Another salon bites the dust and customers that had signed up for their spa packages are left hung out to dry.
On Twitter I commented that one should never pay for future services using a credit card.
@mrbrown not just this. Never prepay via credit card for any future services product
— Alfred Loo (@Alfred_Loo) September 26, 2015
Someone replied how to minimize risks. The subject matter was too complicated to be properly expressed in a tweet, so I replied always pay in cash.
Now when you are using credit card to pay for goods or services, you are actually not paying for it. The credit card company or bank is paying on your behalf. In a simple transaction say movie tickets, you receive the goods, ie tickets. The bank pays on your behalf to the cinema operator. At the end of the month, the bank bills you. The credit card chit that you sign is authorizing the bank to pay the cinema operator.
Note the round robin of payments.
In another real life example, when you use a credit card to pay for a 10 visit spa package, again the bank pays on your behalf. The bank will bill you later and you will pay in one time payment or via installments. Now if the spa operator goes belly up, you obviously won’t be able to fully utilize that 10 visits. Services not delivered to you. But you will still need to pay that spa bill, as you owe the bank! Not the spa operator!
To minimize your risks, by avoiding goods/services delivery that are spread over a period of time.
Excellent candidates for credit card installment plans, sofas, TVs, next month tour package, stuff that has a short delivery cycle. This will minimize risk in case the merchant goes tits up.