What Else Advisors Need to Know About Accepting Credit Cards

by Richard D’Ambrosio
What Else Advisors Need to Know About Accepting Credit Cards

At the highest strategic level for a travel agency, accepting credit cards raises a number of banking and financial management issues for the owner. Photo: Shutterstock.com.


When an agent decides to accept credit cards through their own merchant account, their work to make certain that they don’t run afoul of state regulations or poor financial management decisions has only begun.

For instance, accepting credit cards to facilitate a client paying you a service fee is fairly straightforward. But when you choose a business model that also has you accepting credit cards as the merchant of record, “swipe and go” is not as simple as you might think.

“Most certainly, it’s appropriate for agents to collect payment directly on say, a design fee for consulting on a client’s trip,” said Jennifer Cochrane, co-founder & COO, Gifted Travel Network. “But accepting cards to pay for elements of your client’s trips is a completely different story. There is so much risk associated with being the merchant of record. We advise agents that it is better to facilitate payment and pass it through to the supplier, rather than accepting payment directly.”

Also, depending on what host agency or travel network you work with, you might be violating the terms of your host agreement if you accept payment directly. Avoya Travel does not permit agents to charge services fees to their clients, and all traveler payments must be made directly to the vendor through the company’s Agent Power™ technology system.

Separating funds can be a regulatory and management issue
At the highest strategic level for a travel agency, accepting credit cards raises a number of banking and financial management issues for the owner.

First off, state regulations govern to which bank account your payment processor should be depositing your client’s funds. In many states, like California, your client’s money needs to be held in a bank account separate from the agency’s “operating” business account.

“A customer’s funds cannot go into your operating account, and I have heard of some agents who co-mingle,” said Cochrane. “What I find in many cases, is that agents don’t understand either the compliance risk or the accounting risk associated with their transactions.”

Secondly, out-of-pattern deposits or withdrawals and/or a high number of claims and chargebacks could cause the financial institution processing your card payments to freeze your accounts. If you have collected trip deposits from clients that need to be used to pay the supplier to guarantee the trip, and your account is frozen, you are going to have a problem.

These “account limitations” are temporary restrictions placed on a merchant’s account that could prevent withdrawing, sending, or receiving money until the institution can establish whether there have been any fraudulent charges or if the transactions are out of compliance with banking regulatory requirements.

“I’ve seen many times, where the merchant flags the activity as unusual, and freezes the agent’s account funds indefinitely,” said Cochrane. “Locking up your funds can be devastating to a business.”

Some agents seek to be the merchant of record so that they can accept the funds from a credit card payment, and then make the actual payment to the merchant/supplier on their own credit card, earning the rewards points from that spend. Other agents want their clients to only see a single dollar amount payment on their credit card statement, and not a group of separate payments to different suppliers that might reveal more detail about the cost of those separate elements.

However, this can create additional financial risk, and add costs and time to record all of these payments received, and payments that have gone out to suppliers, Cochrane said.

“That can be like putting together the pieces of a puzzle, and if you’re not careful, you might not be tracking everything appropriately,” she said.

Other agents can get into trouble accepting client funds and mingling with operating funds by thinking they will manage their finances closely. So, they use those funds from those payments for short-term cash flow in advance of a final payment date. When the client’s final payment date arrives, they find that other client payments leave their bank account short.

“They see it as one big cash flow, and then things don’t turn out like they thought, and they don’t have the money to pay for their customer’s travel,” she said.

Client disputes could wreak havoc on your business
Finally, if an agent accepts payment directly from the client instead of processing the charge through the travel supplier, in the event of a customer dispute or request to reverse a charge (e.g. a “chargeback”) the burden of proof for a refund or other action will fall on the agent. In a typical transaction, where an agent simply facilitates a client payment directly with a supplier, the agent typically has no legal or financial obligations to the dispute.

A travel agent who incurs a lot of chargebacks (typically above 1 percent of all charges) might be declared high risk and your institution might increase your processing fees to cover for that expense. This is why travel agents and other merchants should always use a credit card authorization form, which increases their likelihood of winning a chargeback dispute.

Experts advise agents to clearly present their credit card acceptance rules and requirements on their websites and brochures, including timeframes for full refunds, partial refunds, or the ability to apply a deposit to a future trip, as well as cancellation or refund policies.

Finally, some agents get tripped up focusing on the discount rate fees they are being charged and seek to recoup those amounts through what is known in the industry as a “convenience fee.” Charging a customer to use a credit card is illegal in some states.

Megan Baugh, owner of Baconko Travels Ltd., in Edmonton, Alberta, normally absorbs the 2-3 percent that her payment provider charges her.

“In some situations, I may ask the client to cover it,” Baugh said. “For example, to send a deposit to a hotel for a wedding, you usually have to email a copy of your credit card front and back, and some people don't want to do that, so I put it on my card and I charge their card in-house,” she said. “But I have to explain that they have to cover my processing fees in this case because I am not making money off of this transaction.”

Eleven U.S. states currently have a law that prohibits merchants from charging a convenience fee to customers. In California, for example, it is illegal for a retailer to “impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card.”

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