DECA Hospitality Services Team Decision Making Practice Exam

Why do many companies set a floor limit on credit card transactions?

1. To encourage the use of cash

2. To control customer spending

3. To protect the company against fraud

4. To enhance customer loyalty

The correct answer is: To protect the company against fraud

Setting a floor limit on credit card transactions is a strategy used primarily to protect the company against fraud. When businesses establish a minimum transaction amount for credit card usage, they effectively limit the number of lower-value transactions that might be more susceptible to fraudulent activities. This measure can involve requiring identification or additional verification for transactions that fall below a certain threshold, thus facilitating greater control and scrutiny over sales. Additionally, a floor limit enables companies to reduce transaction costs associated with processing small credit card purchases. Each transaction incurs fees, and by setting a minimum limit, businesses can minimize those fees while maintaining a focus on higher-value sales that pose a comparatively lower risk of fraud. While other options bring up valid points about cash usage and customer loyalty or spending habits, the primary purpose of a floor limit is to bolster security and mitigate potential fraud risks that can arise with the processing of small, frequent transactions.