Everyone makes big-ticket purchases at some point in their lives; we all need items like vehicles, houses, equipment, etc. Big-ticket items are called ‘big’ because you typically have to invest more time and money to buy these goods than you do your other purchases. In addition, most of your big-ticket items are meant to last you quite a long time before you need to replace them.
That being said, no price threshold makes something a ‘big-ticket item,’ because at the end of the day, how expensive an item is is relative to the purchaser. For instance, something over $100 might count as a high-cost acquisition to one individual, while another considers $2,000 cheap.
However, some items–like houses and cars–are unarguably classified as big-ticket items. From a retailer’s perspective, a big-ticket item might be any product that has a higher price and profit margin than other merchandise in their store.
Another term for big-ticket items is “durable goods,” this is because these goods are meant to last a long time, and are not intended to be replaced frequently–like a car for example. And due to their high cost, buying durable goods typically requires consumers to plan their purchase ahead of time, save up money, or pay for their durable goods through a financing plan.
More often than not, big-ticket items are ‘necessary goods’ and not ‘luxury goods’; things like houses, cars, office equipment, etc., these kinds of purchases require serious planning from both the business and the consumers. Consumers need to be aware of how they will afford the big-ticket item, and businesses need to ensure the payment process goes as smooth as possible.
When consumers are planning out their purchases, they tend to factor in how they are going to pay for the item at hand. Questions they might ask themselves are, what payment methods does this business accept? Does the business offer financing plans?
It’s not feasible for every consumer to pay upfront, so companies that allow customers to pay in installments are far more likely to receive business from people who need a product.
From the business side, it is important to have a secure payment processing system.
“Security is a huge factor in payment processing,” said Logan Murphy, Chief Investment Officer at Currency, a multi-national payments company that specializes in B2B transactions. “The risk of chargebacks and other types of fraud are a constant worry for businesses. Because of the risks associated with processing payments through credit card, ACH and other digital methods, businesses have been restricted to traditional methods. The problem with traditional payment methods like paper check is the inability to integrate online along with the [fact that they are] time consuming and labor intensive processes. Having a robust but secure payment processing platform enhances the customer experience and saves time, resources, and fees on both sides of a transaction.”
A good payment processing system should make the lives of both businesses and consumers more efficient. It should include features that deter, detect, and prevent fraud, and should seamlessly align with business operations in a way that saves time relative to traditional methods. When it comes to making big-ticket sales, significant amounts of money are on the line, so it is essential that you have an easy to use, yet, secure platform that can process large transactions.
Cash is king; the best way to make a purchase–even a big ticket purchase–is still cash. When you pay with cash, you don’t have to worry about paying lenders back. In addition, when you pay the full sum in cash, you won’t have to worry about interest payments accumulating over time. However, it is rare that consumers can pay for items like cars and houses upfront; and if they can, it is most likely because they had been saving for months, or even years, to buy the item.
The next option–and the most popular way to pay–is credit. Paying with a credit card or line of credit allows consumers to finance payments and potentially earn reward points. And depending on the individual’s credit provider, they could face low-interest rates—or extremely high, which can be advantageous or a disadvantage depending on the rate.
Some merchants offer their own financing plans. Merchant financing is similar to credit, but unlike credit card companies, there is no third-party underwriting transactions. Instead, customers are responsible for paying in installments.
If merchants and consumers want extra security, they can coordinate the transaction through an escrow service; an escrow agent is a third-party that facilitates a transaction, holding the money and regulating the transfer until the transaction is considered complete. However, escrow services might charge hefty fees.
What is the best way to pay for a big-ticket item? According to Joshua Reason from Currency, “Digital payment methods offer the most convenience, and with POS financing, it can be as easy to buy a bulldozer as it is to buy a book. “ This could be the case because when you pay via a digital method like credit or debit card, or through a digital transfer service, the process is typically very user-friendly and requires a minimal amount of steps.
However, the way consumers pay for big-ticket items will ultimately depend on the consumer’s financial status and the payment methods the business accepts.
As a merchant, it is important to have payment-processing infrastructure that can securely process large transactions. As a consumer, it is important to weigh your options and consider what the future consequences will for committing to the purchase. Regardless, significant amounts of money are on the line when you make large purchases, so from the perspective of both parties involved in the transaction, you want to make sure things go as smoothly as possible.
John Pearson is a serial entrepreneur and writer who is passionate about helping small businesses launch and grow. His work has been featured in Huffington Post, Entrepreneur, and Forbes.