Alright, so perhaps you have a business, or want to start one. There’s no question you will run into the topics of credit and debt. You’re bound to, at least, consider these general aspects of finance when owning a business. And that’s what we’re going to talk about here. But specifically, we’re going to delve into the world of accounts receivable, debt collections and payday loans.
First off — account receivables. This concept has a lot to do with credit. In a way, it’s kind of like when you go to the super market and buy your groceries with a credit card or a check. The super market lets their customers pay on credit this way because it’s more convenient for the consumers. And it’s simple; shoppers can get the food goods they need now, but don’t actually pay for them till later. In other words, the store is accepting an IOU.
That may be the gist of the idea, but accounts receivable can technically occur with any business that makes sales without collecting the money right away. The money the business is due is regarded as an asset on a balance sheet. And sometimes the transaction isn’t considered accounts receivable until the customer has an invoice for what they owe.
Moreover, allowing products or services to be bought with credit is usually done with returning and reliable customers whom the company trusts to pay their full invoice on time. The companies also have to decide on a collections policy, which states when payment is expected. Businesses themselves can also apply to finance their receivables for money from another company. Of course, this is basically like a loan.
But what happens when customers or businesses don’t pay back the money? Debt, of course. Businesses depend on the money the customers agree to pay. Buyers are obviously obliged to pay, but still, sometimes they simply don’t. That’s when debt collection comes into play using Payment Savvy’s collections credit card processing.
Often times companies hire collection agencies to handle the process of recovering money from the people who have yet to pay what they owe. Regularly, these collection agencies charge a fee for their services. Or they get paid a percentage of the total amount an individual they are contacting is supposed to pay back. As a result, collection agencies rely on businesses and individuals to pay off their debt in order to make money.
Last, we get to the payday loans. Also known as payday advances, these are relatively small, unsecure loans (not linked to a collateral in the case they can’t be paid off) that are easy to get because usually no credit checks are required. Primarily, how a payday loan works is that a lender gives out a chunk of cash that should be paid back plus fees on the borrower’s next payday. The lender collects post-dated checks for the amount borrowed. That way, even if the borrower doesn’t pay the loan back in person, the payday loan business can redeem the check, possibly overdrawing from the borrower’s account.
Not only are these kind of loans risky for the borrowers – with the failure to pay causing very high interest rates and fees – but the lenders face a great deal of risk as well. A large group of the borrowers end up not being able to pay back everything they owe. It is said that because of this, lender businesses lose around 25% of their earnings. That’s a pretty steep loss, isn’t it?
With this in mind, do you think it’s easy for these businesses to be accepted for merchant accounts? Is accepting credit cards for payday loans a non-issue? I hope it’s plain to see that, no; it’s not easy for payday loan businesses to get accounts. And it’s pretty much a given that accepting credit cards for these advance cash loans puts both the business’ and the merchant account provider’s revenue in jeopardy. In short, it’s difficult to find merchant account providers willing to work with payday loan businesses. After all it’s all about keeping good credit and avoiding debt.