Category: Operations

Businesses want the different departments within their organization to cooperate, to compliment each other’s efforts. No business function is an island onto itself and when any business function’s purpose is misunderstood it adversely effects the entire operation. Cooperation creates synergy and improved profitability. Credit and past due A/R management is often a missing link in the profit chain.
Credit and Sales
The job of Sales is to turn prospects into profitable customers. Good Sales People ask questions to determine a prospective customer’s need or desire. They then make a presentation on how their product/service will meet or exceed the need. If a customer then wishes to buy the method of payment must be determined. Should the customer want to pay at some later date, i.e. via credit terms the profit chain starts to fray.
Sales people are trained and paid to sell, Credit people are not!
It’s not that Credit people fail to understand that without sales there is no business; but it’s how the Credit function’s performance is measured that creates conflict. Management can talk about the importance of credit approval to sales until they’re blue in the face; but if they then turn around and measure DSO (days sales outstanding) and % bad debt, the message sent is that the number one job of the credit area is “risk management.”

“Employees respect what management inspects and not what it expects” – Dr. Don Rice Texas A&M

If DSO and % bad debt are stressed, the results will be a harsher qualifying of prospects and a lower approval rate, and the placing of more past due customers on credit hold. A better and more profitable relationship between the Credit and Sales areas must be built on performance measurements that encourage finding ways to say yes to profitable sales, and that focus on keeping customers current and buying.
The Credit area can play a constructive role in supporting the Customer Service, Operations,
Accounting/Finance and Marketing functions, but its highest calling is to new and repeat sales.
Credit and Customer Service
Helping customers so as to retain their goodwill and continuing business is the job of every business function that has contact with customers.
In many companies the largest percentage of past due customers haven’t paid because of unidentified and unresolved problems. The problem may be with the customer, or with the vendor, or the result of the actions of a 3rd party. The early identification and resolution of systems problems by the credit area will raise both customer service and customer retention levels.

“Anything that can go wrong will go wrong” – Murphy’s Law
“Murphy was an optimist” – WalkingBear

Credit and Operations
Seamless and smooth running business processes is a worthy goal. In the course of fixing things that have gone wrong, so that past due customers pay, the Credit function will uncover “areas of opportunity for improvement” throughout the entire business chain.
The Credit area can and should play an important role in constantly improving on the quality of a company’s business processes. Quality is a must and constant improvement of a business’ processes is like earning compound interest.

“A business manager not focused on improvement becomes an administrator at best and a bureaucrat at worst.” – WalkingBear

Credit and Accounting/Finance
Safeguarding the assets of a company and ensuring sufficient liquidity are major roles of the accounting and finance area of business. In many companies the A/R is one of if not the largest assets and next to cash on hand A/R is the most liquid asset. The Credit area’s role in creating and managing the A/R places it in an ideal position to ensure positive cashflow, quality receivables and the early identification and control of bad debt losses.
A key player in a company’s financial well being, the credit area compliments the efforts of the accounting and finance area.
Credit and Marketing
Marketing is about more than getting prospects to call, it’s also about communicating with customers so as to influence them in a positive way. A credit function not attuned to a company’s marketing mix, the interrelated and interdependent activities in which the company engages in to meet is objectives, will cause the business to suffer.
Credit’s central role and its need and ability to interface with prospects, customers, sales, accounting and finance, vendors, operations etc. place it in a prime position to further and to monitor a company’s marketing efforts.
In Closing
I really enjoyed being a Corporate Credit Manager; it was like being a spider in the middle of a web. I had tentacles that reached everywhere. Once our CEO and the rest of the management team came to understand the true potential of the credit area; of its ability to increase sales (new and repeat), effect cashflow, identify areas of opportunity for improvement, and to support the marketing objectives…we changed the name of the department from credit and collections to the Customer/Sales Support Department. Along with the name change and new expectations came new performance measurements and a bonus based on improving profitability.
Abe WalkingBear Sanchez is an International Speaker / Trainer / Consultant on the subject of cash flow / sales enhancement and business knowledge organization and use. Founder and President of www.armg-usa.com, WalkingBear has authored hundreds of business articles, has worked with numerous companies in a wide range of industries since 1982 and has spoken at many venues including the Shakespeare Globe Theater in London.

If you’re new to the world of merchant accounts, then you probably have a lot of questions. Here are 18 common questions and their answers – enough to get your business well on its way to accepting credit cards online or offline.
Q. What is a merchant account?
A. A merchant account, sometimes referred to as credit card processing or payment processing, lets businesses accept payments through credit cards, debit cards, and gift cards. To begin accepting credit cards, a business must work with a merchant account provider aligned with an acquiring bank to apply for a merchant account. That merchant account belongs solely to your business and you are responsible for it in every way. Your merchant account is subject to all the rules established by Visa and MasterCard (and possibly with American Express and Discover).
Q. What is a third-party provider?
A. Third-party providers, also known as third-party payment processors, are similar to merchant accounts in that they allow your business to accept credit card payments. However, you do not need to apply to a bank. Instead, you apply to the third-party provider and the bank never sees your application. It is often easier to get a merchant account through a third-party provider, because some banks view ecommerce businesses as high-risk ventures. The merchant account that you use is operated by the third-party-provider and shared among multiple businesses. Unlike establishing merchant accounts, opening an account with a third-party provider requires no application process or underwriting evaluation.
Q. What are the fundamental differences between a merchant account and third party provider?
A. To obtain a merchant account, your business must apply directly to the bank. Applying through a third-party provider omits the need to work directly with the bank. As stated above, it may be easier to apply through the third-party provider because banks view many ecommerce businesses, especially new ones, as high-risk ventures. However, when you work with a third-party provider, your business must follow all of that provider’s rules and pay its fees. In contrast, if your business has its own merchant account, it is directly subject to the rules established by Visa and MasterCard (and possibly Amex and Discover, if you choose to accept those payments). Therefore, if your business is able to get its own merchant account directly from the bank, in most circumstances this is the preferred solution for accepting credit card payments.

For additional information, please click on: intel.web.cedant.com/cblog/index.php?/archives/2006/22.html

Q. What kind of costs do merchant accounts carry?
A. Costs associated with merchant accounts can be grouped into two categories: setup costs and ongoing costs. Setup fees include the fee for the initial application, the setup/installation fee, the costs of necessary hardware and software, and, on rare occasions, a security deposit or a minimum reserve amount that must be maintained in the account. Ongoing fees include the discount rate and per-transaction fee, daily batch fee, authorization/verification charges, voice/touch tone authorization fees, and chargeback fees. Additional ongoing costs may include annual renewal fees, fraud protection program fees, monthly gateway fees, monthly statement fees, and monthly minimum fees. The actual types and amounts of costs vary among merchant accounts, so be sure to request a complete list of all fees before signing up for any particular merchant account. Our free ebook defines all the relevant fees associated with a merchant account.

Download at http://www.intelli-collect.com/accept_creditcards.pdf

Q. Do American Express and Discover charge these same fees?
A. The fees described above are applicable only for Visa and MasterCard. For American Express and Discover, the merchant account provider controls only the transaction rates. All other rates are controlled by those companies themselves. Amex offers two different pricing plans, depending on your charge volume. Discover, on the other hand, has a percentage-processing fee that varies by organization, but is usually between 2.50% and 3.25%. Also, there is no sign-up fee for Discover.
Q. How can I process American Express and/or Discover credit cards?
A. If you wish to accept another type of credit card, simply notify your merchant account provider. In most cases, the provider can apply to Amex, Discover, and other companies on your behalf.
Q. What options do I have for accepting credit cards?
A. You can accept credit cards in many different ways. If you have a retail storefront, you can accept credit cards on site with a physical terminal, or you can use a virtual terminal to enter customers’ credit card information via the Web. A service known as Dial Pay allows you to call a number and enter customers’ credit card information through your telephone keypad. You can also accept credit card payments through mobile or wireless devices, or through your company’s website.
Q. What do I need in order to accept credit cards online?
A. You will need four things to accept credit cards online: an online shopping cart, a payment gateway service, a credit card processor and an authorized Internet merchant account. The online shopping cart allows customers to make their purchase selections and then check out, providing their credit card information for payment. The online shopping cart sends the information to a payment gateway service (a secure certificate must be employed), which acts as an intermediary mechanism between your website’s shopping cart and the banking networks. Once the customer’s card-issuing bank verifies adequate funds and reports this information to the merchant account provider’s acquiring bank, a notice of approval is sent back to the payment gateway system which, in turn, sends the notice to the shopping cart for display to the customer. The credit card processor then deposits the funds (minus any associated fees) into the merchant’s bank account. The final piece, the Internet merchant account, is available to the merchant when the credit card processing company approves his/her application and authorizes the merchant to accept credit cards.
Q. How can I reduce online credit card fraud?
A. The key to reducing online credit card fraud is to communicate with your customers and be sure to get their authorization for all transactions in writing, whether via mail or email. You should also always verify the 3- or 4-digit security code (also known as CVV2) on the back of the credit card. (On American Express cards, the code is located on the front.) Because it is not encoded in the card’s magnetic strip, it is a reliable way to verify that the purchaser has the credit card in his or her physical possession during an online or telephone transaction. An Address Verification System (AVS) check should also be employed, comparing the customer’s billing address with the address indicated on the magnetic strip of the credit card. If there is an AVS mismatch, the transaction may be interpreted as a higher risk.
Q. How can I accept credit cards if I don’t have a website?
A. If your business doesn’t have a website, you’ll need to use a physical or virtual terminal to process credit card payments. A physical terminal lets you swipe the customer’s credit card on site. A virtual terminal lets you enter credit card information via the Internet. If you need to process only intermittent charges, Dial Pay (using the phone to input your customers’ credit card information) is probably your best option because of its associated lower monthly fees.
Q. What tiered rates do credit card processors apply to merchant accounts?
A. Traditional credit card processors use a three-tiered pricing scheme for their retail merchant programs: (1) the qualified rate, which is the best rate available; (2) the mid-qualified rate, for transactions that are keyed in; and (3) the non-qualified rate, for all other transactions. Some merchant account providers also discount their fees for check cards, creating another tier. Internet-only merchant accounts are usually limited to only two tiers: (1) the qualified rate, which is equivalent to a retailer’s mid-qualified rate; and (2) the non-qualified rate. Hence, online-only businesses generally pay more for their credit card transactions than do their bricks-and-mortar counterparts.
Q. What is Interchange Cost Pricing?
A. Interchange Cost Pricing is a pricing scheme for credit card processing that, for most businesses, is significantly less expensive than traditional pricing schemes. With Interchange Cost Pricing, each charge is made of (1) a mark-up of a certain rate category and (2) a set fee per transaction. The end result is often significantly less expensive than the traditional three-tier (qualified rate, mid-qualified rate, and non-qualified rate) pricing scheme. Ask your credit card processor to use a representative sample of your transactions to demonstrate the associated costs incurred under each pricing scheme
Q. Is it better to lease or buy a credit card terminal?
A. If you have the cash to make a large up-front payment and buy the credit card terminal upfront, this often makes the most sense. Over the life of the terminal, monthly lease payments add up to far more than the up-front purchasing cost. However, there are many other factors to consider. Ask your accountant whether you’ll be able to deduct the interest paid on monthly payments from your taxable income. And consider the implications of having the outstanding balance of the lease shown as a liability on your company’s financial statements. If having title to the credit card terminal is important to you, then you should buy it outright. Finally, consider the warranty service (and provider) that comes with having a purchased or leased credit card terminal. In truth, almost all businesses are probably better off buying a credit card terminal than leasing, but the decision depends on your specific circumstances.
Q. How difficult is the underwriting process?
A. The underwriting process is pretty straightforward. The underwriter will review your completed application, analyzing the nature of your business, your credit rating, and your history in credit card processing, if applicable. These and other factors are considered in deciding whether to approve your application. The decision is usually made within one or two business days.
Q. How does my business actually get the money?
A. After the credit card transaction has been approved, the amount of the transaction (minus any associated fees) is deposited directly into your bank account, usually within one or two business days of the sale. Some merchant account providers mandate that you open a bank account with their acquiring bank.
Q. Can credit card payments “bounce” as checks do?
A. One advantage of accepting credit card payments is that they cannot “bounce” as checks do if there aren’t enough funds available. However, the customer does have the right to challenge any charges on his or her credit card statement. If one of your transactions is challenged, the credit card company will contact your business, asking for proof of the transaction. If you aren’t able to provide adequate proof (within a designated timeframe), you will lose the transaction amount. Likewise, if the transaction was paid with a stolen credit card, you may be responsible for the transaction amount. Hence, it pays to do your due diligence and make sure that the purchaser is the person to whom the credit card was issued.
Q. Why should I accept credit cards?
A. Customers appreciate the convenience of paying for their purchases with credit cards, but there are many benefits for the business as well. First and foremost, your sales increase, primarily because customers are more likely to make impulse purchases when paying with credit cards. Some studies have shown that accepting credit cards can increase your sales by 1,000%. Also, accepting credit cards can improve your business’s cash flow, because you can receive payment within a few days, which is a definite advantage over waiting up to one week for a check to clear. Accepting major credit cards also increases your credibility from the customers’ perceptive.
Q. How do I decide which merchant account provider to use?
A. Of course, cost considerations must be weighed. Compare all merchant account fees, doing your best to contrast apples to apples, so to speak. Beware of any company that does not disclose important rates, such as their non-qualified fee or if any termination or cancellation fee is imposed. The inability to disclose all rates is tantamount to lying by omission. Many people forget to also consider the criterion of customer service. Reliability and responsiveness become important if problems arise in the future. If you are not receiving exemplary service before you have signed on with a merchant account provider, do not expect such service to improve after you do. Indeed, reward ethical, honest and responsive companies with your patronage.
Andy Lax has worked in the credit card processing industry for over five years and is now an Account Manager at IntelliCollect, a merchant account provider that enables business owners to accept credit cards and electronic checks.

BusinessWeek: The most exciting business ideas fit on the back of an airplane napkin. I’ve mentioned Cranium co-founder Richard Tait in previous columns, but his story is worth repeating. He told me that the idea behind his popular board game hit him on a cross-country plane trip. He and his wife had spent the weekend with friends who “dusted them” at Scrabble. Yet Tait and his wife were unbeaten at Pictionary. What if a game existed, he thought, that would give everyone who played it the chance to excel in one category or another in front of family and friends. His vision was simple: to create a game where everyone shines. Tait’s enthusiasm was so contagious that he attracted partners, employees, and investors like Starbucks Chairman Howard Schultz. But the vision itself was strikingly simple. So simple, it could fit on the back of a napkin.
Consistently delivering a simple, memorable, and concise vision can make the difference between a successful business and a failing business. Not a mission statement, but a vision. I’m about to suggest an idea that might stir up heated debate in offices across America but will guarantee to free up thousands of hours that can be applied to improving the business. Lose the mission statement. That’s right. Throw it out and throw out all of the meetings and e-mails that go along with it.
The Napkin Test [BusinessWeek]

Entrepreneur: Cash flow problems can kill businesses that might otherwise survive. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management. To prevent this from happening to your business, here are my 10 cash flow rules to remember.
1) Profits aren’t cash; they’re accounting. And accounting is a lot more creative than you think. You can’t pay bills with profits. Actually profits can lull you to sleep. If you pay your bills and your customers don’t, it’s suddenly business hell. You can make profits without making any money.
2) Cash flow isn’t intuitive. Don’t try to do it in your head. Making the sales doesn’t necessarily mean you have the money. Incurring the expense doesn’t necessarily mean you paid for it already. Inventory is usually bought and paid for and then stored until it becomes cost of sales.
10 Critical Cash Flow Rules [Entrepreneur]

BusinessPundit: I think one of the most difficult challenges in a startup is resource allocation tradeoff between working on your product and working on your distribution channels. Regardless of what we like to believe, it’s rare for a product to be plucked from obscurity and amplified all over the blogosphere. Most “viral” success comes as a result of lots of hard PR work. If you are well funded, you can work on both. But if you are resource constrained like most startups, is it a better use of your time to build a better product or to focus on your distribution channels?
For most startups, you can use existing distribution channels once you have a good enough product. It takes some work to build those relationships depending on what kind of product you offer and what type of distribution you need, but in most cases, time is better spent on product development first and distribution second. But what if what you want to build is your own distribution channel?
Owning a distribution channel is a very powerful position. Particularly on the web, which is so search driven, it’s very powerful if you can become a destination. But how do you do that? I think you use a “trojan horse” business model. It works like this:
1) Start with a quality product.
2) Leverage your distribution relationships to serve others
3) Leverage your increasing role in the distribution process to gain a larger share of the profits.
Startup Tradeoffs – Building Product vs. Building Distribution [BusinessPundit]