Leading the Charge

Is Accepting Credit Cards a Good Move for Your Company?

For me, as a consumer, the benefits of credit cards are obvious. Frequent-flyer miles from "charging it" have gotten me free trips to Seattle, London, Montreal and even Africa. For others, a credit card affords them the chance to buy or do things when they don’t have the cash on hand.

For many media-production facilities, however, the benefits of accepting "plastic" payments from clients might not be clear. Yes, it can add a layer of complexity to your record keeping, and there are fees involved; however, it can also pay for itself and even increase your bottom line.

Small- to medium-sized production houses will know what I mean when I say that receivables are more valuable at net 30 than at net 60 or later—especially when there’s a big-ticket item like an editing system upgrade you know you’ll need shortly.

"I know audio studios that won’t release your masters until you pay for them," says Diane Cricchio, president of TimeLine Video, a production and post-production company in Irvington, New York. "A PC repair shop won’t release your PC without being paid. But, in the production world, a 30- to 60-day wait for payment is the status quo. I’d love for that to change. When you’re a small company and you have to float $30,000 for 60 days, that can hurt."

You may be surprised to hear that, once my company established a merchant account and began accepting credit payments, most of the folks who paid with plastic were not new clients—they were clients with long outstanding balances. Quick credit-card transactions brought their balances to zero, removed the awkwardness we all felt during meetings and made it possible for us to continue working harmoniously.

"Having all clients, if possible, have a credit card on file can allow for automatic billing when invoices go past 30 days," says Mary Kate Gobleck, president of Reliance Merchant Services, a credit-card processing company in Ridgefield, Connecticut. Cardholders’ information can be kept securely encrypted on a computer. "Make sure your clients know it’s not being kept in some Word document!" Gobleck urges.

Accepting credit cards also helps my company "seal the deal"—and seal it sooner. Because we usually require partial payment up front, we’ve had clients offer up a credit card at the end of our initial meeting. No waiting for a check. We could start shooting, editing and adding effects right away. Having money in hand makes it easier to hire freelancers, rent equipment or do anything else that requires some outlay.

Furthermore, an increasing number of corporations are joining the ranks of government agencies in requiring that purchases be made on credit cards. Not accepting credit could actually put you out of the running for a project. Just before we began accepting plastic, I conducted a presentation for the CIO of a prominent organization that needed some graphics work done. Afterward, the CIO asked, "Do you take credit cards?"

"No," I replied, "but we’re about to."

"Okay, tell me when you have that set up."

Fortunately, we had our system in place shortly after this conversation took place and could accommodate the client. We now stand to get a lot more work from him.

Getting Started

Say you want to start accepting credit cards. Well, you can’t go directly to Visa or MasterCard to become established as a merchant; you must work through a credit-card processing company (also referred to as a merchant services company) or a bank, says Gobleck. "You can get an American Express merchant number directly from AmEx, but that number has to be given to your merchant service provider," who would then download the information into your processing equipment or software. "There’s no fee for going through us [to establish an AmEx merchant number], so people use us for convenience," she says. "We do the paperwork and the follow-through. Then it’s downloaded all at once with MasterCard and Visa."

There are many merchant service companies out there. If you don’t already have such a company or bank in mind, get referrals from business owners whose opinions you trust. "Beware of door-to-door sales," says Gobleck. "There’s lots of fine print with some companies, and you don’t want any surprises. The right merchant services company will make you feel comfortable asking questions about their fees."

There are three primary fees that you can expect, she says:

1. A rate, sometimes referred to as a "discount rate." This fee
2. is a percentage taken from the total of each transaction, and that
3. percentage depends on how the card is presented. According to Gobleck,
4. rates are generally lowest for face-to-face transactions in which a
5. card is swiped (around 1.75 percent at press time), slightly higher for
6. phone or mail transactions (around 2.4 percent) and higher still for
7. corporate cards (around 3 percent). Phone and mail chargesare
8. considered higher-risk because generally there’s no signature captured,
9. and the card isn’t presented. Corporate card rates tend to be higher to
10. compensate for bonuses and incentives that the credit-card companies
11. offer corporations. In these cases, Gobleck says, "you have options,
12. depending on your relationship with your clients. Say you have a big
13. client with about $50,000 in receivables per month on a credit card.
14. You can include a surcharge. For a lot of companies, it’s worth it."
15. A transaction fee. Usually, this is a set fee per transaction, whether
16. it’s a purchase or a refund. Generally, this fee is around 25 cents.
17. A monthly fee. Sometimes called a statement fee or maintenance fee,
18. this is the fee charged by your merchant service provider.

Be sure to inquire about fees for chargebacks and for starting up your account, as well. While Gobleck estimates that 99 percent of companies don’t encounter chargebacks, it’s good to know what kind of fees, if any, you’ll face if a client decides, "I hate that video, and I’m not paying."

In addition to these fees, you will incur the cost of a phone line (or use of a Web-based system), a swiping machine, a receipt printer or dedicated software. Depending on what you choose, equipment could cost over $1,000. However, in our case, it cost just a few hundred dollars; we use PC Charge Pro (www.gosoftware.com), a stand-alone application that runs on a PC, sends data and receives authorization securely and prints receipts through our office printer.

Some companies may offer leasing agreements, but Cricchio found buying her own processing equipment more affordable. Better yet, she says, "Ask whether you can get your own equipment, then buy it used and save yourself a lot of money."

Saving money is one of the main reasons we continue to embrace our customers who present credit cards—especially a new client whose payment habits are unfamiliar to us. Our clients also appreciate having another payment option. While it may not be for everyone, being a credit-card merchant has definitely worked for us.

When Plastic Isn’t the Answer

Video production is not like selling hammers or envelopes—it’s creative work, so opinions on whether a project is good (or complete) are subjective. If you often find yourself doing projects over or having heated discussions with your clients over creative differences or fees, credit-card acceptance may not be for you.

Why? Because if a client decides he or she is unhappy with your work and you cannot come to a resolution, the client could dispute the charge and have the credit-card company issue a chargeback while it investigates the matter. "Performing services and accepting a credit card can lead to a merchant losing all of a fee, just because of a creative difference," says Matt Payne, president of the Seattle multimedia production company Payne Media. (However, he counters, he does find credit cards most beneficial in selling his DVD titles online.)

Also consider your average ticket and whether the average-ticket client is with a company that allows him or her to put that kind of amount on company plastic. TimeLine Video’s Diane Cricchio says she established a merchant account primarily because she began selling DVDs to consumers, and paying by credit never really caught on with her production clients. "A lot of the time, they don’t have authorization to put $30,000 and up on the card," she says. These days, she finds herself accepting more electronic funds transfers, or EFTs, which allow payments to be deposited directly into TimeLine’s bank account.