So, I have a contractor working (sort of, a probably mini-rant for another day) on my house.
He finished a project and showed up to get paid. My wife was going to write him a check, he insisted on a credit card.
I think he has cash flow problems, and he mentioned when I gave him the down payment (on the credit card) on the just finished project that he gets his money faster when it is on a credit card.
Aside from the 1-3% hit he takes from processing fees, is that true? It seems impossible that the faster turn-around would cover his money loss, but pretty sure he is an idiot, and if he wants to give me 1% cash back, more power to him.
The bank would give him access to some of the funds immediately, and I would think the total amount inside 5 business days, no?
Typically (at least with my business) a credit card payment will land in my bank account in 48 hours.
A check will give some availability today and the rest IIRC the next day (maybe two days). So call it about even. The problem is that checks can bounce and then he’s really screwed if he’s already spent the money. Sure, people can dispute credit card charges*, but that’s a deliberate act and as a vendor you often (not always, but often) see it coming. Like, if he did a shitty job or didn’t show up, he can expect the person to dispute the charge. But checks bouncing, again IME, is often just an accident. Be it the check writer not realizing they didn’t have the funds to cover their check or not getting their paycheck deposited on time or some other reason.
He may also just not have time to get to the bank more then once a week or so.
In any case, I’ll bet if he’s really having money issues, you can get a small break if you offer him cash. Not even ‘under the table’ cash, just cash handed over legitimately (get a receipt for it). Then he doesn’t have to mess with the bank since he can just use it for his day to day purchases.
*And, while the amount is being disputed, the processor withdraws the funds from the merchant and holds on to them.
If it’s a sizeable check, some banks will hold those for up to 5 days. I would think though that as a business he could/would get a pass on that, but maybe not. If they do hold it for 5 business days then it could be over a week before he can actually use that money, maybe more.
Thanks, all. I guess it is mostly the 48 hour thing, with a little fear of the check bouncing/time to get to the bank (he had a story (he has a lot of stories) about losing track of checks and cash for a deposit as an excuse for being late to a meeting with me).
Doesn’t seem worth 1-3% to me, but whatever floats his boat.
The legal action theory is interesting, but presumably any money deposited from the CC company would be subject to the same seizure.
To smaller tradesmen I give cash when possible. What happens after that is between them and the IRS. Just last week called out a guy to get rid of a wasp nest that had set up housekeeping on the ground right beside the gate. They’d get annoyed whenever the gate was opened and closed and I’d been stung once already (no swelling).
Anyway, I heard him as quoting $75 on the phone and I said, “Oh, wow! A bargain!” When he was done I pulled out the four 20s I’d put in my pocket saying, “I assume cash is okay.” “Love it!”
After looking at it a moment he said, “Um, that was one seventy-five.”
“Ah. Closer to what I was expecting when I called,” and I fetched a 100 to add to the pile.
If there was a garnishment order, it would be against funds in the account; I’ve never heard of one against the type of deposit, check vs. ACH (credit card paying him) vs. wire.
Wouldn’t surprise me if his check-bouncing rate is comparable to the 1-3% in credit card fees. The risk-adjusted losses would be worse, since a credit card fee is predictable, but bounced checks aren’t, and when the check bounces, you don’t just lose the money you were paid, you also have other cascading fees and nonsense to deal with.
Anecdotal…If the bank the check is from is not well-known, the check can be held for 2 weeks. I knew of a situation where the contractor was paid twice (up front, after finishing). Contractor didn’t say anything when he was paid by check the first time, but the second time requested cash/other payment because the check took so long to deposit.
And unless the contractor knows you… It’s amazing how many people out there are casual with cheque writing and paying bills. I assume the same guy who always says "oops, I forgot my wallet, I’ll give you the $50 I owe you tomorrow - is the same guy who will write a cheque without being sure he can cover it. I run across a few of these guys - they grew up with everyone accepting their story “the dog ate my homework” and now they think anything goes.
At least with a credit card, the charge can be approved immediately Then collecting is someone else’s problem. With a cheque, it can take a few days or more to have it come back insufficient funds, and then you have to go chase the customer again, etc. etc. If that was a couple of day’s work, it’s worth the 3% to know the money is in the bank.
All good points on the bouncing .He was perfectly happy to take my much larger check as a down payment for the larger job he still hasn’t completed, but again - it’s his business.
I actually will need to give him another, same-sized installment on that job shortly - it will be interesting to see if he takes a check again (large enough that he may not think it will fit on the CC (and the CC % will of course be a larger amount)).
My business hasn’t accepted checks for about 12 years (during the recession too many bounced). I probably lost some business to my competitors initially, but they soon copied me.
I’m surprised businesses in general still accept a piece of paper in exchange for goods and services.
Check for work that hasn’t been done is much lower risk. If it bounces, he’s just out the bounce fee, and he hasn’t lost any time or money on materials/wages for you yet.