Major advantages of credit cards to the retailer include all of the following except the
a. issuer does credit investigation of the customer.
b. issuer maintains customer accounts.
c. retailer receives more cash from the credit card issuer than from the customer.
d. issuer undertakes the collection process and absorbs any losses.
The correct answer and explanation is :
The correct answer is c. retailer receives more cash from the credit card issuer than from the customer.
Explanation:
Credit cards offer several advantages to retailers, but there are specific details regarding the process that help clarify why option “c” is not accurate.
- Issuer does credit investigation of the customer (a):
When a customer uses a credit card, the issuer (the bank or financial institution behind the card) takes on the responsibility of assessing the customer’s creditworthiness. This is a benefit to the retailer because they don’t have to worry about determining whether the customer can afford the purchase. Instead, the issuer makes that judgment based on their own criteria. This removes a layer of risk from the retailer’s side. - Issuer maintains customer accounts (b):
Retailers are relieved from managing customer accounts when credit cards are used. The credit card issuer keeps track of customer payments, balances, interest, and other aspects of the credit relationship. This reduces the administrative burden on the retailer, allowing them to focus on selling products rather than managing financial data. - Retailer receives more cash from the credit card issuer than from the customer (c):
This statement is incorrect. While retailers receive payment from the credit card issuer (usually within a few days), they typically receive less cash than the customer has paid for the product. The retailer generally pays a fee to the credit card company (a merchant fee), which reduces the amount they actually receive from the issuer. The fee is typically a percentage of the transaction value and may vary based on factors like the type of card used and the volume of transactions. Thus, retailers receive less cash than the total price paid by the customer. - Issuer undertakes the collection process and absorbs any losses (d):
Credit card issuers take on the responsibility of collecting payments from customers. If a customer defaults on a payment, the issuer absorbs the loss, not the retailer. This is another key advantage to the retailer, as it reduces the financial risks associated with non-payment or delayed payments.
In conclusion, while credit cards provide many benefits to retailers, option “c” is not correct because the retailer typically does not receive more cash than the customer pays, due to the fees imposed by the card issuer.