Guide to the 3Cs: Credit-cards, Cash, Cryptocurrency

When you instruct a debt collection agency, you expect to receive full payment at the earliest possible opportunity. That is exactly what Advocate achieves on a daily basis for creditors just like you. We only accept and forward payments by same day bank transfer. In this article, we explore the status of other payment methods namely credit cards, cash and cryptocurrency.

Cash is not King

Ever since mankind was first a sentient species, the principle of exchanging commodities for survival has existed. We are the only species who force one another to pay for shelter, food, water, and clean air. Whether it is exchanging coal for bread or cash for questions – the principle remains the same. Cash is a universal tool used to conveniently acquire goods where an exchange or swap is not beneficial. A vegan will not accept a steak as payment for lentils, but they will accept cash as that is far more useful. Cash has been the dominant transaction for millennia. Only in the last century and a half has that era started drawing to a close. The first wire transfers of 1872 by Western Union spurned what is now the world of BACS, CHAPS and FasterPayments. It is now commonplace to settle a commercial debt through bank transfer. Cash is still relatively common in certain business to business trades such as wholesale but far less than in any other previous era. Lest we forget cheques which many businesses are now refusing to accept. The UK Finance Report of 2020 found 3% of business debts are paid by cheque, 3% by cash, 43% by BACS, 31% by FasterPayment and 4% by credit card.

Cash in Hand

When debt recovery avenues have been exhausted, court action inevitably comes into the foreground. After obtaining judgment, Bailiffs may be necessary. A surprising number of debtors will produce cash when confronted with the prospect of goods being removed. Having a ‘wad’ of cash used to be mainstream, but in modern Britain, it is more likely to be seen as the preserve of either the wealthy who flaunt it or the staple of those on low income trying to avoid spending more than they earn. At Advocate commercial debt recovery, we do not accept cash for reasons of Covid and counterfeit security. However, there is nothing to stop a debtor from paying it in a branch at the bank. The clearing time of cheques in addition to Covid security is why Advocate also does not accept cheques as payment.

Credit-Cards

The world’s first credit card was offered to the people of California in 1958 as the BankAmericard. Eight years later in 1966 Barclaycard was launched as the UK’s first equivalent. The basic principle of how credit cards work remains unchanged half a century later i.e. you the buyer promise to reimburse the card issuer for paying a store on your behalf so you can walk out with (unusually exciting) office stationary. In the absence of payment by the due date, interest and late payment fees are incurred – a very similar principle to Advocate applying statutory late payment charges as its fee for recovering payment of your overdue invoices. On average credit card providers charge interest after 30 days. The statutory legislation Advocate uses allows interest to be charged in a similar way but capped at 8% above the Bank of England base rate. The merchant and credit card provider is jointly liable for purchases of defective products. No one likes paying a debt collector and the chargeback mechanism opens the door for a payment to be recalled long after Advocate has paid the client. In the world of commercial debt collection, paying by credit card is tantamount to clearing one debt by incurring another. Credit card companies charge merchant fees for each transaction. Because Advocate does not deduct a transaction or handling fee on monies recovered, we do not accept payment by credit card as this would leave the client short-changed.

Amazon V Visa

In the final quarter of 2021 e-commerce company, Amazon UK indicated they would no longer accept Visa credit card payments from January 2022. They sighted an increase in merchant fees as the reason for such drastic action. Buyers were incentivised to pay by Mastercard or a debit card instead of Visa. The global co-dependency of Amazon-Visa will no doubt foster a solution before buyers and sellers are adversely affected. It is worth noting the two anomalies in Amazon UK’s position 1) Visa increased fees for all UK e-commerce platforms to 1.5% when the UK left the EU because it was no longer subject to the bloc’s 0.3% cap. January 2022 will be a whole year since the cap was removed. 2) Rival firm Mastercard also increased their fee to 1.5% as a result of Brexit but are not a target of the e-commerce platform’s discontent.

Credit Cards – Universal Payment

Over 60% of businesses use commercial credit cards for ad-hoc supplies such as travel, subsistence, and stationary. The chance of a credit card being used as the primary payment method is dramatically reduced when a quote, purchase order or written contract is in place. It can be tempting but very risky for entrepreneurs to use a credit card in lieu of finding another investor. The founders of Google and Cisco Systems are said to have done just that! It’s not just onshore that commercial credit cards find purpose. Procuring goods/services overseas in the local currency is easily done through a credit card. It saves the need to convert Sterling (£) into another currency, although the cost of convenience is reflected in a less favourable exchange rate. There is an emerging alternative to credit cards as the universal payment method – the world now has Cryptocurrencies!

Cryptocurrency

In the same way, you hold a £1 coin in your hand with the value represented by its physical features, cryptocurrency is held in a digital ledger with its uniqueness represented by a very long number/code. For a less primitive understanding, an internet search is highly recommended. This form of payment may soon be mainstream. In 2021 El Salvador and Cuba started accepting Bitcoin as legal tender. Cash/local currencies are regulated by national financial institutions, for example, the Bank of England. By the same token, UK credit cards are regulated by the Financial Conduct Authority (FCA). By virtue of cryptocurrency not being tied to a particular commodity or nation-state, the industry is unregulated. Prices fluctuate based on hearsay. The FCA began regulating the UK facing trading platforms in 2021 with the currencies themselves remaining outside of scope. Cryptocurrency is the nitroglycerin of investments. If handled well it can yield profits to the envy of bankers and brokers. If handled poorly there is potential for a bigger bang than the Black Wednesday stock market crash of 1992.

Smells like CryptoFraud

In 2009 Bitcoin became the first cryptocurrency to launch and has been followed by circa. 6,000 others. With the right equipment and knowledge, anyone can set up their own cryptocurrency in the hope of rivalling the likes of Bitcoin, Litecoin, Ethereum or Dogecoin. In the same way, you may fall victim to a pickpocket in a crowded street, theft of cryptocurrency from online wallets can and does happen. When your wallet gets stolen by an opportunist parkouring urban thief, it’s an obvious crime and a police matter. Because cryptocurrency is an unregulated financial product, legal jurisdiction is a grey area. At Advocate we cannot accept instruction for cryptocurrency because The Late Payment of Commercial Debts Regulations 2013 does not apply. Debt collection for cryptocurrency is slowly starting to be established, typically through solicitors and the FCA if the trading platform has liability.  Unfortunately, it’s not as easy as hiring a debt collector or passing it to the Crown Prosecution Service. Regulated or not, no industry is immune from the stain of a minority seeking ill-gotten gains. In August 2021 the biggest heist in history saw $600 million of digital currencies raided from a trading platform.

Paying the Real not Crypto Game

The danger in accepting payment by cryptocurrency is the amount received may suddenly devalue below that of your overheads and margin. Advocate does not accept payment by cryptocurrency because the payment could be worth less than the principal debt within a matter of moments. The opposite is also true. Debt recovery should be about obtaining full payment, not hedging. It is worth noting that like credit card providers, trading platforms and exchanges also charge a transaction fee potentially leaving a client short-changed through no fault of their own.

Conclusion

The world has come a long way from swapping commodities, to credit cards and the leap to cryptocurrency. In the developed world society is veering towards a cashless society. In Sweden card transactions are already the norm, cash is dying, and cheques are discouraged to the point of being almost unheard of. Just as credit cards had to be regulated to protect individuals and businesses, cryptocurrency will likely follow suit. Legislation is rarely pre-emptive and more often than not, regulators play catch up. As the world and its governments find a path through unprecedented pandemic times, cryptocurrency regulation is rising up the to-do list. This insight has been brought to you by Advocate commercial debt recovery.  We’re not just another debt collection agency, we are an enlightening one!

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