Credit Card Backup Guarantees

Last week we discussed why small businesses should simply process credit cards at the time service is rendered rather than invoicing a client and waiting for your payment at a time that is convenient to your client.  Sure, there is a fee to pay for processing a credit card but many businesses offer a 2% discount on an invoice paid before a certain date anyway.  While you might not offer a discount for early payments on invoices, you will end up spending more than the cost of processing a credit card in the long run if you choose to invoice.

Why Invoicing Costs More Than Credit Card Processing

If you are invoicing with anything involving paper, envelopes, stamps and USPS delivery, you are already starting the expense of invoicing.  To begin with, you will likely make a copy of the invoice and incur a charge of paper, ink, the envelope and the .49 cents it will cost you to mail it.  You will likely mail a statement at the end of the month.  The person who does all this is your biggest expense.  She will also have to monitor when and if the check arrives, post it to the account, prepare a deposit slip and drive to the bank to deposit it.  If the account goes delinquent, the amount spent on collection efforts can quadruple the expense of collecting your money.  It can be pushed upwards of 5%.  Processing credit cards at the time of the sale is just smart business and eliminates the hassle and expense of chasing your money.

If You Still Want to Invoice Clients

If you still feel that this is a good idea for you, you should make sure you have an ironclad document signed by your client that allows you to charge their credit card when the account delinquency reaches a certain point such as 90 days.  It is important that the document spells out that you are authorized to run the card for such situations and waive the right to initiate a chargeback for such charges.

Sample Wording for Your Account Guarantee

Terms and Conditions:

I verify that I am authorized to order and pay for any and all services ordered. I agree that as a condition of having an established charge account with (your company name) that the above referenced credit card shall be used to pay for any delinquent balance on my account.  The terms of my billing account are Net ____ days.  Should I fail to make payment past the terms of our agreement, the above credit card will be processed to pay the outstanding debt.  I further acknowledge there may be no phone calls, emails, regular mail or other form of communications as the terms of the agreement have already been established.  I waive my right to initiate a chargeback or dispute over any transaction on the above referenced card used to pay for a past due balance.  I authorize (your company name) to verify the above information and periodically review or update their files by running a pre-authorization amount to verify the card is still valid.  Pre-authorizations will not be processed and no amount will be charged to the card during the periodic review.

By signing below, I acknowledge that any past due amount on my account will be charged to this card and give full consent and authorization to do so.  I affirm my obligations under the Cardmember Agreement.

Other Considerations

Make sure your document contains the card number, the security code, the name of the cardholder and the billing address of the card.  Make sure you get a copy of the cardholder’s Driver’s License and compare the signature on their license to the signature on the guarantee form.  Have them sign and date your form.  Do NOT ask for a copy of the credit card.  While commonly done, this is a violation of your PCI requirements as you are not allowed to store or retain whole credit card numbers.