Credit Cards: Not a Fail-Safe Method of Payment
By Elizabeth A. Walters, Esq. - Attorney Specializing in Collections and Mechanic's Lien Law

Cash is king in the business world, so isn’t accepting a credit card as payment royalty too? Unfortunately, more and more construction businesses are discovering that relying on credit cards as a form of payment does not always result in getting paid.

In a society where credit cards are fast making cash appear obsolete, the use of “plastic” as an acceptable method of payment is also on the rise in the construction industry—although checks still reign as the most widely used form of payment. Companies may believe that they are getting “instant” payment when accepting credit card payments, thereby avoiding the risk of a “stop payment” on a check or the check being “NSF.”

In short, there is the tendency by many in the industry to believe that once the credit card charge is made, the money is theirs. Releases are then provided and the obligation is considered off the books. More and more companies are finding out, however, that the payments originally provided by the credit card companies of their customers can be rescinded after the customer disputes the charges.

It is important to remember that the credit card company responsible for supplying the funds is the credit card company of the customer, not the company receiving payment. If there is a question as to where the loyalties of the credit card company lie, it is being confirmed more and more often that they will decide in favor of their cardholder if there is any basis to their client’s contesting of the charges.

Credit Does Not Equal Cash in Hand

In two recent cases among clients of my firm, charges for materials and rental equipment were made. These two clients considered the sales and rentals to be “cash sales” since payments were made with credit cards. In both cases, the customers received the requested materials and equipment, and payments were “approved” on the customers’ credit cards. The invoices paid were considered paid in full and the usual construction industry releases were provided. In both cases, the charges were then disputed and the funds withdrawn from my clients’ accounts.

In one case, the customer disputed the charges once and his credit card company denied his dispute. This occurred almost one year after the initial charges were made on the credit card. The customer had, since making the initial complaint with his credit card company, received more materials for which the customer’s credit card company had again made payment. Again, the customer disputed the charges, which now also included the additional payments made by his credit card company. This time, after many more months, the credit card company sided with its client and the funds (over $90,000) were withdrawn. By this time any third-party rights that had been available to my client had either expired or had been waived when the construction industry releases were provided months earlier, when my client thought they had been paid. The basis for the credit card company withdrawing the funds was that the customer had not signed the credit card charge slips, and thus had not expressly agreed to have those charges paid by its credit card company.

There seemed to be no valid basis for the credit card company doing what they did. There was no doubt that in both my clients’ cases that the customers received the materials and equipment they had requested, the customers had signed an initial credit card slip for the first shipments, and my clients had proof that the customer had verbally “OK’d” the credit card charges for the charges the customer later disputed.

The bottom line is that while credit cards are an alternative form of payment worth considering, they are by no means fail-safe or equal to the king of payment—cash.

Ms. Walters is a California-based attorney specializing in construction collection/mechanic’s lien law, including irrigation companies. She may be reached at eaw@eaw-law.com.

This article is for informational use only and does not constitute legal advice.