New credit card program to cut cash reserve needs
Michigan Retailers Assn. will offer it
Clint Engel -- Furniture Today, April 22, 2010
LANSING, Mich. — The Michigan Retailers Assn. soon will begin offering home furnishings retailers credit card processing services that according to the organization, will eliminate or dramatically cut the cash reserves many businesses are now forced to set aside.
The board of MRA, part of the Dovetail Alliance of home furnishings service providers, this week approved the purchase of a new insurance product that will enable its Retailers Processing Network arm to offer the service. Through Retailers Processing, the association is a non-bank credit card processor.
"We can process your credit card transaction at a competitive rate and minimize or eliminate your reserve requirement because of this unique insurance product," said John Mayleben, senior vice president, technology and new product development for MRA. He said the program should be available within 10 days to furniture and other retailers in all states.
Over the past two years, many financial institutions that offer credit card processing have begun requiring large cash reserves from retailers because of the tough economic environment and increased number of business failures. The move was designed to protect the banks from losses due to chargebacks and customer disputes, in cases where a business fails before a customer receives the goods or service that she paid for by credit card.
Many furniture retailers, especially those deemed a high credit risk, have had to set aside hundreds of thousand of dollars in reserves - affecting their cash flow needs and potentially adding to the liquidity crisis they may already be facing.
Mayleben said the MRA's new insurance will allow the association to offer processing at a competitive cost, while freeing up much if not all of the retailer's reserves.
"Four years ago, we would not have been having this conversation because there was no need for this coverage," he said.
But unprecedented tough times, tightening credit requirements and a credit card processing industry hit by several large retail furniture bankruptcies a few years ago changed all that.
"We really came together and identified this as a program (the industry needs)," said Ed Borowsky, CEO of Dovetail Alliance, which brought the idea to MRA. "And as far as I know, we're the only ones who have solved it."
He said he knows of two retailers (but wouldn't name them) who have had to set aside about $800,000 and $400,000 in cash reserves. "Now they can use that much-needed cash that has been tied up as available operating capital," he said.
Mayleben said the processing cost for a retailer will vary because of factors such as credit sales volume and risk exposure.
He declined to identify the provider of the insurance, but said it is an A-rated commercial insurance company.
For more information on the program, e-mail Mayleben at jmayleben@retailers.com or go to retailers.com.
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