Ask Us Anything: Jean Liu on the best way to use credit cards for purchasing

Hi, I'm Caitlin Peterson, the Editor-in-Chief of Business at Home. Welcome to Ask Us Anything, where we're tapping your favorite Trade Tales guests to answer all of your questions about building a better design business. Some weeks, we'll be workshopping a crisis. In others, we'll take a step back to talk about the big picture, things like embracing change, hiring, or how to level up. No question is out of bounds, no question is too large or too small, and we're keeping it confidential so that this is always a safe space to air your frustrations and share your fears.

This week, we're talking about credit cards again, this time fielding a question from a designer about whether or not to pass along vendor processing fees to clients. I've always eaten the fees that vendors charge. When I've used credit card to place a client's order and there's been, let's say, a 3% processing fee, I've then eaten the cost. Our question asker is used to absorbing the cost of credit card fees, but she's looking for a way to build some of those expenses into the client's final price. Now she's wondering about the best way to explain those additional fees.

So I'm curious for those designers who do pass that charge along to the client or the fee along to the client, how does that work? How are they communicating it? Are they charging it at the time that they're charging for the item itself or are they retroactively charging the client? Are there other things where that applies, where there are little fees that you also eat the cost of? Like, oh, this is my cost of doing business.

It's been interesting with the tariffs. The first couple instances where we were hit with additional taxes, I ate the cost. But now I think because it's the general state of affairs we're living in now, and I think my clients are understanding there's a lot of unpredictability around the tariffs. So I've been more open about going back to them and saying, hey, unfortunately we were hit with this additional tax and they've been very receptive to them paying it.

How are you getting the payment from your clients for the cost of goods, for markup if you have one, and for taxes, shipping, all of that stuff? Typically we create a proposal that has every fee, cost, etc., associated with an item. So not just the cost of the product itself, but also if we have the information about how much it's going to cost to ship, that's when we also charge for shipping. Oftentimes, even prior to the tariffs, when an item shipped, we always verify the shipping invoice with the purchase order that we've created because we want to verify that what we are ultimately charged aligns with what the client was charged.

There have been many instances where then retroactively, I have gone back into that previous invoice or created a new invoice, just so the client doesn't get very confused, that states additional fees that are due. What are the pain points in that going back to clients with extra bills? I'm completely empathetic to spending fatigue, especially if you're involved in a remodel and clients are hit with unexpected charges, not only from us, but also from their contractor or subcontractors.

Going back to credit cards for a second, how often are you purchasing from vendors with a credit card? And is that your preferred payment method? Credit card is definitely my preferred payment method. It offers a good amount of security. We've had instances in the past where unfortunately vendors have gone bankrupt. The ability to go to our credit card company and say, you know, this order wasn't fulfilled and dispute the charge. That's a lot better scenario and outcome. So generally I like to have the protection and use my credit card. The credit card fees then are just a cost of doing business for your firm. I'd say generally, as much as I love using credit cards and having that protection, I typically do not use them when there is a processing fee.

So if there's the option to pay with a wire or cell or ACH, then I pay using those methods and save on the processing fee. However, unless it's absolutely required, I do not pay in full. Would that be the best case scenario for you is to say, okay, whenever possible, I'm going to pay by credit card. The client absorbs that fee and maybe that's the cost of doing business for them and protects both of us. Yes. And I think that's something I'm considering doing.

I'm so curious to hear when designers bring that up. Our question asker wants the security that paying for product with a credit card offers, but she's sick of absorbing the processing fees that vendors often charge. Those seemingly small fees, 3% here, 4% there, they really add up and they can cut into a firm's margin.

So when she called in, she was looking for guidance and she's in luck because her business is located in a state where she's legally allowed to charge a processing fee without too many strings attached. But a lot of you listening today aren't, and I want to make sure you know who you are so that you can take what you're listening to here and proceed thoughtfully. For anyone in California, Connecticut, Maine, Massachusetts, New York, and Puerto Rico, this disclaimer is for you. You can still put a ton of advice from this episode into practice, but you'll want to read the fine print of your state's statutes or just talk to your accountant first.

I'm laboring this point a little bit for a reason. I've been having a lot of conversations about credit card fees on Instagram lately and sometimes I'll get a DM from a designer that just says, it's illegal in my state, I can't. A lot of the times they've opted out of using credit cards, they've opted out of that protection credit cards provide their firm because they don't want to absorb those fees and they don't think they have another option.

I went poking through some of your state laws and it's actually not quite that simple, in a good way. In a lot of cases, the laws in those states prohibit you from tacking on your own convenience fee or from adding markup to a processing fee you've paid, but you can absolutely pass along the cost of a vendor's fee to the client. As long as you clearly communicate the total price, including that fee before the transaction is made.

In short, there's still a ton of opportunity to use those credit cards and to deploy the great advice about billing that you'll find in this episode, all without breaking the rules.

Disclaimers and state laws aside, our question asker was also tapping into something so much bigger, a yearning for pricing that offers clarity rather than leaving clients feeling nickeled and dimed.

I knew just who to connect with to help her find those answers. Someone who offers total transparency about quoted prices and the costs to come when her firm sends its estimate. All that and more in just a moment.

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Today I'm joined by Jean Liu as a guest on trade tales last year, she explained how certain spending policies like charging an upfront retainer can help gauge a client's level of commitment.

I thought she'd be the perfect person to answer today's question. Trade tales listeners heard from you last fall. One of my favorite moments in that conversation was when you talked about wanting clients who are all in, and it sounds like you've got a lot of those now who are coming back online after the summer away. How's it going?

Thanks for asking. Yeah, it's pretty busy. Summer's generally a quieter time for us as clients go out of town with their families and they all came back last week. You can definitely feel the difference in the mood and in the pace of our studio this week versus last week.

How do you prepare for that in advance? What does it take to ramp up and be ready for everybody to say, oh, I'm checking my inbox again?

I think my way of getting ready is to make sure that my whole studio takes the most advantage of those slower weeks leading up to clients arrival. I know I'm probably one of the last studios out there, but we don't really do summer Fridays. I know everyone in my studio doesn't love me for that, but we take it down a notch, but we're still definitely working so that going back is not as painful. I like that. You're like, we don't decelerate all the way. No. That climb back to full days can be rather hard if we totally let go of any kind of discipline.

What else is going on these days or what are you most excited about when you walk into work?

I think there are a couple of fun projects going on right now. If I may, I think it's nice to note that Kips Bay Dallas will be coming back this fall. I am a co-chair. I'm very excited that we are going to be able to use the same location as we had last year. That was a huge success and I'm involved in making sure that this year's show house is equally successful. I'm also involved in a pretty fun collaboration with Kravit at the moment that will launch sometime later this fall. That's been a really interesting, fun, and creative project for us thus far.

Are you ready to give some advice?

I'm ready to give it. I'm not sure if I'm willing to take my own advice. I like that honesty.

This week, we are fielding a question from a designer who wants to start billing clients for the credit card fees that vendors charge rather than eating those costs. What she's looking for, I think first and foremost, is really a framework for how to explain why those fees are simply a cost of doing business.

I thought maybe to start, we could zoom out a little. Can you talk to me about your purchasing process and when you would choose to use a credit card to purchase something on a client's behalf?

I am a big fan of using credit cards as often as possible, even when a processing fee is part of the equation. To answer your first question, we put together what a client would look at and we would call an estimate. We've been through the design presentation process. We've shown them what potential chair or sofa we would recommend. They say, yes, we like it. We like it with this fabric, and so we say, great. We go and seek all of the hard pricing, which is we actually call up a showroom or a maker and we say, please submit an actual quote. When we get all that information back, we turn it around and we create an invoice that's presented to the client. If they sign off on it, it becomes an invoice. The estimate is really not something that they pay off of, even if the numbers don't actually change between the time that they look at it for the first time and the time they actually approve it. We put as much information in that estimate as possible. Even if we don't quite know what, say for example, shipping is going to be, we put TPD so that we at least call out a line for it. We also use the estimate as a way to add any kind of notes and disclaimers that we foresee coming or that we won't know until at some point in time later, such as this estimate does not include installation or production does not begin until sample finish is approved.

So that's a place for us to make a lot of notes so that the client feels good about what they're about to say yes to or not. From there, if it's approved, we turn it into an invoice, we collect the payment, and then we actually place the order. We try to have those two things happen within as close of a proximity to each other as possible, especially today given the fluctuation in prices we see, namely because of tariffs.

How are you handling things like fluctuation of prices or turning that estimate into an invoice when there are some TBD line items? We also talk about a line item for tariffs, if and when they apply. That's generally standard language now in our estimate. And then when we are invoiced for them, we actually go back and invoice our actual or what that number really is. And we tie it back to whatever that estimate or invoice number was so that a client understands, oh yeah, that was the shipping for that table, or this is the installation fee now that the window treatments are ready and they've been installed.

Are those smaller things that come later, are you collecting them into one invoice and sending that periodically, or are clients seeing a steady stream of the small charges as they come in later? We've done it different ways. Sometimes we give the clients an option to pay them as we get invoiced for them by whatever the vendor or the installer or the trade is. And then sometimes if I've built up a pretty good relationship with the client and I feel like I'm not worried they're going to not pay a couple hundred dollars here and there, we will sit on it until it is a larger, more substantial amount and try to invoice it all at one time. Because I do think that there is fatigue that happens when clients just get hit with endless invoices, even if the actual number amount is not huge.

Going back to credit cards, how often are there credit card fees that are unexpected? Or is that something you're typically able to anticipate and fold into that early estimate and invoice? I don't think that I can recall a time when a credit card processing fee came to us as a surprise. I think we know about it on the front end, which is why I think it's important for at least our studio to go out and get the hard quote, because that's what we will know if a vendor or a workroom intends on charging a 3% or whatever percentage processing fee. And then that way we are building it into and including it in the way that we talk to our clients about what the cost is.

Do clients see those fees? When they're looking at that invoice, they do know, okay, this is a tariff. This is a credit card processing fee. This is markup. Are they seeing all of those things itemized out? I have to say that we don't actually call out the processing fee. We do call out what we're describing as a tariff surcharge. We view the processing fee as part of the net cost of the actual product or fabric that we're purchasing. We are big believers in using the credit card as often as possible, because I think that sometimes when we're making so many purchases, that credit card company is another layer of consumer protection that we don't have otherwise. And in my experience, the credit card companies have been extremely helpful in trying to resolve, understand, or advocate for us as a small business when we've needed their help.

Can you give me an example? Like one of you had to go back to the credit card company and say, like, we need your help here. Yes. We almost exclusively use American Express and I have found them to be the most robust in their consumer protection. I'm not really sure if they just have a team of people on the other end. They're willing to eat more than another company. I don't really know, but we have had fabric show up, stained or short-shipped fabric. We have had product lighting fixtures show up that were not anywhere close to the finish that we signed off on.

And we obviously try to work those differences out with the manufacturer or the vendor first. But when we are getting nowhere, that's when we say, hey, I have no choice but to file this claim. I've also used it in rare instances when the vendor or maker is not actually shipping to the timeline that they actually promised. You know, we obviously understand a lot of these things are handmade and they're not stamped out by a machine, but there becomes a point and it's different depending on what it is where you do start wondering, have I just been scammed? Are they going to take the money and never deliver? So that's when I say, hey guys, I need either confirmation with a tracking number or I'm going to have no choice but to turn it over to the credit card company.

What happens then? Does that tend to yield a quick result from the vendor or is it really that you've had to file that claim with Amex? Knock on wood, so far it has resulted in some kind of action thus far. I think only one or two times we just turned it over and let American Express handle it. Every single time we were immediately refunded the actual amount that was charged and honestly never heard about it again. That's amazing peace of mind too.

Yes. I think it's important too because despite the fact that our clients intellectually understand that we're relying on another brand to deliver their product, I think we're still the ones that are going to get the black eye for something either not showing up on time or showing up completely damaged. So for me and our studio, American Express or another credit card company helps preserve the integrity of our brand and lets us continue to do what we want to be doing, which is doing the design piece of it.

One thing I think our question asker really wanted help with was, I think she wants to move into working this way, but she wants to know how to talk about it with clients. Do you ever have a moment where you say to them, look, that credit card fee is going to be part of the cost of the item, even when there's a fee-free option for purchasing? We just believe that this is a better way to protect your investment and to protect our business.

Sure. I think to be totally honest, I've never had a client thus far question that fee. We do pride ourselves on trying to operate a very transparent and as open business process and model as possible. I don't think clients necessarily ask. If they were to, I would explain to them exactly what I just said. Hey, it's another layer of insurance. It's up to them if they wanted to forego the 3%. We don't have a problem doing it. I think what I would just say is you run the risk of something coming in and having to deal with whatever headaches on the back end that might happen.

To be also completely frank, we run into problems a lot more these days than we did in previous years. Just in terms of unreliability of vendors? Things getting damaged in shipping, things not coming in on time, things coming in not the color that we signed off on compared to the strike off or the cutting. That I feel like is 3% as well worth a peace of mind, if you will. Again, we're not talking about buying a house and having another layer of insurance, but it really boils down to how much brain damage do you want to have to go chase and fix those things.

Our question asker also wanted to know when you're charging those fees. I feel like you've explained when those come in the process, but how do you help get clients ready for those after the fact bills? Is there any language you're using to diminish that spending fatigue or that invoice fatigue that can kind of set in at the end of the project? I think the estimate is where we try to bake in as much of the fine print as we can, if possible. All the language that we just talked about, this does not include any kind of applicable tariff fees. Shipping is TPD.

This estimate is only valid for 30 days, mainly because a lot of our vendors will only hold pricing for a period of time. So we try to get all of that on paper at the estimate phase. One of the things that I've also gotten away from doing is charging a deposit and then collecting a balance. We now have moved to collecting the entire amount on the front end because it got to be a lot more work for our studio to try and collect a balance. And then I felt like the clients were also equally growing tired because they felt like they had already paid for something in the beginning. So obviously we understand if from a cash standpoint, people feel like, hey, it's easier to have a balance and a deposit, but nobody's pushed back. And then they also generally are ready to have their things because a lot of the pieces we're ordering these days have a 20 weekly time. So by week 22, they really want that sofa. And so when we say, okay, we'll deliver the sofa, we'll schedule for delivery after the deposits it's been paid, you know, rather than, oh, it hit the warehouse. It looks great. Let's go ahead and set up a time for delivery.

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Can I ask a really cynical question? Do clients read the fine print in that document?

Yeah. That's a really touched on a really good question because I'm not entirely sure I have had some clients who I think are impeccable business people. And I feel like all the information is there. And I come to find out that they clearly didn't read it or didn't know that these things weren't actually part of the original cost. So one wonders, but I think as a designer trying to run a business, I think all we can do is try to put as much information out there for them as possible. I don't think it's reasonable to think that any of us can anticipate everything that they would or wouldn't know or read.

Has it been pretty easy to navigate when you find a client who maybe hasn't read all of the documentation?

No, it's terrible. It's soul crushing because I think every minute we spend trying to do that ticky tacky business side of the work is a minute or a second that we're not actually doing what I want to be doing, which is the creative aspect of our job. And it's by the way, that transition going from the business side of it to the creative side of it, to the client management side of it, those are all things that you don't flip a switch and all of a sudden you're thinking in that frame of mind. I think that's so important to acknowledge, there's a transition period for each of those things.

Yes. And my studio is of a size where while I'm not day in and day out putting together quotes, asking for showrooms and workrooms to send me pricing, I still do look at it because I feel like it's my responsibility. So while it's being minimized, I'm still involved in the financial piece of the business.

Do you still have six team members?

Yes. I will forever remember that from our interview last fall, they were like, this is it. This is perfect. I'm done growing. Yes. And I think it's interesting since I last spoke to you because several people have mentioned to me that they listened to the podcast and they thought that was interesting that I didn't want to be this 10, 12, 30 person firm.

Is there ever a temptation or are you very firmly committed? That is not a temptation I have experienced since we last spoke and or something I foresee happening in the future. I still stand by at that point, I'm managing and I'm managing people and personalities and not actually focusing on the design.

Speaking of managing people and personalities, what does it take to navigate that client conversation about unexpected bills or unexpected to them bills? What are some of the secrets you found that sort of ease those conversations?

I don't know if I've found a secret per se, but if I'm working with a new client and I'm sending or studio is sending the first billable time invoice and or sending the first invoice or estimate for anything they're about to purchase, I will send a separate email and I'll say, dear so and so, you're about to get this. I wanted to walk you through it. Here are some things to note. Please feel free to call me if you have any questions after you see it. And sometimes I'll follow up with a phone call because I also am a believer that today people email and text so often that it's still really a nice thing to pick up the phone and talk to someone.

And I think that's a perfect opportunity for them to raise any kind of questions they might have after having received the first set of bills, if you will.

Is that more in the beginning when people just like don't know what that bill is going to look like and may sort of be still getting used to seeing those invoices?

Yes, and I will say that I've also generally attach a sample of what a billable time invoice and the sample of what and what we call an FF&E invoice. I attach it to our quote unquote letter of agreement so that when a client signs on to work with us, they have some idea of what those two things will look like.

That's amazing. I think it goes back to saying to that belief that we try to be as transparent as possible and I'm not somebody who likes surprises, so I try to anticipate what a client may or may not appreciate as well.

When you add that, let's say 3% processing fee to the price of an item, of a piece of furniture, are you then adding markup on the entire net price, including that 3% fee?

Yes. I think I spent a lot of years working under an accountant, so at the risk of getting very technical, he would argue that that 3%, including the shipping, would all be considered the net cost because if I were buying it for myself or you were buying it for yourself, theoretically those are all costs that you would incur just to get the widget or the piece of furniture to you. So technically, the price of the piece of furniture or fabric, the shipping, the processing fee, it's arguable even the tax would be all considered net. So I don't have any problems with the 3% being part of the net.

Now I will say the offset, in case clients are listening to this, is that our markup is on the lower end of standard by percentage. So I feel like that's sort of the equalizer, if you will.

Now to maybe drive this conversation in a slightly different direction, there was a time when I would even allow my clients to pay with credit cards their hourly or their billable time in their furniture and I would not charge the 3%. I think the philosophy back then was, hey, we want to try and make it easy for our clients. We're not trying to make it painful for them to part with even more money.

That changed when my bookkeeper came to me at the end of one year and said, I just want you to know this is the amount of money you either ate or gave up in processing fees. That number was so large, it shocked me. So from that point on, I did say to clients, hey, we will still take a credit card. There is this fee. You let me know if you want to use it.

How did that change their behavior? It didn't.

I mean, for us, I felt like if it took clients probably three days, four days to pay an invoice if I had a credit card option with no additional charge, and then sometimes it can take upwards of a month now if clients are sending a physical check or wire. But it changed their behavior. More people opted for the fee-free version. Yes. So maybe I'm the only outlier that I feel like 3% is, there's a convenience factor there that I am on board with.

Can you tell us the best piece of advice you've received, something that made a difference for you and your business?

I think there are two pieces of advice. One was actually put back on my radar by a client I adore, and it's the reminder to focus. Just the importance of focusing on what's important to you, focusing on what your goals are for that year, and trying to actively remove yourself from situations or things that might be distractions, even if it means saying no a lot. So focus is at the forefront of my mind these days.

I think if there was a financial piece of advice that was given to me early on, I think any design studio, any young person or anybody, we should all have anywhere between six months to a year's worth of savings set aside in case something happens. Actually having that was what gave me the guts, if you will, to start my own studio. I thought, okay, saved up enough. If it totally flops, I've got a six-month path, runway, to figure out something else.

Does that still sit in the back of your mind when you're thinking about taking business risks today?

Absolutely. This takes doing, and I'm somewhat proud of it, so I will tell you that all six people, their salaries are set aside in my studio at the beginning of every calendar year so that I know that if we are on tough times, we at least have some time to pivot or adjust whatever and however we need to.

I have a million questions about this. I'm going to keep myself to one. What is the saving mechanism that you're using throughout the year to make that possible? Because I feel like you can't just start thinking about that in December for January.

No, I have a pretty tough bookkeeper. She comes in every Monday, and I know it's a little bit like going to a trainer where they're just going to beat you down. Her job is to really ride me about numbers. I think that it's a relationship out of respect, and so I ask her to be really tough. We actually have accruals that we just set up. It's taken years to be able to get to this point, but we have a budget or we have a loose idea of what we can and can't do, and I try to be very timely with letting her know anything that I see on the horizon that we want to participate in or that may be an oops.

I think just having the, I don't want to say discipline, but just being able to look out and go, okay, I think this is what the year is going to look like. We need to set aside X, Y, Z. I think I'm going to do a show house. I think I'm going to do two photo shoots. We start putting numbers aside, and then I think it's really just, you just got to do it. There's no method or magic.

Yeah. Most painful the first year to kind of get those numbers down on paper?

Yeah, because I think the first year you're really just taking the, we call it swag. I don't know. Do you know what that stands for?

No.

It's silly, wild, A, and you can guess the other two letters, guess, so we're just making it the first year and then we kind of get better and we refine it every subsequent year.

That's our show for today. Thank you so much for being here and for everyone listening with a question of your own, I'd love for you to ask us anything. Don't worry. We'll keep it anonymous. Please start the conversation by sending me an email at tradetailsatbusinessofhome.com. If you're enjoying Trade Tales, please leave a review on Apple Podcasts to help others discover the show. And if you're looking for even more great business advice, head on over to businessofhome.com.

Trade Tales is produced by me and Caitlin Peterson and Caroline Burke. This episode was edited by Caroline Burke and Michael Castagneda. Our theme music is by Kyle Scott Wilson. Thanks again for listening and I'll see you here next week. Bye.