.   The rates fluctuate and are difficult to understand. Every swipe takes revenue out of my pocket. It may not seem like much, but trust me it adds up.   That’s why certain cab drivers will pretend their machines are not working.

You could argue this is a necessary part of doing business, and I agree to a certain extent.  One of my favorite mantras when I pay bills or unexpected costs is, “That’s the cost of doing business.”

Until of course I try to shop around for better rates, or even a more reputable company. Then all of the sudden I am not playing their game.  And that is gonna cost me.

A year ago, I was approached by reps from Chase bank who offered to be my credit card processor.  They compared the rates I was receiving and offered to lower each rate, as well as a few other fee dismissals.  Since I banked at Chase, the funds would be available to my account more quickly as well.  The problem was that I was still under contract with my present processor, ABC Global, for three years.

Now I will admit that when a new business owner such as myself started out, there are many mistakes to be made in the whirlwind of getting open and ready for business.  Things are overlooked and contracts are not fully read down to every detail in fine print.

There is a $495.00 early termination fee in my contract.  So I waited until the contract lapsed and decided to go with Chase.  When I informed ABC Global that I was intending to cancel, I was prompted to the fine print of the contract which stated that unless I submit in writing that I do not wish to renew 90 days ahead of time, that contract would renew for one year automatically and continue until I follow proper termination procedure.

I spoke to an account manager named Nathan who explained to me that Chase is a good bank, however not a good credit card processing company.  Nathan stated he would match all of the lower rates to stay with ABC Global.  I stated my reasons for wanting to switch, i.e. next day funds availability, lower rates, a cash reward bonus for signing, and most importantly no termination fee, meaning no cancellation fees ever.

Nathan became irate and stated Chase was flat out lying.

To which I responded, “Don’t you think it a little surreptitious, even deceitful the way the contract is structured so that these automatic renewals make it difficult to get out of the contract?”  Nathan replied, “Everyone does it.”  So I stated, “You are contending that your company is just a little less deceitful than others.”  He responded yes, and then stated that there was no way Chase would have a contract without an exorbitant termination fee.  In fact he wanted to see it in writing and initialed by a manager.

I thanked him for warning me about reading my contract with Chase more carefully.  As it turns out, there are no cancellation fees associated with my contract with Chase.  Further explained to me by my Chase rep, “We are concerned with your banking at Chase, therefore we would not do anything to jeopardize your banking with us, which is much more important than the fees we would earn from early cancellation.”

I explained to Nathan that I have had a good business relationship with ABC Global over the past three to four years, and that I had even recommended the company to other chefs and business people who I know who asked me for a credit card processor reference.  I explained to him that there are only three months remaining on the contract, and asked if he could waive the cancellation fee in good faith.  I explained to him that given the relationship, I could continue to recommend and perhaps even return if Chase turned out to be a bad switch.  Nathan stated if Chase wanted me so much they could pay the termination fee.  I told him that it was unfortunate that ABC Global would take that position, but I appreciated his honesty.

I may in fact have to eat the $495.00, but it would be worth it to extricate myself from the equivalent of a used car dealership, with shady contract practices.  If the rates were correct, and the services good, I would have no hesitation to renew, thus canceling the need for such fine print traps.  Some lessons are expensive, such as the NYS real estate tax increase – that’s a whole other story, and I chalk them up to the cost of doing business.  But I am starting to really warm up to the cash only business model.  Maybe people will spend less, tip less, reduce corporate expense account business, etc., but at least I’ll have one less hand in my pocket at the end of the day and one less shady contract to abide by.