Page 488 - Business Principles and Management

Chapter 18 • Credit and Insurance

Once the application has been approved and a
relationship established with one or more credit card
companies, the business must then obtain credit
card–processing equipment. Most businesses use elec-
tronic processing and approval systems that are built
into point-of-sale terminals or cash registers. A few
businesses, especially those that are part-time or
mobile, still use a small nonelectronic device. The
salesperson places the customer’s credit card in the
device and mechanically imprints the card informa-
tion on a paper credit sales slip. The customer signs
the sales slip and keeps a copy. The business deliv-
ers a copy of every sales slip to the business that
handles its credit sales, usually its bank. The bank
then forwards the slips to the credit card company.
This process may take a week or more to complete,
even if the business processes its credit sales every PHOTO: © DIGITAL VISION.
day. Upon receipt of the sales slips and approval of
the credit sales, the credit card company informs
the bank, and the bank credits the business’s account.
Often the business is required to call the credit card
company to verify the acceptability of a customer’s
payment before completing the sale. Why might a consumer prefer
to pay with a credit card rather
Computerized credit card systems are now the accepted way to process credit
transactions and are much more efficient and accurate. The customer’s credit card is than with cash?
swiped through an electronic device that records the sale and prints a sales slip for
the customer’s signature. Some signatures are recorded on an electronic pad at the
sales terminal. The bank and credit card company receive the credit sales informa-
tion electronically at the same time. The electronic system also checks to make cer-
tain the customer’s card was not stolen and the sale is within the customer’s credit
limit. A quick authorization decision is received on the computer terminal. For secu-
rity purposes, many businesses require their salespeople to compare the signature on
the credit card with the signature written by the customer on the credit receipt.
Credit card sales can also be made over the telephone and via the Internet.
Procedures for those sales are developed by each credit card company and must
be followed carefully to make sure the information is correct and the purchase is
authorized. Internet credit card sales are made on secure Web sites (https://) to
keep the customer’s personal information, including the credit card account
number, secure.
Once a business makes a credit sale, the credit card company electronically noti-
fies the bank, which credits the payment to the business’s account. The credit card
company collects the payment from the customer through monthly billing. If the
customer returns the merchandise, a similar process occurs, and the bank deducts
the amount from the business account and returns it to the credit card company.

DEALING WITH THE BANK AND CREDIT CARD COMPANY When considering a credit card
operation for a business, it pays to shop around. Credit card company and bank
agreements are not all the same. Business owners should compare the requirements
established by the company to make certain they are acceptable and establish pro-
cedures for employees to follow that will ensure those requirements are met.
Equally important is the fee business owners must pay for credit sales. The
bank and the credit card company both provide a service for which they receive
a fee, generally between 2.5 and 5.5 percent of credit sales. The rate usually
depends on the total monthly credit sales and the average size of each sale.
The greater your sales volume, the lower the rate will be.

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