At first glance, a credit card may seem like a product offered for cardholders' use and benefit, but it also provides significant benefits to merchants.
So what benefits do credit cards provide to merchants?
- For merchants, it reduces the burden and risk of keeping idle cash in the till.
- It increases merchants' customer base and expands transaction volume.
- Merchants receive cash in a very short time in exchange for the goods they sell or the services they provide.
- End-of-day (batch) processing shows the merchant's entire day's activity on a single receipt, making it easier to perform that day's income and expense accounting.
Installment option
Being able to make installment sales with a credit card allows the merchant to sell high-value products to a wider customer base. Since the installment risk lies with the card-issuing bank rather than the merchant, the merchant effectively makes a deferred sale without taking on collection risk.
Collection assurance
For sales made by card, the amount is transferred by the bank to the merchant's account at the end of the agreed term. Compared to sales made with checks or promissory notes, the merchant does not face the risk of failing to collect payment.
Campaigns and loyalty programs
Banks' card programs and points campaigns direct cardholders to shop at merchants participating in the program. By taking part in these campaigns, merchants can reach new customers.
The cost side
In return for these benefits, the merchant pays a commission to the bank for each transaction. Commission rates are generally higher for installment transactions and when early payment is requested. The merchant needs to weigh the benefits of card sales together with the commission cost.
Record-keeping and transparency
Since card sales are recorded electronically, it becomes easier for merchants to track their sales, record them in their accounting, and demonstrate their sales performance to financing institutions.
