By Michael Hanson | Posted: Wednesday, February 20, 2008 12:00 am
I started working as a bookkeeper for an independent business downtown a few months ago, and in dealing with this business' finances, I've begun to realize how much local businesses lose when customers pay for their purchases with credit cards.
I personally understand the desire to use credit cards instead of cash or checks. As I attempt to settle down and buy a house here, I am continually looking for ways to save a little extra money. Consequently, I used to pay for nearly everything with credit cards to earn cash back. But I never considered the fees my credit card transactions caused businesses.
Although merchant fees are just a small portion of a purchase - often between 1 and 2 percent - by the end of the month, a hefty fee has stacked up that cuts into a small business' ability to survive in an economy heavily tilted in favor of big businesses. I regularly see fees top $2,000 per month - even $3,000 during the holiday season. For our business, this approximates the cost of employing another two or three part-time employees.
I know that it's tempting to put everything on a credit card that accumulates some sort of reward, but these dividends and plane trips are not ultimately free. You may not directly pay for them, but the businesses where you shop at do.
These type of credit cards charge retailers an even higher merchant fee than do standard cards - as much as an additional 1 percent of the sale plus per-transaction fees of about 10 cents. A business could consequently pay as much as 3 to 4 percent of your purchase in fees when you use a credit card.
Of course, it is better to pay with a credit card than to avoid shopping at a local store because you're not carrying enough cash with you. But one could still support our community by using a credit card from a local financial institution such as OSU Federal Credit Union or Citizen's Bank. Even then, however, only a fraction of the merchant fees go to these local institutions while a large portion heads out of town to the national financial institutions that provide merchant services to the retailer.
I've also fallen into the habit of paying in cash for smaller purchases and charging larger purchases to credit card, but I've learned that it's even more important to pay for these large purchases in cash. Retailers pay a percentage of a credit card purchase in merchant fees, not a flat fee, so the larger a purchase, the larger the sum retailers pay. A $1,000 purchase put on credit card could cost the store between $20-$30 in merchant fees. Debit cards fare slightly better on large purchases because they do have a flat fee.
One of the things I appreciate about Corvallis is the strong support residents show their local businesses.
It has become clear to me that paying in cash or check is one more way in which residents can lend financial support to their local and independent businesses, with no extra cost and only a minor inconvenience.
So when you head out to go shopping. I suggest taking your checkbook along or making a quick stop at an ATM before stopping at your local business to show your support.
It's not just what you buy and where you buy it that matters, but how you buy it also has a large impact on your community.
Bookkeeper Michael Hanson is a Corvallis resident.