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Making Sense of Company Policies

Written by: Andrew Levinson

Article Overview: Does your company have policies that are bad for you and for your customers? Here's one small example -- minimum size for credit card transactions -- that illustrates how certain ubiquitous, generally accepted policies can be counterproductive for everyone.

Making Sense of Company Policies

Do your company policies work for you or against you?

Are your employees burdened by "company policies" that undermine the best interests of your customers and your bottom line? As consumers, we've all been exposed to companies with policies that make little or no sense, but in the consumer-role, we're usually powerless to do anything about it. As a manager or business owner though, we must be on the lookout for these sorts of things. Usually well-intentioned, the application of certain policies can sometimes be dangerously counterproductive.

Yesterday I went into a corner coffee shop in New York. I knew I only had three dollars in my wallet, but the American Express, Visa, and MasterCard decals on the door assured me that my credit card would be accepted. I ordered my latte ($3.90), and offered my card as payment. The clerk told me that they had a five dollar minimum for credit cards; I could pay cash or I could order something else to meet the threshold. But I (1) didn't have sufficient cash on hand and (2) didn't want to buy something I didn't want. So I explained that if she couldn't accept my credit card, I would have to leave the store. That's precisely what happened: I left and she poured the drink down the sink-no transaction ensued. What did that mean? It meant that the store incurred the costs of preparing the cup of coffee while willingly abandoning the revenue it relied on in incurring those costs. This seems foolish to me in so many ways.

Put aside for a moment that there wasn't even a sign stating that such a policy existed. Had there been such a sign, I probably would have gone elsewhere; this would still cost the business the additional revenue of my sale, but they wouldn't have incurred the cost of the discarded coffee.

Also put aside for a moment that credit card minimums are generally not permitted. Visa and MasterCard expressly forbid participating merchants from imposing credit card minimums and Amex requires that its cards be treated the same as all other credit or charge cards accepted.

My real question is why not accept credit cards regardless of purchase price? The annual fee that the merchant pays to the credit card company is a predetermined amount. And the transaction fee that the merchant pays to the credit card company is a small percentage of the transaction, so the merchant can't get stuck paying more in fees than it would take in on the sale. Unless the profit margins on smaller items are incredibly small (and at $3.90 for coffee and steamed milk, that can't be the case), the merchant would have made money on my transaction, even after accounting for fees.

Perhaps it has something to do with efficiency at the cash register. But truth be told, I find that paying by plastic can often be faster than paying by cash. If the customer has exact change, it can take a few moments for him or her to collect it; this can be a complicated process involving separate change purses, careful inspection of coinage, and reading glasses. If the customer doesn't have exact change, they may first look for exact change, then realize they don't have it, pay with a large bill, at which point the clerk needs to make change. A credit card, on the other hand, is swiped (or increasingly, tapped); a few seconds later the transaction goes through. More and more, I find that merchants are able to process small transactions without a signature, speeding up the process even more.

I have yet to hear a convincing argument for instituting a policy of minimum prices for credit card transactions. If you have one, I'd love to hear it. But if a posted policy discourages customers from entering your store, and if an unstated policy torpedoes a transaction in which you've already incurred all the costs involved, perhaps the policy just isn't working for you.

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Article Tags: cash registers, company policies, credit card transactions, credit cards, merchant agreements, policy



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