The Money Squeeze

If you own a small business or run a household you are effected by the squeeze. It is a complicated mess but I will try and keep things simple. Let me start this by stating that I am very pro-business and have been all my life. I have of late become very anti-big business. Big impersonal businesses are not good for anyone, least of all a country. I will write an article about this one day soon.

Big businesses for the past three years (probably a lot longer) have been squeezing their customers. That means individuals and small businesses. As big business got even bigger they have been taking away services that they use to provide as a matter of course, shifting their cost of doing business to you in the form of fees. They have been changing policies so that it is harder to avoid these fees, and they have been writing the contacts you sign to lock you into creeping cost increases without you approving them along the way. Why it is in the contract they will say when you complain. Then they hide behind the 1-800 number.

The credit card squeeze; Card issuers have been cutting credit limits, and increasing interest rates. The effect has been that individuals and businesses have seen their available credit limit reduced, the interest rates increased, and then your credit score goes down. The credit reporting agency takes your credit balances, compared to your credit available, and creates a ratio %. This is part of the logarithm that computes your credit score. So you credit score declines even if you owe less then the prior year, and even if you paid on time, all because the credit card company reduced your available credit. That lower credit score increases your cost of borrowing. Look for more fees coming from your card company, and higher interest rates.

If you own a small business and need a bank loan this credit card squeeze stops you from getting your loan request approved. This is because you are at a high balance owed (as a percentage), vs the balance available to use (your credit limit). If you pay down the card balance, the card company then cuts your available credit, so the percentage used ratio is still high, so the bank still disapproves the loan. You now have less cash on hand because the bank wanted you to pay down the cards. Now you have to many credit inquiries, so your score drops even lower and your loan remains disapproved.  You've been squeezed.

Accounts payable / receivable squeeze; Credit card companies are advertizing on TV to entice small businesses to take credit card as payment for all business to business transactions. This is attractive to businesses because they cannot get bank loans to finance their accounts receivables. Their customers, (other small businesses) have to now pre-pay for merchandize orders and serves. the 30 days to pay float has evaporated, the pre-pay discounts have gone away, (visa fees ate them) the cost of goods goes up, thus increasing prices. You've been squeezed.

So we have a situation where the small business man cannot get bank loans, his credit card availability is shrinking, his cost of capital has exploded, and his suppliers are demanding prepayment by credit card, and his credit score has declined. Even tho he has done everything correctly, the small businessman is getting squeezed.

The fee squeeze; Banks, (all most all of them), have been slowly increasing fees. Fees for per deposit item, fees for all manner of bank services. My recent bank statement had fees of $106 for the month, up from $75 the same month the year before. The bank wanted a compensating balance of $713,000 to get the services fees waived. Even at a 1% interest rate, I would have been loosing $7,000 a year to save $1,200 a year,  it is obvious that the bank wants the fees and they have set the compensating balances very high to assure that they get more out of me each month. Coming soon will be a fee to use a live bank teller (remember free phone number look up services) forcing you to use the ATM's. Then when everyone gets use to that, they will charge you an ATM fee. Banks are not the only ones playing the fee creep game.

UPS has been finding a lot of other charges to charge you for after you ship a package. The bill most often will not be as you expected, some extra charge will be added.

Credit card processors have been charging businesses more for non conforming occurrences, like card not present, no address match, etc. They say that the extra fee is because there is a bigger risk, yet they charge any losses back to the merchant. So what is the fee really for? The risk is the merchants not the processor or card issuer. (I never did get that question answered) Then there is a charge back fee, this can cost the merchant $15 to $35 for each charge back filed by a customer, even if the merchant wins the charge back dispute.

Then there is the premium cards where the credit card company promotes air miles or cash back, this type card cost the merchant more in proccessing fees to cover the credit card companies cost, thus they shift their promotion cost to their small business customers.

Then there is the situation where the credit card processing company is afraid that their small business customers might not have enough funds on hand to cover any charge backs, so they are demanding that more of these small businesses, leave thousands of dollars on deposit with them at zero interest to cover any possible charge back liability. This further squeezes the small businessman's cash flow. Great for the credit card processors, they get an interest free loan.

Your phone bills are loaded with fees, from the phone company, from cities and other taxing agencies. Hidden cost and waste abound. Your phone company's contract cancellation policies are set up to trap you into even higher cost plans, or to get you to buy another phone even if yours is working just fine. Every plan I reviewed was part bait and got-ya. I went to Virgin mobile's flat rate, with a simple phone because I could not fine a plan out there that did not trap me into poor choices either now or later. Similar clauses are likely to be in your contracts with the trash company, your land lord, and the cable company too.

Freight companies are shifting cost by adding a fuel surcharge to your bill. So your freight quote might just be a freight estimate. My dumpster bill went from $128 last year to $158 this year because of fees, I got rid of the dumpster. The other hidden cost was constant parking lots repairs from the heavy trucks.

So we have a situation where the small business man is getting hit with all manner of fee creep. Controlling cost is difficult because we are not being asked, just billed. This is causing a slow erosion of the businessman's profit margin. We use to call these practices fraud and deceptive practices, well except when big business does it, then it is just in the contract.

Home owners are not excused. You have the same credit limit squeeze, similar credit card and bank fee creep and credit card rate increases. The credit reporting agencies algorithms are effecting your credit scores and thus your cost of borrowing. The credit reporting agencies and the banks have lending criteria that is out of date with the new reality, and thus we are all at their miserable mercy.

Phantom fees; The new one to watch for, is fees that pop up out of nowhere. I found fees on my phone bill that I did not approve, fees from a credit card processor that I had not used in two years. It is important that you review all bills each month, and your bank statements for these phantom fees. It is a shame, but you have to play policemen to prevent getting fleeced. Because the ease of electronic access and electronic payments has an ugly side.

The good news is that a few companies are trying to offer alternatives. If more of us revolt and fight back maybe the big boys will change their practices. The population is fed up as evidenced by recent credit card legislation. But not enough just yet, and it will take a lot of us fighting them to get their attention, but a worthy fight it is. I now read all contracts and line out things I don't like, I inspect all the bills and question everything. I am changing banks, and may well change credit card processors. I found over $500 a month in savings so far and I am looking for more. Join in, help fight the creeping fees that take you money. Let's all of us push back against the squeeze. You will be richer for it.