Jenny, a student, runs a high-end shoe business on the side. High quality. One thousand dollars a pair. Cash only. Her customers are wealthy New Yorkers.
A friend in marketing tells her she’s making it harder than it needs to be. Nobody wants to be carrying that kind of cash. Take credit cards, she says. People will order more.
But her friend in finance disagrees. The moment she takes cards; there is a digital trace. Credit card fees, duties, sales tax, and income tax because there will be an electronic record of every transaction. Jenny doesn’t mind paying taxes; she’s concerned about the additional paperwork.
So—does she keep it cash, or start taking cards?
Please quantify the impact of:
- Accepting credit card fees, and paying duties, sales tax, and income tax.
- Research The potential increase in sales if she starts accepting credit cards for her niche business.
Join the other discussions:
Why 79% of contractors don’t want to be full-time employees?
Should we pay severance in the US?
Small businesses and inflation
I think Jenny should take credit cards.
First of all, digital payment methods are increasingly prevalent. Like it or not, the world is becoming less dependent on cash. Young and tech-savvy consumers of all ages use credit cards and mobile wallets like Apple Pay and Google Pay. Additionally, major retailers like Starbucks and McDonald’s are offering alternative payment methods. Cash-only businesses are likely to be viewed as outdated.
Secondly, Jenny will lose important customers. High-income customers and customers under 45 use cashless payments more often. According to the Federal Reserve’s 2022 Diary of Consumer Payment Choice, cashless payments are on the rise. This trend is particularly pronounced among consumers under 45, who used cash for less than 20% of transactions. Coincidently, Jenny runs a high-end shoe business.
Overall, As customers continually expect to pay for goods and services via cashless transactions, Jenny is likely losing money by refusing to accept credit. This is especially true if she is trying to appeal to high-income people and people under 45. Additionally, small-value transactions are decreasing. The Federal Reserve report says a reduction in the number of payments under $25 – which has been on the decline since 2016 – is a significant reason for the overall decline in cash payments. While the pandemic contributed to this decline, the report notes that this trend precedes the pandemic and will continue afterward.
All in all, I think she should take credit cards.
Personally speaking, Jenny should accept credit cards.
Firstly, cash is no longer the dominant form of consumption, replaced by credit cards and electronic pay. For instance, in China, more people tend to pay by mobile phone, such as Wechat Pay and Alipay, which bring a lot of convenience to people’s daily life. So, accepting credit cards can make the purchase experience better for many customers who no longer use cash. Besides, as Jenny doesn’t worry about paying taxes and duty fees, filling out paperwork will not be a big deal. Accepting credit cards, she will maintain lots of customers and ensure customer satisfaction as well. Also, I think accepting credit cards would increase the trust from customers. Because paying by credit cards is a kind of mutual trust. Customers are willing to trust Jenny so they could pay in advance and then get shoes, which could also improves their credit levels. At the same time, it is means Jenny’s trust in customers, so as to maintain a more stable relationship between customers and sales.
Therefore, accepting credit cards could be a better choice for Jenny.
I think Jenny should accept credit cards. Credit payments have become a popular and well-established payment method worldwide, and the fees associated with them are not worth $1,000. This is a great opportunity for Jenny to expand her customer base and increase sales revenue.
I think that Jenny should accept credit cards for a few huge reasons. Jenny is trying to attract and retain wealthier clients and by opening up the purchase methods that she uses, she can make it easier for her clients. Wealthier people may not always carry $1k cash but they will usually always have a credit card on hand, especially for large purchases. This could increase her volume in sales too as people are more willing to make a faster purchase with a card rather than thinking about it with cash. I think that the credit card also gives Jenny’s customers more security in the purchases as they’re protected by their credit card company and they could probably do advanced shoe drops and pay ahead and Jenny could buy more in anticipation of pre sales. They may also feel safer using their card rather than paying someone $1k for shoes if they are a first time customer. This will make her feel more legitimate to them. I think that using credit cards could also establish Jenny as a real company (not just a distributer) and she could use this for proof for taxes and showcase her income and that will help show proof of sales, secure residence for a lease, and elevate herself into a position where she could expand. If she’s worried about the extra credit card fees/taxes, she can raise her prices slightly to accomodate. Jenny has to think longterm as her competition always all payment methods and she would be the odd one out. Eventually, customers may go with a faster/easier route with established brands rather than having cash around and making it a slower buy.
I think Jenny should accept credit cards, and while it will come with some extra fees, but it will be good for her business in the long run. The first thing is that adding a payment option attracts more customers, and according to the summary of Worldpay’s Global Payments Report 2024, card transactions are still at an all-time high in 2024 and will continue to rise. Credit card payments have become the preferred method of shopping for many people. Many customers may not be able to get 1000 dollars in cash at once, but they have a credit card limit. Accepting credit card payments lowers the payment threshold so that more potential customers can buy her products; at the same time, credit card payments allow customers who don’t have enough cash to place their orders in advance. It allows Jenny to better organize her production and inventory management when she receives orders in advance. Accepting credit cards also makes Jenny look more professional, which increases new customer. Customers usually trust merchants who accept credit cards because it shows that merchant has a formalized financial process in place; and the automated electronic record of credit card payments helps Jenny manage her finances better and comply with tax requirements. She can easily locate each transaction, minimizing the problems and risks that can arise from managing cash.
Worldpay Report: https://worldpay.globalpaymentsreport.com/en
I think Jenny should accept credit card payments to boost business growth and customer trust while managing costs and administrative work.
Reasons (Benefits):
1. Expanding Customer Base and Increasing Sales
By accepting credit card payments:
(a) Lower Payment Barriers: The $1,000 price tag for custom shoes poses a high barrier for cash payments. Credit cards allow customers to use installment plans or credit limits, attracting more potential buyers.
(b) Enable Pre-Orders: Through credit card pre-authorization, customers can place orders in advance. This helps Jenny plan production and inventory management while reducing upfront financial risks.
Data Support:
According to Worldpay’s 2024 Global Payments Report, credit cards account for 43% of non-cash transactions in North America’s luxury retail sector. Refusing credit cards could cost Jenny nearly half of her potential clientele.
2. Enhance Professional Image and Customer Trust
Businesses that accept credit cards are perceived as more legitimate, especially in the high-end market, where customers prefer brands offering multiple payment options. Accepting credit cards elevates Jenny’s credibility.
Additionally, cash transactions require frequent deposits and carry security and accounting risks. Credit cards’ automated record-keeping simplifies financial management, reduces human error, and mitigates cash-related risks.
Strategies to Address Cost and Tax Challenges:
1. Optimize Processing Fees:
– Choose Suitable Payment Processors: Compare rates from services like Square (2.6% + $0.10 per transaction) or Stripe (2.9% + $0.30 per transaction), or negotiate bulk transaction discounts with banks (e.g., 1.5%-2%).
– Pass Fees to Pricing: Adjust product prices to absorb processing costs (e.g., increasing the $1,000 price to $1,030) to maintain profit margins.
2. Simplify Tax Compliance:
– Use Financial Software: Tools like QuickBooks or Xero can automatically sync transaction records and generate tax reports, reducing manual paperwork.
– Clarify Tax Planning: Transparent credit card records help avoid underreporting cash income risks, ensuring long-term compliance.
Implementation Steps and Risk Mitigation:
– Pilot Testing: Start by enabling credit card payments for limited-edition or pre-order products to evaluate customer response and cost impacts before scaling.
– Transparent Terms: Clearly state “a 2% processing fee applies to credit card payments” (where legally permitted) on the website or contracts, or adjust pricing upfront to cover costs.
– Educate Customers: Emphasize credit card benefits (e.g., installment options, reward points) to offset sensitivity to added fees.
Conclusion: Long-Term Gains Outweigh Short-Term Costs
While credit card payments incur fees and add tax compliance complexity, the benefits—including expanded customer reach, enhanced brand trust, and optimized cash flow—are substantial. By selecting the right payment tools, refining pricing strategies, and leveraging automated financial software, Jenny can effectively control costs and administrative burdens while scaling her business.
References:
-Worldpay. (2024). Global Payments Report. https://worldpay.globalpaymentsreport.com/en
– U.S. Chamber of Commerce. (2023). Why Accepting Credit Cards Is Essential for Small Businesses.
My advice to Jenny is to start accepting credit cards because the positive effects surpass the extra expenses and administrative processes. The ability to accept credit cards boosts sales potential by offering customers an easy payment method for expensive products such as her $1,000 shoes since many may not have immediate access to cash. The payment method enables secure advance orders which improves cash flow and production scheduling. The ability to accept credit cards serves to boost the professional image of her business while also building customer trust which helps to draw in a wider group of clients who either require or prefer to use credit cards. Jenny needs to monitor credit card processing fees because they affect her profit margins and adjust her prices to compensate. Her business operations will extend to managing electronic transaction records which demands careful bookkeeping and tax reporting but will improve financial tracking. Secure payment processing systems are essential for safeguarding customer information. The ability to accept credit cards delivers both customer convenience and sales growth potential while building stronger trust with customers and thus represents an important advancement for her business. Jenny will benefit from working with a trustworthy payment processor to smooth the transition process and fully exploit this payment approach’s benefits.
Jenny should accept credit cards as another method of payment because in today’s society, cashless transactions are becoming more and more popular even for small purchases-like a cup of coffee. Jenny’s shoes cost $1000- a large sum that people might not have on hand ready to give to her.. Card usage is increasing every year, with people using them for about 60-65% of total purchases. (FRB) Customers value ease, convenience, and might even feel more trust when a credit card is involved in a transaction. Additionally, over time the money spent on a credit card builds rewards like gift cards or free airfare, and the $1000 spent on Jenny’s shoes helps customers get there.
By having a choice, the business is attracting more customers. For Jenny, if she wants to keep her cash customers and possibly encourage more customers to pay in cash, she can still do that by having a cash discount. Additionally, her old customers might be used to paying in cash for her shoes, so they might stick to paying in cash, as customers have built that habit. Her business accepting credit cards will make her business appear more professional and even more “real”. These days, customers might find it a little suspicious if a business does not accept credit cards.
I found an interesting behavioral science article from MIT Sloan that explains a few reasons why customers spend more when using a credit card. “Credit cards can create an anticipation of pleasure in the form of a purchase.” This means that swiping a card, and getting the shoes, creates an immediate emotion of happiness, and people don’t truly realize the cost until the credit card statement comes weeks later. Meanwhile, if a customer were to count ten 100’s or fifty 20’s- they might think about their purchase further and think to themselves- “Wow, this is a lot of money, I am spending right now.”
Sources:
https://mitsloan.mit.edu/experts/how-credit-cards-activate-reward-center-our-brains-and-drive-spending
https://www.frbservices.org/news/research/2024-findings-from-the-diary-of-consumer-payment-choice
I suggest that Jenny use credit card as an additional method for payment. Reasons are as following:
Firstly, it adds great convenience toward the suppliers and the customers. As mentioned by her friends, a lot of people might not be able to provide cash immedietly. Utilizing credit card for payment releases stress while having transactions. Research shows that high-end consumers are more inclined to use credit cards for payment rather than carry large amounts of cash. This is not only for security reasons but also because credit cards offer additional benefits such as points rewards, cashback, and premium customer service (Runnemark et al., 2015). The non-immediate payment feature of credit cards can reduce consumers’ “payment pain” (Prelec & Loewenstein, 1998), making them more willing to make large purchases.
Secondly, Using credit cards allows early booking, early transactions, and advance payments. People could book their favourite shoes in advance and won’t miss their favourite ones.
Thirdly, the way of being considerate and acceptable might add value to Jenny’s business. Jenny could probably expand her customer base and build up a more positive brand image to become credible and considerate. The additional way of payment could make Jenny’s business obtain competitive advantages like some luxury brands.
For the fee and transaction costs, Jenny could just ask the customers to pay a small proportion of the transaction cost and let them choose the payment method by themselves. Besides, Jenny should also be careful about the chargeback risks, she could set clear payback date and clear policies for when and how to payback the money.
References:
Runnemark, E., Hedman, J., & Xiao, X. (2015). “Do consumers pay more using credit cards than cash?” Electronic Commerce Research and Applications, 14(5), 285-291.
Prelec, D., & Loewenstein, G. (1998). The red and the black: Mental accounting of savings and debt. Marketing Science, 17(1), 4-28.
Runnemark, E., Hedman, J., & Xiao, X. (2015). Do consumers pay more using debit cards than cash? Electronic Commerce Research and Applications, 14(5), 285-291.
I believe Jenny should accept credit cards because the benefits outweigh the extra costs. Selling in cash gives her the full $1,000 per pair, but credit cards reduce this amount. A 3% processing fee takes about $30, duties could add around $50, and with sales tax recorded she cannot avoid paying income tax, which at 20% would reduce her profit further. Altogether, instead of $1,000 in cash, she might retain about $736 per pair through credit card sales.
The key question is whether accepting cards will raise total sales enough to cover the lower margin. If Jenny sells ten pairs in cash, she makes about $10,000. With cards, she would need to sell at least fourteen pairs (14 × $736 ≈ $10,300) to earn the same. This means her sales must rise by about 36%. Research in consumer behavior shows people spend more with cards because payment feels less painful, and many wealthy clients prefer using cards for convenience, security, and rewards. It is reasonable to expect her sales could grow beyond this break-even point.
Beyond numbers, accepting cards makes Jenny’s business appear more professional and trustworthy. Customers may see a cash-only policy as suspicious, while card payments allow advance orders and larger purchases without carrying cash. Although taxes and bookkeeping will increase, they also make the business more transparent and sustainable.
In conclusion, Jenny should begin taking credit cards. Even though her profit per pair falls, higher sales volume, improved image, and stronger customer trust will likely bring greater long-term success.