It doesn’t get more important than getting the money off the customer and into your bank account, but with the industry apparently seen as ‘high-risk’ by credit card providers and retailers being charged comparatively high fees, is there a better way? Toby Griffin investigates
It’s not what you do, it’s the way that you do it’ – so sang Fun Boy Three and Bananarama in their 1982 hit, and rarely has such a simple piece of advice been so insightful.
I’ve seen often how the mishandling of a situation hasn’t been down to the decision made or intended outcome, but the manner in which it is done. When it comes to payment methods in the KBB industry, the song’s advice is equally applicable, with the way that a payment is performed making a surprising amount of difference.
Here’s the normal scenario. You’ve closed a deal with a customer. This could be after months of designing and consultations for a large project, or a walk-in customer that just wanted a tap to take away. In either case, when both parties are happy with the arrangement, a price is agreed, and so it’s just a case of taking payment. It should be simple, yes?
Well yes it can be, but it’s surprising how many issues, complications, consternation and even the collapse of the deal can be a result of the method that the customer chooses to pay.
To get a better understanding of this topic, let’s firstly consider the payment methods available today and discuss their strengths and weaknesses.
Cash has been used for millennia. Simple, clear, instant, and unreliant on power and technology, the exchange of cash for goods and services has stood the test of time. But it has its drawbacks, as it can be easily stolen, is difficult to track, and – particularly since the advent of other, more secure and transparent payment systems – has long been associated with tax avoidance and even criminality. So it has begun to fall out of favour.
Richard Hibbert managing director of KBB retailer KSL Sudbury in Suffolk, and KBSA national chair, reveals why they tend to avoid taking cash payments. “We haven’t taken cash lately,” he explains. “I used to feel that it was offered as a tax dodge. We’d always say that we’d take cash, but let them know we’d be banking it.”
Martina Landhed, director of Instil Design in Oxfordshire confirms this, adding “the last time we took cash was about two years ago, and it cost me £100 to deposit in our bank”.
Another traditional favourite, particularly when larger amounts of money are involved, has been the good old cheque. Far more secure than cash, industries like our own have long preferred taking cheques for this reason, with the only drawback being the time it took for them to clear. Bankers’ drafts and their building society equivalent, sought to solve this matter, and – although took a little work to arrange – cleared instantly, which definitely suited retailers.
Cheques though have been in massive decline during recent years and now account for less than 1% of retail bank payments.
Next, we have your ‘flexible friend’ the debit and credit card. Although the concept of these was first cited in a science fiction novel from the 1800s, they weren’t used and popularised until the 1950s, and have since grown to become the most popular method for transactions in the UK – particularly since the replacement of signatures with PINs. Debit card use finally outstripped cash for the first time in 2017. Although the funding methods vary between debit and credit cards, the general principle of cleared, instant, secure payment suits both customers and retailers alike.
Of the major payment methods, from almost out of nowhere in the past decade or so, we’ve seen bank transfers becoming a huge player in the market. Initially using either BACS (which takes three working days to clear) or the chargeable CHAPS (normally clears the same day), the Faster Payments system was launched in 2008, and allows for free, same-day payment transfers between all major banks and many other financial institutions.
Combined with the advent of internet banking (now used by 93% of the UK population), and greater security for online payments, bank payments have rocketed – particularly for larger amounts.
By avoiding credit and debit card charges, and many of the delays that can be associated with them, bank transfers could be seen as something of a dream for KBB retailers.
To see how industry retailers at the coalface are handling this changing landscape of payments, I set a poll on LinkedIn asking: “Which payment method is used most by customers of your KBB retail business?”. It got a big response with a whopping three-fifths stating that bank transfer was the most common, with a fifth stating credit card, and the last fifth stating debit card (noticeably neither cash nor cheques were cited once). Even if you combine the two card options, bank transfer is still hugely more popular.
The results of the survey are backed-up when speaking to industry figures, with Instil Design’s director Martina Landhed saying: “Our preferred payment terms ask for BACS, and 95% of customers pay that way”.
Simon Hughes, co-owner of Zara Kitchen Design in Wokingham, explains that they prefer to take bank payments because “we are not charged, and the money is in our account in a few hours”.
Managing director of Lima Kitchens in Milton Keynes, Elizabeth Pantling-Jones, agrees, saying: “We’ve almost eradicated all credit card payments. it’s bank transfer all the way. Not only is it the most cost-effective, keeping our quotes as competitive as possible, but it is also easier to reconcile and search for if any questions ever arise.”
It seems that customers are happy to pay this way too as Roxanne Baker, director of Olympus Bathrooms in Kent, highlights, speculating that this is “most probably [because they] have the funds readily available”.
But, alternatively, Richard McHenry of Ebberns Bathrooms in Hemel Hempstead considers his customers’ financial security. “Bank transfers offer zero protection,” he explains. “And the people I tend to deal with are very aware of this and wary even though they are dealing with an established local independent retailer of 40 years.”
Hibbert of KSL and the KBSA though feels that information available to savvy customers now can alleviate concerns, saying: “They are able to get a credit report on a business for only three pounds, and if you have a facility such as CreditSafe, you can follow a business, and this will let you know if they have outstanding debts to their suppliers as the credit insurance bodies report them in.”
Instil’s Landhed agrees, declaring: “Customers are happier to pay by bank transfer now as they are reassured by the company name check, and online banking notifications. Sometimes they will send £1 first to be doubly sure!”
So on to the ever-popular credit and debit cards – a tried-and-tested system, but not without its drawbacks (not least the charges it accrues). But it turns out that KBB retail is classed as ‘high risk’ by card providers. On a recent kbbreview podcast, Libby James from Merchant Advice Service was asked why this was the case.
“There are three main reasons,” she explained. “First, the transactions tend to be higher amounts, then the lead time between the transaction and the delivery of the product tends to be quite lengthy. This leaves the bank open to risk and then the third reason is charge-backs, which tend to be higher than normal.”
If card companies see the industry as being a higher risk, then that might explain why customers see it this way too. With no retailers I spoke to having had to deal with charge-backs – when the card company takes the money back off you because the customer has complained and/or said that they didn’t receive the goods – it seems that we’re all being ‘tarred by the same brush’ and having to pay as a consequence.
Overall though card charges seem to have been reducing for some time and levelling off between credit and debit cards. Though there has always been something of an outlier in the shape of American Express, which had been charging around 4% for transactions, which is understandably a turn-off for retailers, with Hughes, Landhed and Hibbert all saying that they don’t take AmEx.
Other issues for card payments include GDPR compliance, such as keeping card details secure and hire charges for PDQ machines – although this market is being disrupted by players such as iZettle and Sum Up.
For customers at least, credit card payments do offer them a degree of protection, which they understandably might seek out due to the large amounts often transacted in our industry, so most retailers will still accept this method of payment.
According to Hughes, some customers “want the security of paying via a card” and will “make at least one payment via a card, then are happy to pay the rest via BACS”. This option of part-payment on credit card, generally the deposit, is also offered by Landhed, who reveals “we still take payments by card if the customer insists, but only took three last year”. She also adds that “if there is a long time from order to installation, we will sometimes consider adjusting down the deposit requested, if this gives reassurance to the customer”.
Making sure that a deposit is secured before a customer leaves the showroom is often a priority for retailers, and card payments are great for securing that, with Dan Macijasz, showroom manager at Versatile Group in Ireland, saying: “I really like credit cards because I can take some money straightaway, but I prefer larger balances paid by bank transfer to avoid the fees.”
So, what alternatives can retailers offer at the point of order to give customers peace of mind and protection but avoiding credit card charges?
Pantling-Jones of Lima Kitchens suggests that “paying into a deposit protection [scheme] is often more cost-effective and is something we do with all non-credit card payments”. A move which is echoed by Hibbert who explains “we have almost eliminated credit cards due to the protection customers receive from the KBSA consumer care scheme… I offset this fee against a credit card fee”.
Finally, and very much a feature of the low-to-mid sector of the KBB industry, is finance, which for certain retailers is their payment ‘bread and butter’. I went into this topic in some detail in a previous feature, but it is worth mentioning that – not unlike credit cards – the convenience for the customer comes at the cost of the retailer.
Hughes says that they did have finance available but it “is very expensive for us to offer. It can cost us around 10%. We have stopped offering it at the moment. We tell them it would be cheaper to get a loan”.
So, what about the future of payment methods in the KBB industry? There are some new and innovative alternatives to traditional banking already being used, with Landhed telling me that “we take card payments online through Revolut”, a system also mentioned by Versatile’s Macijasz, who revealed that “some customers are using Revolut, as there is no charge, and no conversion fee”.
Crypto currencies have hit the headlines around the world, but they are known to be highly volatile and unregulated. In order to address this, a state-backed digital pound is likely to be launched later this decade to ensure the public has access to safe money that is easy to use in the digital age. The Chancellor has said the central-bank digital currency (CBDC) could be a new “trusted and accessible” way to pay but will not be built until at least 2025. Let’s see if this comes to fruition.
So, it seems that, for the time being at least, both bank transfers and credit/debit cards will be the main payment method for KBB businesses, and this seems to suit all parties.
Or perhaps we could go back to the medieval barter system? I’ve personally had a customer pay for his kitchen in sand and known a struggling business pay its debts in brassware stock.
Nick Warrington, owner of Stuart Warrington & Co in Macclesfield, tells me “I’ve taken payment measured in bottles of beer from a local craft brewery”, but he follows up by forlornly saying “sadly it was only for a replacement shower”!
Listen to the full kbbreview podcast episode on taking card payments using the player below. You can also find it on Apple Podcasts, Spotify or YouTube.