Simple Question/Big Decision

When does your #rental business want to collect payment from customers?  At the time of booking, or when the rental is returned?

Regardless of the answer, there are big implications to the customer experience and your payment processing costs.  

No matter what you choose, the RentMy rental management solution has you covered.

The Case For Up-Front Payments

Rental businesses are a unique brand of retail, as there are often upfront charges on the order that are not ultimately charged (settled); examples are deposits, delivery fees, and other “presumed” usage fees that may not ultimately be collected.  These fees, despite that they may be waived or refunded at the time the rental is closed can significantly increase your merchant processing costs, thus eating away at your profit margins.  

Here is a simple example:

Assume your customer rentals an item for $100.  Your business requires a 15% security deposit (in case the item is damaged), and there is a $20 delivery fee for the order.  And, the local sales tax rate is 8%.

Assuming a typical processing rate of 1.5% for in-store payments (or up to 3% for online payments), the processing fees for this order will range from $2.19 to $4.37.  And, your business doesn’t get to keep the sales tax (which is remitted to the local tax authority).  The revenue for the order is $135 minus your processing fees, so you keep (for the in-store example), $132.81.  Not too bad, right?

But, assume that everything with the rental goes right:  The product comes back in pristine condition, and maybe even a day early.  Do you refund the security deposit in its entirety? Do you credit back a portion of the rental fee because the item was returned early?  If the answer to either of the questions is yes, you are not only paying processing fees on a higher total order value that never materializes, but you will pay your processor not only to capture the payment, but also to refund the charge(s).   The net is that processing fees take a much bigger chunk of your profits.

Collecting When the Rental is Returned

You can certainly avoid some unnecessary charges for capturing fees that might ultimately be waived/refunded if your business collects funds at the end of the rental, but there are some things to be aware of with this approach, too.

RentMy offers the ability for you to “authorize” charges on a customer’s credit card without actually “capturing” those funds and paying the full merchant processing costs.  This method not only reduces upfront expense to accept and order, but also leaves some additional flexibility at the end of the rental.

In the above example we assumed that everything went “right” with the order: the product was returned in good condition and even a little earlier than expected.  However, some businesses can’t always count on the perfect customer.  If your business plans to collect fees after the order, you can avoid some upfront costs and add any extra fees (late fees, cleaning fees, etc.) and capture funds all at once (thus paying a fractional “authorization” fee and then a full “capture” fee once funds are collected.  Keep in mind, however, that customers may not manage their credit as well as they should, and there is a risk that funds that were previously authorized may not be available when the rental is closed.

Conclusion

Each rental business will make it’s own cashflow decisions.  RentMy understands the importance of the “authorize only” and “authorize and capture” selection, and we are pleased to support both methods with our easy-to-use and awesomely powerful #rental #software. 

Leave a Reply

Your email address will not be published. Required fields are marked *