AboutJim Meadows Expertise I can respond to most questions concerning consumer and business relationships with US financial institutions. My expertise touches on deposit and loan issues and particularly on strategies to navigate through bank policies personell and practices. I have a degree in Economics, attended law school, Graduate Shool of Banking, and Commercial Lending and Compliance Schools.
Experience I have twenty years experience as a bank CEO. Most of those years were spent operating a bank focused primarly on serving consumer/retail needs. I helped pioneer deposit and loan products for low/moderate income individuals. I currently serve on multiple bank boards and am Chairman of a Commercial Bank in Atlanta.
Question Jim,
I would just like to ask about credit card sales from the perspective of the business and was wondering if you could help me understand how it works. If I go to a shop, buy something and pay with credit, that business will not receive any money at that point, is that right? In the account books of that business, it will have accounts receivable at $x amount. It doesn't work as say at the point of transaction, the bank pays the business and then the consumer pays the bank.
So eventually when the consumer pays the bank the amount on the statement, this is when the business will receive its money. Is that right? I think this is right because I have done some studies in accounting and they talk about a figure called bad debts, and if the bank pays the money straight away, then there would be no need for this account. Would appreciate if you could help me in simple terms because it would help my understanding quite a lot.
Thanks
Answer Johann, the merchant will receive the charged funds typically within a day or so of the transaction whether or not the card holder repays the card issuer. The card issuer has basically made a loan to the cardholder. The payment risk is the card issuer not the merchant.
