The Big Deal With Pre-Auths
Is your biggest customer complaint about pre-authorization holds?
Then pat yourself on the back, you are running a great washing business!
It’s not easy to keep customers happy and returning. Taking credit card payments in an unattended car wash situation is tough. Here are some tips for how to manage customer perception and acceptance of pre-authorizations in an unattended business setting.
First, let’s briefly discuss the question “What is a pre-authorization”?
A pre-authorization is a request to set aside or hold a specific dollar amount on a customer’s credit or debit card account. This is done to ensure those funds are available to complete a transaction whose final price is unknown. It’s the same as saying, “I know I want to purchase some services, but I’m just not sure how much I’m going to spend until I’m finished”.
SO WHY DO WE NEED TO USE PRE-AUTHORIZATIONS?
Can I get rid of pre-authorizations? The answer is yes, no, and maybe. Before we answer the questions, we need to understand the benefits of using pre-authorizations.
Pre-authorizations are used for 2 main goals. To make, or save, YOU more money. Pre-authorizations help MAKE you more money by allowing customers to spend as they need by counting up rather than counting down. We’ve all seen the mad rush to beat the last coin alert. With count up your customers are able to wash at a more comfortable pace and this leads to more time spent washing making you more money per customer visit.
Pre-authorizations can SAVE you money by bundling multiple card swipes or uses into a single transaction. To understand how this works we need to understand how credit card transaction fees are calculated. Each credit card transaction fee is broken into two parts. The base charge and a percentage charge. The base charge is a fee that is charged on every single transaction. The percentage is a variable fee calculated by a percentage of the transaction amount.
Let’s compare a customer spending $10 using multiple $2 swipes both with a pre-authorization and then using multiple transactions. We’ll use round numbers for an easy example.
Scenario 1: The base fee is 10 cents and a percentage is 5 percent. The pre-authorization method we will see $0.10 base plus $0.50 in percentage. The $10 total transaction using a pre-authorization has cost you $0.60 in fees.
Scenario 2: Using the individual sale method, we see $0.10 base plus $0.10 percentage for each $2 transaction. To arrive at the same $10 spent we need to add up $0.20 for each $2.00 spent and we arrive at a total $2.00 in fees! For the same $10 spent! Using a pre-authorization has now SAVED you $1.40 in fees!
In the words of the wise Benjamin Franklin, a penny saved is a penny earned.
Making Happy Customers
Now that we understand what a pre-authorization is and how it can be used to make and save money, do we still dislike them? It turns more bitter-sweet doesn’t it?
So what can we do to help our customers understand the pre-authorization process and field less unhappy customer calls? While some of these tips are directly related to WashCard customers, this is certainly valuable information for any business dealing with pre-authorizations.
- Proper signage is a great start. Make sure you are notifying customers about a pending hold on all transactions, and the amount. Make sure the signage is visible, and in good shape. Customers need to know what to expect. Your WashCard System will finalize or capture all pre-authorized transactions for the actual amount spent 1 hour after the last use by that card. Unfortunately, not all card issuers handle releasing of the unspent funds equally. Some institutions will process these funds the same day, others may continue to hold the funds for several days. This process is entirely up to the card issuer. Your best defense is a good offense. Proper signage!
- Make your business phone number readily available! This is easily overlooked. Not all customers will read your signage, and those that don’t need to be able to reach you when they have questions or concerns. Post your phone number in every bay, in vending areas, and online anywhere you have a presence. Google your business. If you show up somewhere, make sure that all of your contact information is accessible and correct. One of the leading causes of unnecessary charge backs is the customer thinking they’ve been over charged due to a pending pre-authorization. With your contact information easily available, you have a better chance of being able to explain the authorization to a customer before they decide to contest the charge through their issuer.
- Set reasonable pre-authorization amounts. When you first installed your WashCard System, you likely had no previous credit card transaction history in order to determine what your average customer spends. Now that you’ve had the system for 6 months or 6 years you have data! Use the BMC to find out what your average customer spends per visit. Adjust your pre-authorization amount to cover what your average customer will spend. You may find that either lowering or raising your amounts will benefit your situation. You can also set different authorization amounts for different services. For example, a Truck or RV bay may need a higher amount than a car bay. Set reasonable amounts for the services you offer. Don’t forget to think about customers who may use more than one service. Vacuums come to mind as a great example. For Laundry operators make sure you are considering both Washers and Dryers.
- At the end of the day if you are still set on doing away with pre-authorizations, most services can be configured to run a sale rather than a pre-authorization. You will need to choose a set price for each swipe, and most services will require some minor wiring changes to accommodate.