Do small businesses generally prefer to be paid in cash or credit/debit?

[Musicat]

@Banquet_Bear

…because it doesn’t?

I’ve got $30.00 in my debit card at the moment. If I try and buy something worth $40.00 I’m going to get declined.

Perhaps we have different debit cards. It sounds like you are describing a prepaid debit card, quite a different animal. Mine is in the USA, linked to my bank account, and any “charges” I make on my debit card are immediately deducted from my personal bank checking account. So it is indeed backed by sufficient cash. That means I can pay with my debit card for anything that doesn’t cost more than my existing balance in my bank checking account. If I have overdraft protection, I can pay for anything that doesn’t exceed my existing balance in my bank checking account plus whatever credit amount I am authorized for.

Perhaps your debit card is limited by a deposit amount for that purpose. Mine is only limited by the balance in my bank account which is used for multiple purposes, not just debit card purchases.

@Banquet_Bear

That [putting holds on bank funds deposited] might happen with the banks you bank with, but that doesn’t happen here.

Either NZ banks are different, or you haven’t read the fine print. If you deposit a large check in a USA bank, a check much larger than your average balance, and you have a relatively new account, the funds will not be available for withdrawal until your deposit has been verified or cleared. That’s a temporary hold, and is quite common.

[slash2k]

@Musicat

Perhaps we have different debit cards. It sounds like you are describing a prepaid debit card, quite a different animal. Mine is in the USA, linked to my bank account, and any “charges” I make on my debit card are immediately deducted from my personal bank checking account. So it is indeed backed by sufficient cash. That means I can pay with my debit card for anything that doesn’t cost more than my existing balance in my bank checking account. If I have overdraft protection, I can pay for anything that doesn’t exceed my existing balance in my bank checking account plus whatever credit amount I am authorized for.

Perhaps your debit card is limited by a deposit amount for that purpose. Mine is only limited by the balance in my bank account which is used for multiple purposes, not just debit card purchases.

Banquet Bear may indeed have a prepaid debit card, but it is also possible that s/he only keeps a relatively small amount of money in the banking account to which a regular debit card is linked. Lots of people do, even people who have a fair bit of money, because the opportunities for and consequences of fraud are so much greater. Once the money is out of your bank account, it’s gone, and under U.S. law how much fraud protection you have varies quite a bit depending on circumstances and financial institutions. If your card accesses the entire sum of “[your] existing balance in [your] bank checking account plus whatever credit amount [you] are authorized for,” a thief or fraudster who gets control of that card has that same access.

Are you prepared to have your entire bank account and credit line frozen for up to two weeks while the bank investigates a reported fraud? They can take that long, and if you’re not prepared to do without that long, then having everything linked to that card is probably not such a good idea. The risks are even greater if you are keeping enough money in that linked account to pay the full cost of an accident.

[Banquet_Bear]

@Musicat

Perhaps we have different debit cards. It sounds like you are describing a prepaid debit card, quite a different animal. Mine is in the USA, linked to my bank account, and any “charges” I make on my debit card are immediately deducted from my personal bank checking account. So it is indeed backed by sufficient cash. That means I can pay with my debit card for anything that doesn’t cost more than my existing balance in my bank checking account.

…no I’m not describing different animals. I’m not describing prepaid debit cards. We are talking about the same thing. But “sufficient cash” is going to vary from person to person. I’ve got $30.00 in my account. Is that sufficient cash enough to rent a car? I don’t have a “personal bank checking account.” I have an account that is linked to my debit card (with only $30.00 in it) that I call my “debit account.” I have a savings account and a business account as well.

When a rental company puts a hold on a credit card: that hold is backed up by the line of credit made available by the credit card company.

But I’ve only got $30.00 in my debit account. And that would be typical of many debit accounts. What good would it do for a rental company to put a hold on my $30.00?

This answers your question. The Credit Card Company backs up a credit card. They don’t back up your debit card. That is the difference.

If I have overdraft protection, I can pay for anything that doesn’t exceed my existing balance in my bank checking account plus whatever credit amount I am authorized for.

And if you don’t have overdraft protection, then you can’t exceed the existing balance in your bank checking account. But that really isn’t relevant.

Perhaps your debit card is limited by a deposit amount for that purpose. Mine is only limited by the balance in my bank account which is used for multiple purposes, not just debit card purchases.

Our cards work exactly the same.

Either NZ banks are different, or you haven’t read the fine print. If you deposit a large check in a USA bank, a check much larger than your average balance, and you have a relatively new account, the funds will not be available for withdrawal until your deposit has been verified or cleared. That’s a temporary hold, and is quite common.

Outside of the United States hardly anyone uses cheques any more. I haven’t seen one in two years. Bank to bank transfer is the norm here. There isn’t a “temporary hold” but there is a delay, but that delay isn’t an “artificial temporary hold” due to antiquated banking systems.

[Lord_Feldon]

@md2000

I’m not up on my credit/debit tech, but my understanding is that a debit transaction is just that - I specifically approve one time that the bank transfer $X from my account to yours - proven by the PIN number I enter. (In Canada, backed up by the CHIP and PIN verification). I was not aware that merchants could randomly take additional funds out of the account in future without you and the card present. (But then, I just have a consumer’s view of this tech)

In the USA, it’s common for debit cards to be able to be used like credit cards, processed through the credit card system rather than the bank’s debit system.

[Northern_Piper]

That is one of the major differences between Canadian and US cards. In Canada, the debit cards are issued by the bank/credit union and aren’t linked in any way to Visa/Mastercard. They generally can’t be used on-line (at least, not in my experience) because you have to either tap or pin it. Credit cards can be used on-line because you don’t have to tap or pin them.

I was confused by this when I was in the States and was asked how I’d pay. I’d say “Visa” and would be asked “credit or debit”? In Canada, if you say “Visa” that automatically means credit. Debit cards don’t run through the credit card system, but straight to your bank account.

[kayaker]

I was at work one day after everyone else was gone. A situation arose where I had to do a transaction. I was asked if we “took debit” and I did not know the answer (as the owner of the business I felt pretty stupid). I ran the card to see what would happen and it worked fine, exactly the same as it would with a credit card.

[LSLGuy]

Confusingly, in the US there are some cards that are both. Depending on the merchant’s set-up they may always be processed as credit, as debit, or there may be an option for the customer or the cashier to choose which.
Going back to the Musicat vs. Banquet Bear kerfuffle, BB is right and Musicat is wrong.

There is no legal mechanism by which a US merchant may place a “hold” on US checking account funds via a debit card. None. The fact that banks can place holds on deposits (as **Musicat **correctly says) is completely unrelated. The one and only thing a debit transaction can do is instantly and irrevocable remove funds from a checking account up to the account’s currently available balance plus any overdraft protection amount the account’s bank is willing to offer at that instant. That’s it. Yes, the definition of “currently available balance” includes the effect of any deposit holds in effect. There’s no such thing as a withdrawal hold.

Contrast that with credit cards where the merchant can place a hold, or a charge, on any amount up to the available credit limit. Which for somebody with a nearly maxed out card may not be much. Just like BB’s $30 bank account.

To be sure, if one has a debit card backed by overdraft protection that starts to look similar to a credit card. Because it *is *a form of on-demand credit. But the differences are far larger than that small similarity.
As all this relates back to my original comment about rental car agencies in post #17, the big thing is the agency using the presence of a credit card as a way to identify poor flaky customers and avoid doing business with them. Just as businesses are using credit reports to avoid hiring flaky poor workers. And apartment complexes are using credit reports to avoid renting to flaky poor renters.

Whether credit cards / reports *ought *to be used for this purpose is a separate question. I just know from first hand experience that they *are *doing so.

[Musicat]

@LSLGuy

There is no legal mechanism by which a US merchant may place a “hold” on US checking account funds via a debit card. None.

This site disagrees with you.

With holds, the merchant electronically asks your card issuer, in advance, if you’re good for a certain preset amount, says Shelle Santana, professor of business administration at Harvard University. On the other end of that electronic conversation, your card issuer sets aside that amount.

With a credit card, your credit line is temporarily reduced by the hold amount; with a debit card, the available balance is reduced. When the purchase is totaled, the difference between the hold and the purchase is credited back to the consumer.

So does Wikipedia:

Authorization hold (also card authorization, preauthorization, or preauth) is the practice within the banking industry of verifying electronic transactions initiated with a debit card or credit card and holding this balance as unavailable until either the merchant clears the transaction, also called settlement, or the hold “falls off.” In the case of debit cards, authorization holds can fall off the account, thus rendering the balance available again, anywhere from 1 to 8 business days after the transaction date depending on the bank’s policy. In the case of credit cards, holds may last as long as 30 days, depending on the issuing bank.

And this site:

If you regularly use debit cards, you may have been surprised to find some of your funds tied up because of a “hold” placed on your account. This is usually the result of renting hotel rooms, cars, or purchasing gas.

A “hold” may be placed on a prepaid debit card account to ensure that sufficient funds remain in the account to cover the cost of a transaction.

(All bolding mine.)

I am unable to find any sources that say you canNOT put a hold on a debit card.

[Orwell]

My wife is a manager at a small store. The owner absolutely prefers cash, but the majority of transactions are with credit cards, with debit cards second. Credit card transaction fees really add up for businesses, particularly for small purchases. The fee is calculated as 10-25 cents per transaction plus a percentage depending on network (visa, mastercard, amex). So, if someone uses a card for a $1.00 purchase, the merchant loses 13 to 25 percent right off the top. Debit fees, I believe, are higher than credit card fees. That’s why many businesses have policies of not accepting credit or debit unless the purchase totals $10 or so. I keep this in mind, and almost never charge anything under $10.

So, at least for this business, the ranking would be cash, check (I’ll have to ask what their check verification process is, and how often they get bad checks), credit and then debit. The business’s bank is next door, so making cash deposits or getting cash change is very convenient.

[md2000]

Interesting discussion (that’s why I come here). yes, in Canada, a debit card is issued by the bank directly against the bank account(s), not by Visa or MC. Aha, so that’s why Americans still ask “Credit or debit?” when I say Visa.

I never use debit (I think I have only a few times in the last 10 years). For anything below say, $20, I will use cash which I take out $300 at a time. This goes back to the time about 10 or more years ago, the TD Bank (like all money-grubbing and insanely profitable Canadian banks) switched from free transactions to 50 cents per transaction. (Plus, they were dinging the merchant 25 cents or more too!) One of my wife’s co-workers discovered her bank service fees went from maybe $10 to over $70 a month until they cut down on debit. Since the bank gave me I think, 20 transactions free each month, that was enough for assorted online bill payments and roughly weekly cash withdrawals. So the convenience is there, but the banks killed it with their greedy ways.

Also, I agree - I don’t like the idea that merchants, or thieves, might have access to my cash account. Instead, I do most larger purchases with credit card and pay off the full balance at the end of each month. It’s one thing to dispute a charge and simply tell the company “I will not pay that, and if you don’t like it, I’ll cancel the card and take my business elsewhere”. It’s another thing to be arguing with your bank and your money is gone until they deign to agree you were wrongly charged.

I’ve made a point of ensuring my credit card is from a different bank than my bank accounts. A friend was lax in making payments once, only to find that the bank helped themselves to the money in his cash account - something the fine print lets them do.

Holds on deposits are a normal thing “until the cheque clears”. Since most clearing no longer takes 3 to 10 days, and since most major payments are typically bank transfers (like direct deposit payroll) this is less of an issue. Years ago I worked for a company that was one of the first to get into direct deposit. They distributed a printout weekly to the various banks in the smallish town they were in, usually by Tuesday, although the actual transfers were timed to go from the company’s bank Wed. night and then into the employee accounts Thurs. night. Some enterprising bank managers allowed the less money-smart customers to get their money early, subject to a $10 fee. Considering weekly pay at the time was in the $300 range, that was a pretty hefty charge.

Most banks now have a way to decide which customers have the reliability so as to not worry about “holds”. My overdraft protection is $2,000 (typical for most customers?) so it would have to be a pretty large deposit and then substantial withdrawal before I’d notice the hold. Which likely I don’t have anyway, because I have several hundred thousand in retirement savings with them also.

[md2000]

@Musicat

…

I am unable to find any sources that say you canNOT put a hold on a debit card.

There’s a difference between a hold that lasts until you finish pumping gas, vs. one that lasts for the duration of your car rental or hotel stay; plus some of those seem take a while to get “cleared” once the transaction is over - which is the crux of the whole discussion here. Debit or credit “hold”, how long until the amount is reconciled and the hold is cleared?

From what I read, for some the answer is “immediate” and for some “until the end of the business day” or 24 hours plus end of day?

[notfrommensa]

I think my barber (think Floyd on Andy Griffith) would have a conniption if I tried to pay with a credit or debit card.

I think he takes checks, but I have never seen him take one.

[Velocity]

Thanks for the responses everyone. Looks like close draw between cash and credit, with debit being a hassle and people rightfully loathing checks.

[Northern_Piper]

@Orwell

My wife is a manager at a small store. The owner absolutely prefers cash, but the majority of transactions are with credit cards, with debit cards second. Credit card transaction fees really add up for businesses, particularly for small purchases. The fee is calculated as 10-25 cents per transaction plus a percentage depending on network (visa, mastercard, amex). So, if someone uses a card for a $1.00 purchase, the merchant loses 13 to 25 percent right off the top. Debit fees, I believe, are higher than credit card fees. That’s why many businesses have policies of not accepting credit or debit unless the purchase totals $10 or so. I keep this in mind, and almost never charge anything under $10.

My understanding is that in Canada, the debit fees are lower than the credit card fees, so small business prefer to take debit rather than credit, particularly on small purchases.

[Sunspace]

In Canada, at least, small businesses prefer debit and cash to credit. Keep in mind that Canadian debit cards run on the Interac network, which is completely separate from Visa or MC; Interac charges a fixed fee for a debit transaction rather than a percentage.

With online-banking apps that allow you to photograph a cheque to deposit it, cheques have recently become easier for consumers. I wouldn’t be surprised if they became more common for small businesses as well.

[boytyperanma]

I do service work at peoples homes. Checks are my most frequent method of payment. Cash is a distant 2nd. Credit is very rare.

I prefer cash over checks because there is pretty much zero chance it’ll cause me inconvenience. Cash doesn’t bounce. Having large amounts of cash works fine for me, it’ll go back out as cash paying other contractors or suppliers who like cash too.

While there is risk taking checks, I do have the advantage of knowing where the people live and knowing they own a house. If their check bounces, it’ll be annoying but I’ll likely be able to collect.

Credit cards to me carry similar risk to checks as people can still do charge backs and cause similar headache. I charge a 3% fee to accept credit cards to discourage their use and to offset the processing fee.

[Northern_Piper]

That’s different from my experience. When I pay a plumber/electrician etc. for work at our house, their preference is absolutely credit or debit, then cash, and only reluctantly a cheque (if at all).

For credit and debit, most of them have the hand-held wireless card readers, same as the pizza guy, and they take whichever card I hand them; that don’t seem to have any preference between credit or debit.

Difference between the Canadian and US systems, I assume.

[SmartAlecCat]

@Northern_Piper

That’s different from my experience. When I pay a plumber/electrician etc. for work at our house, their preference is absolutely credit or debit, then cash, and only reluctantly a cheque (if at all).

IME, they vastly prefer cash, even offering a discount if you don’t need a receipt.

[sbunny8]

It partly depends on what kind of card system they are using.

Most grocery stores, for example, use a system that only costs them about $0.25 to run a debit card but it costs about 3% to run a credit card. Small businesses that use SquareUp, for example, pay 2.75% for both debit cards and credit cards.

Also, it depends on what their goals are. Do they intend to cheat the government out of some taxes by taking money “off the books” or “under the table”? Then they’d prefer cash. Do they want to minimize their expenses? Then they’d prefer cash (unless they have a system that only charges $0.25 for debit cards, in which case they’d prefer debit cards for anything more than just a few dollars). Do they want the money right away? Then they’d prefer cash, because the money from credit card transactions takes at least a business day before it shows up in their account.

Suppose I wrote the rent check on Thursday and I’m afraid that the landlord will cash it on Friday. Friday afternoon comes and I’m looking at the clock thinking I better get to the bank and make a deposit before they close at 7pm. At 5:15, I’m still short about $300 and then a customer walks in. The customer wants to buy a safe that costs $400 and pay with a credit card. That money does me absolutely no good in accomplishing my goal because I wouldn’t see the money show up in my checking account until Tuesday morning. So I’ll offer the customer a big discount for paying cash instead, and then I can get it to the bank by 7pm. OTOH, this scenario isn’t likely to happen very often. But it illustrates the fact that cash is faster.

I would bet that 9 out of 10 small businesses prefer cash.

[bob_2]

@SmartAlecCat

IME, they vastly prefer cash, even offering a discount if you don’t need a receipt.

That’s just tax evasion.

There really does seem to be a difference between UK/Canadian debit cards and American ones.

An example here is that I pay the government online for the annual tax on my car. If I pay by credit card they add a surcharge (3% from memory); they make no charge for debit cards. Earlier this year, I bought a £20,000 car for cash, using my debit card. I asked about using a CC but as I expected there would have been a surcharge.

Credit cards are for credit; I buy stuff with them and settle up (or not) at the end of the payment period. If I pay in full, it costs me nothing, but if I let it run over, they charge me some extortionate rate of interest.

Debit cards give direct access to my current account - no current account; no debit card. When I use it, the money is gone quickly from my account; frequently within an hour or two.

I can draw cash from an ATM on either card: If I use a CC they start charging me interest immediately; if I use the debit card, the money just goes from my account.