If you’re operating a business, your customers will almost always expect your establishment to accept credit cards as a payment method. If you choose not to accept them, you will most certainly be missing out on potential revenue and, in some cases, losing customers due to not accommodating their preferred payment method.
That said, with all the benefits of accepting credit cards, should your business limit their transaction amounts? And why would any business limit them?
Before we get into why your business should limit the transaction amount for credit cards, let’s understand what credit card limits are and their importance.
What Is a Credit Card Limit?
Simply put, a credit card limit is the most that a person may spend on their credit card. For example, if the limit on a person’s credit card is $7,500 then they won’t be able to spend more than $7,500 on that card.
The Importance of Credit Card Limits for Small Businesses
As much as credit cards allow your business to improve its sales, it’s important to set limits on them. Credit card limits are a great way for people to manage their cash flow and ensure that they have the funds to make necessary purchases and payments without spending over the limit.
From the business’s point of view, there are many ways a credit card can be used fraudulently when doing business with them. People who fraudulently use credit cards, generally do so to purchase goods or withdraw money from an ATM. When accepting credit cards with a higher limit, there is a greater risk of fraudulent transactions your business may face. This is because a higher credit limit makes it easier for people to spend money fast before they are detected by the credit card company. The risk of this is that your business may be “left holding the bag” for large transactions. Not only will you have lost a lot of inventory through such a “sale,” but you will be out of pocket too.
Setting credit card limits can help your business avoid any issues that may arise from fraudsters posing as genuine customers.
How to Set Limits on Credit Cards
Now, you may be wondering how to resolve this, especially considering that approximately 33% of small businesses are affected by credit card fraud. That said, there are very few exceptions to limiting (or setting maximum amounts for) transactions on credit cards.
The only type of organizations that can set up maximum credit card purchase amounts are educational institutions, as well as government agencies. If you believe that your business or organization falls into either of these categories, you may contact your credit card processor. They’ll help you establish if you do in fact correctly fit into these categories and that nothing else prevents you from setting the limit on credit cards.
It’s important to note that this applies to credit cards, and not debit cards. So, even if you contact your merchant or look for an alternative merchant services for small businesses, you won’t be able to impose this limit on debit cards.
Benefits of Accepting Credit Cards
While setting credit card limits on transactions is important, let’s consider a few advantages of accepting credit cards as a small business.
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Improving customer experience: With approximately 70% of Americans in possession of a credit card, allowing customers to purchase with credit cards offers them convenience, avoiding them going elsewhere to make a purchase.
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Increase competitiveness: As mentioned previously, your business can compete with other small businesses that accept credit cards.
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Boost sales: Compared to cash, credit card customers spend between 12% to 18% more when using their cards. Based on this, your business could make more sales by accepting credit cards.
Final Thoughts on Setting Credit Card Limits on Transactions
In conclusion, there are many benefits to limiting the transaction amount for credit cards. This is because it protects the merchant from any losses that can occur from fraud, as well as protecting the customer from potential fraud charges too.
Setting credit card limits also reduces the risk of chargebacks, which is a great benefit for both parties. Either way, it’s important to understand that accepting credit cards and setting limits on transactions is more than about generating revenue and minimizing fraud risk—it also involves providing great service to your customers.
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