Credit solutions for you and your clients

By Eva Rosenberg, EA

With the Credit Card Act of 2009 in effect as of February 22, 2010, we all face a credit crisis. The credit card companies have done a commendable job of circumventing all the consumer protections by changing interest rates and fees in advance. Now that the new laws have taken effect, the credit card companies locked in fat and sassy rates, as well as punishments for breaking their rules. But we all know that.
 
What tools do we have as merchants and as advisors to our clients? First of all, the Federal Reserve has put together an interactive consumer tool about credit cards. You can send your clients there to learn how to read their statements and find out about consumer protection laws. And, the U.S. government’s General Services Administration has put together a more comprehensive tool.
 
Tax professionals and accountants actively working with clients to help them establish themselves or their businesses should become familiar with the tools on these two Web sites.
 
What is the best way for an accountant or tax professional to accept credit cards? Have you looked at one your clients’ merchant credit card statements lately? Do you have to reconcile it? Can you?
What a total pain to trace the bank charges, credit company charges, and all the extra miscellaneous fees they throw at your clients each month. Who even knows how many dollars worth of errors are included? You get the monthly fee, the per-transaction fee, the percentage of charge fee, the per transaction fee for credits or refunds, and the fee fee.
 
Frankly, I don’t think anyone with any substantial source of credit card-paid income can afford the staff time to reconcile all that. I certainly haven’t the spare time to invest in that nonsense. Do you?
 
The PayPal option
 
A good option is PayPal. They don’t charge you to set up your merchant account. You can use their services with no monthly fee at all – or you can customize the account and pay $30 per month.
  • You can send invoices to your clients – one time or recurring.
  • PayPal charges you a flat percentage of each sale – approximately 2.94 percent. Period. No other surprise fees.
  • You can see the amount of the charge right next to each deposit you receive.
  • No need to reconcile anything.
  • Better yet, if you refund the money – not only do you NOT pay a transaction fee, they reverse your charge for the original transaction. Credit card companies do not do that.
  • You can download the reports to integrate into QuickBooks or in a variety of formats.
Warning: Customer service is not great. If a client disputes a fee on PayPal, that’s really bad news!
  1. They remove the money from your account immediately.
  2. They don’t pay it back to your client for months.
  3. You run the risk of getting kicked out of the system.
  4. There is no one to call. You must rely on e-mail to communicate with the staff.
 
There are two more drawbacks:
  1. If your individual charges are high – say $1,000 or more, it may take a while to get approved as a merchant. After all, PayPal doesn’t want to lose money to someone running fake sales through the account.
  2. It takes a while to get your money. You link your PayPal account to your bank account – and it takes 3 to 4 business days for your money to get transferred to your bank account.
 
In general, it’s still cheaper than credit card merchant accounts. And in the many years that I’ve used them, I’ve never had a problem. (The problems I describe about customer complaints are problems I’ve heard about.)
 
The American Express option
 
American Express recently introduced AcceptPay, and the Web site says you can start using this service for free – or pay $20 per month. They make it look really easy. You can invoice clients, or accept payment without invoicing. You can get paid via credit card, check, cash, or beads and trinkets – and it integrates with QuickBooks. Gee, that’s exciting. And they’re probably easier to deal with than PayPal!
 
Let’s see what this is all about. Uh-oh. It took more than 10 minutes of clicking around and exploring the site to finally find the real fees. The only place to find them is in the faint Frequently Asked Questions link at the bottom of the screen. The account has real fees – all those same garbage fees that you have on your merchant accounts – a monthly fee, a percentage of sales (different for each card), a transaction fee from the card company, a fee from PaySimple which is the engine behind this product, a statement, and more. The fees add up to at least 3 percent, depending on the invoice amount.
 
Advising your clients
 
Tax professionals and accountants can help your clients’ credit scores by helping them manage their finances reliably. Obviously, you know that credit cards are not bad. It’s the misuse of credit that is bad.
 
Convince your clients to use credit cards regularly to build up their credit history, but only to make purchases they can afford to pay for in full at the end of the month. Don’t use the credit cards to finance a business. Get cheaper, more reliable financing. Remember, missing a payment or paying late might make a 7 percent rate jump to 29 percent!
 
Is a mortgage or home equity line the way to do it? Not for most people. That’s very risky if the business fails. But, for some people, that may be the ideal solution. It also provides incentive to engage in solid planning – to ensure the business succeeds.
 
What about borrowing money from a 401(k)? Not so smart. They might get fired. Can they pay it back? On the other hand, you can start the business. Set up a 401(k) account for your own business and roll your IRAs or retirement account funds into the new 401(k). Borrow from that. As long as your clients keep the business operating, however minimally, they can keep the plan alive until they repay the low-interest, tax-free loan.
 
Fixing credit
 
Nationally syndicated columnist Ilyce Glink has a new book on the verge of hitting the bookstores. You definitely want to preorder the book, Buy, Close, Move In! Chapter 4 is all about how to understand and fix your credit. Rather than paying someone hundreds or thousands of dollars, and never have them come through for you – just spend about ten bucks ($10.19 at Amazon.com)!
 
Ilyce tells us that the difference between having good credit and great credit could be as much as 1.5 percent difference in mortgage interest rates – that’s nearly $1,600 a year per $100,000 of mortgage.

 

Credit Score Mortgage Interest Rate Differential Sample Interest Rate*
760-850 Best available 4.974%
700-759 +0.22% 5.196%
680-699 +0.18% 5.373%
660-679 +0.21% 5.587%
640-659 +0.53% 6.017%
620-639 +0.49% 6.563%

 

As one way to improve your credit score, Ilyce recommends:
 
Instead of increasing your debt, consider changing your mix of credit accounts if you want to raise your credit score. For example, if you don’t have any credit cards, or if you have only one, add another credit card account to the mix. (I’d advise you to choose one that doesn’t have an annual fee and gives you something for nothing. You can look up credit card deals at CardRatings.com, Card-Web.com, or Mint.com.) Then use your credit cards a few times a year, paying off the balance in full at the end of each month.
 
There’s plenty more sound advice with a list of helpful tips, including when to open or close credit lines, what happens if you get lots of credit inquiries against your account when shopping for home or car loans, how many lines of credit you should have, and an explanation of all the terminology in the credit world. Be sure to visit her Web site for lots more information – or to ask Ilyce a question.
 
Another great credit advisor is Liz Weston, the personal finance columnist at the Los Angeles Times. Visit her Web site at Ask Liz Weston.
 
Speaking of fees
 
If you or your clients are carrying debt, look for credit cards with zero-percent rates. Find one with at least six to 12 months at that rate. (Note: “Free” comes with a cash-advance fee. Find a card that limits it to 3 percent or less of the total loan.)
 
Consolidate all your outstanding debt or credit cards into the one bill. Mark your calendar one month before the expiration date of that zero-percent rate. If you still have a balance due, look for another zero-percent offer in plenty of time to transfer the balance.

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