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Accepting Credit Cards Speeds Payment
by Barbara Lewis MBA and Dan Otto MBA

With the recessive economy, obtaining payments from your clients can be difficult. Implementing financially sound techniques can assist in accelerating payments preventing bad debt. The average law firm spends nearly 120 days to collect monies due. However, taking four months for collection is like giving your clients an interest-free loan.

Collection days should be as low as possible. Certain of our clients average 10 days or less for collection. To determine the average number of days it takes you to collect on your invoices, calculate your total outstanding accounts receivable (less current A/R) and divide by current month’s billings (or a 12-month average billings), and then multiply that amount by 30.

One of the ways to eliminate high collection days is to use a credit card in securing payment. An increasing number of firms are opening merchant accounts to assist clients with easy payments and to accelerate collection.

Most major banks provide merchant services for credit card usage. The rules vary from bank to bank, but generally are similar. Centurion Consulting Group recently established a merchant account with Wells Fargo Bank. The Bank’s fees, which may change, were segmented into the following:

Set up fee – a one time set up fee of $50 is required unless you have an account with the bank already.

Minimum fee – of $25 a month guarantees the Bank money even if you don’t have any credit card activity.

Variable fee – is a complicated calculation based on the average amount of purchases and the total purchases for the month; the way in which the purchases are made: telephone and PC without the credit card, or imprinter with the card; and the type of credit card. We selected the telephone method with MasterCard and Visa. The sliding scale ranges from nearly seven percent if the average transaction is less than $20 and sales volume is less than $2,500 per month to slightly over three percent for an average transaction of over $200 and total monthly sales volume of over $25,000. Bank regulations forbid requiring a minimum amount of the client to use a credit card.

Annual fee – is $45.

Transaction fee – is ten cents per transaction.

Statement fee – of $5 a month is not charged if the minimum is met with the variable and transaction fees.

Equipment – the manual imprinter costs $35 to purchase. (Variable costs are less with the imprinter.) The equipment is unnecessary if you opt for PC or touch tone phone processing. The latter two options do not require the physical credit card for processing.

The three-year contract has cancellation fees of $300.

Most banks provide services with the four major credit card companies: Visa, MasterCard, American Express and Discover. A simple two-page application, which can be faxed or e-mailed, can be approved within four to five days. As soon as the agreement arrives with your merchant number and you are instructed in the easy telephone or PC method, you are ready to take your first credit card order

At the time of the transaction with the touch tone method, you take the credit card information and call the 800 number to report the amount and to ensure the credit card validity. After 24 hours the total credit card amount is deposited into an account, which you designate at the sponsoring bank. During the first week of the following month, you receive a statement of the bank’s fees, which are automatically debited, from your designated account.

Because fraud is a significant problem, obtaining required client information is imperative. Although credit card purchases were relegated to consumers at one time, today many large companies use credit cards for major purchases, sometimes to accumulate frequent flier miles for business trips or vacation time.

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