When customers make purchases with a national credit card, the retailer
a. is responsible for maintaining customer accounts.
b. is not involved in the collection process.
c. absorbs any losses from uncollectible accounts.
d. receives cash equal to the full price of the merchandise sold from the credit card company.
The correct answer and explanation is :
The correct answer is:
b. is not involved in the collection process.
Explanation:
When a customer uses a national credit card (such as Visa, MasterCard, American Express, etc.) to make a purchase at a retailer, the retailer is typically not involved in the collection process. Here’s why:
- Credit Card Companies Handle the Billing and Collection:
The credit card company (or the financial institution behind the card) is responsible for billing the customer and collecting the payment. Once the customer makes a purchase, the retailer receives the payment from the credit card company, not from the customer directly. The cardholder will repay the credit card company later, often with interest if the balance is not paid in full. - Role of the Retailer:
The retailer’s primary responsibility is to sell the product or service and process the payment through the credit card network. When the transaction is completed, the credit card company transfers the payment (minus any fees, like transaction processing fees) to the retailer. The retailer does not need to worry about chasing down payments or managing the customer’s account balance—that’s the responsibility of the credit card issuer. - Absorption of Losses:
While it’s true that sometimes customers fail to pay their credit card bills, the risk of uncollectible accounts generally falls on the credit card company, not the retailer. If a customer defaults on their payment, the credit card issuer absorbs the loss, not the retailer. This is one of the reasons why retailers typically prefer card payments—because it minimizes the risk of nonpayment. - Full Payment to the Retailer:
Though the retailer doesn’t receive the full amount of the sale due to transaction fees, they receive a payment from the credit card company that is essentially equivalent to the sale price, minus these fees. The retailer doesn’t need to worry about processing or collecting payments from customers who use credit cards; the credit card company takes care of that.
Thus, the retailer is not involved in the collection process when customers pay with a national credit card.