The True Cost of Accepting Credit Cards

April, 2005

I know you think I'm chasing this cat too much, but credit cards and parking is relatively new, and auditing the process is important. I just came from a garage where a considerable amount of the facility's income comes from credit card transactions.
The parkers pay their monthly fees by credit card, and by its nature, that amounts to a lot of kibble. There is a great need to properly audit these transactions. But first, you need to set some ground rules.
Let's assume that a parker pays their monthly fee by credit card and then two days later calls and cancels their parking. What do you do? Do they get a full refund, or a partial refund? What if your system has their credit card on file and simply charges their account automatically each month? They call and cancel, but you don't shut off their card, and it's charged the next month. Do they get a full refund? What is your liability?
Consider the problem:
In the case of monthly parking, the credit card charges can be substantial. At the garage in question, the charge for a credit card transaction is about $7 each (2.8% on a $250 charge). The credit card company also charges the operator a flat $5 to refund money to the account. So if you refund to a credit card account, you are out $12 to start. This doesn't count any costs for your staff to actually do the transaction.
So if a customer cancels after the credit card has been billed, what are your rules? If you prorate at so much per day, it's about $8.30 in my example. And if they cancel after one day, you have already paid out $12 to the credit card company, so you lose about $4, not counting your accounting and processing costs.
Take the cost of your accounting staff, divide it by the number of monthly parkers, and then see what it costs to do business per account. If you have two persons dealing with monthly parkers in your garage, and you have 1,000 parkers -- let's see, at $20 an hour including benefits, that's $6,880 a month. That's an additional $7 or so per monthly permit in costs of doing business. So this refunded account has cost you almost $20 out of pocket. A full refund is certainly not good business.
Now what if you get their call and don't cancel the automatic credit card charge, and the next month it charges the person again. Do you charge them a fee when it's your fault? The cost out of pocket is the same, or maybe even more, since more time and energy are involved when there is error correction going on.
What I'm getting at is that you need to set a policy before you begin wholesale acceptance of credit cards. My suggestion is that if a person cancels their parking permit in the first half of the month, you charge them for the first half, plus a $25 cancellation fee. If they cancel after the first half, no refund.
Sound harsh? Well, maybe not. If you have a waiting list and this person cancels after the middle of the month, the chances are you won't be able to get another person in the empty space until the beginning of the next month. You have lost that revenue, forever.
Remember, if you set the rules upfront and ensure that customers are notified, there will be no surprises after the fact. And no surprises mean happy parkers.
What about the "after cancellation" charges? Reduce them to zero by setting up a written check list for canceling an account. Just like a pilot starting an airplane, each item must be checked off and initialed. Include all the steps required to ensure that the account is properly canceled. (You know, turn off their access card, refund if appropriate, cancel the automatic credit card charge, pick up the access card or charge them for the lost card, etc.) Make sure that a responsible employee and the manager sign off on the check list.
You might also require that the manager contact each leaving customer and speak to them about their parking experience. I got one of those calls the other day when I canceled a membership. The person simply asked if there was anything they could do for me in the future and gave me their number so I could call if I had any problems or questions. Wow! What great customer service. And if you have a 10% turnover monthly in a 1,000-car lot, that means the manager would have to make about five phone calls a day. At three minutes per call - that's 15 minutes a day. Seems like great, very inexpensive PR.
Security of those credit card numbers.
Credit card security is becoming a big deal, and the Feds are involved. You must maintain proper security over the credit card numbers in your possession. Unlocked file drawers, computer passwords available to everyone, customer lists readily available to all your staff -- all put your customers and you at risk.
I will go into detail on security, after I find a place where the security is done properly, and when I find out what "properly" is. Suffice to say, use your common sense, limit access to credit card numbers to the barest minimum number of people, and ensure that your computer security is of the highest level.
Woof!