Would You Like a Side of Bacon with Your Matza?

Imagine this dreamy situation…

One fine day, for no particular reason, all your clients who owe you money, suddenly pay you.

On top of that, those people who you have worked for but not yet reached payment date, also pay you for all work you have performed.

And then, all the people who have placed orders but you haven’t delivered the goods yet, also decided to pay you – in advance!

What would happen?

Suddenly, your business and your bank account would be out of the red.

Suddenly, you would actually have some money in your hand before you spent it.

Suddenly, you would hear the sweet tinkling sounds of cash flowing through your life.

Unfortunately, this is not the reality for most business owners :(.

Instead, one of the most common business problems is “lack of cash flow.” In simple words: “too long between now and payday.”

Many smart business brains have examined the problem of “how to increase cash flow?” They have come up with some clever pricing strategies for alleviating this problem, though not eliminating it altogether.

Here are some that you have probably seen: discounts when you pay in full upfront, early bird discounts, discounts for buying in bulk, etc.

The main point behind all these “discounts” is this: I am willing to settle for less profit later in order to have more cash in my hand right now.

Sounds good…….. except that, as I may have mentioned previously, that I am Jewish :). Jews like me don’t eat bacon or bread on Pesach and I generally try to avoid breaking 611 or so other laws.

And one of the stickiest, most complex laws that I try not to break is called “ribbis” (ריבית) – collecting interest on loans. I try stay clear of ribbis, which is the “bacon-on-matza sandwich” of Jewish financial laws.

Except when I accidentally, unknowingly transgress the laws of ribbis through popular pricing strategies designed to increase cash flow.

And yes, like pretty much everyone else in business in 2013, I too have been guilty of these strategies and I have, through ignorance, helped collect ribbis.

For example, I have been involved in promoting products that cost $1,000, or four easy payments of $275.

Oops!

My Interesting Tale of Interest

The beginning of the end of my confessional tale started last Shabbos. I was sitting in my arm chair enjoying reading my favorite parsha sheet, known in Hebrew as Meta’amim Shel Shulchan Shabbat (Treats for the Shabbos Table). My favorite part of this parsha sheet are the brilliant cartoons of Yoni Greenstein (who has been featured before on this blog). I’m such a fan that I actually sponsor this parsha sheet.

My favorite parsha sheet is currently hosting a series on the laws of ribbis and I have been enjoying it a lot. Let’s be honest: there is absolutely no way that a simple balabusta like me would be learning the law of ribbis, were it not for Yoni Greenstein’s cartoon guide.

This week’s cartoon halacha really got my attention:

ribbis cartoon

This unsuspecting Yid is designing an ad for a product that costs either 10 payments of 100 shekels, or one up front payment of 850 shekels. The cleverest part of this cartoon is the poster of the guy in the background, but I can’t think of any way to translate it and maintain it’s wit, so I won’t bother.

Here is a translation of the text below:

Advertising Agency

It is forbidden to work in an advertising agency preparing ads for offers that involve interest. E.g. for a product that is more expensive when paid for in installments than when paid for in cash,  for a bank that is collecting profits without a heter iska (a document permitting loans with interest) etc.

I was quite disturbed at the mention of  the “discount for upfront payment” pricing strategy, as this is something I see everywhere and I myself have used it as a way of increasing cash flow in my own little “advertising agency.” After Shabbos, I contacted my trusty posek, Rabbi Kaganoff, and he confirmed that this pricing strategy is ribbis, even if there is no cash involved. Credit cards or any other kinds of payments are also problematic.

The only exception would be if there were administrative costs (e.g. extra credit card processing fees) involved in offering a payment plan. In that case, it’s OK to pass my extra costs onto my clients (in most cases, these would not be more than 3-4%).

By the way, the other cash flow boosters I mentioned earlier, early bird specials and bulk prices, are not ribbis. The problem begins when you have two different pricing plans for the exact same product, and one of them penalizes client for not paying the full sum right now.

When I think about it, this is exactly what the concept of interest is: penalizing someone for not having the money right now.

There are ways to avoid ribbis while still using creative pricing. If you are in doubt about whether a payment plan is ribbis or not, then you should consult a rabbi or hit the books.

Remember: we may neither lend with ribbis nor borrow with ribbis, so you have to be careful. You may find yourself in a situation where you want to buy a particular product, but you can’t because the seller is offering a side of bacon with his pricing policy.

I’m now working on cleaning up my ribbis problem. Last year I wrote about cleaning my website for Pesach when I realized that I was illegally using the music of Rebbe Alter on a promotional video. This year, I’m repenting about ribbis.

I wonder what spring cleaning next Pesach will hold? :)

Meanwhile, I’m interested to hear you opinions about payment plans, if you use them, and how you see other businesses using them.

And please share this article around if you know of other people who need to read it!

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Comments

  1. says

    naomi,

    this is such an important topic and unfortunately we don’t take the time to educate ourselves about it. Women don’t need choshen mishpat right?

    Thanks for writing about it.

    [Reply]

  2. says

    Thanks Naomi, for this incisive and important post. Tizki le’mitzvot for publicizing this and highlighting the intricacies and potential pitfalls of ribbis!

    [Reply]

  3. says

    Update on this post.
    I just talked the “early bird discount” over with Rabbi Kaganoff and he wrote the following:
    The early bird discount also usually involves a ribbis problem. There are ways of avoiding ribbis here—one method is by making someone a member in an organization and then the item he/she wants is a gift that goes with membership. Another way is with some type of heter iska. I am sure there are probably other methods.
    Artscroll published an excellent and thorough work entitled The Laws of Ribbis authored by Rabbi Yisroel Reisman. I highly recommend it.

    [Reply]

  4. says

    OK, I read this with utter fascination and I appreciate it. But I have a question — I went to the Artscroll site to look up a book mentioned here and saw that they are selling the Sefer HaChinuch at a “Special Introductory Price.” How is this any less of a problem than an Early Bird Discount? Buy it now and pay X. Or wait two months and pay X+5. Same product.

    [Reply]

    Naomi Reply:

    That’s funny!
    I’m no expert, but I think that we all have the right the raise and lower our prices.
    However, I am also feeling very confused and wary about this topic right now and certainly plan on reading that ribbis book.
    If you are going to read it, perhaps you can report on this blog about what you learn?

    [Reply]

  5. Chava says

    I need some clarification… I thought of this post when I was making some pricing decisions recently and I thought of making a prepayment plan, so I emailed the Business Halacha Institute (they have a column in Hamodia) and they said it is not a problem to offer a discount for prepaying. (My specific question was: Suppose I offer services by the hour. Suppose one hour of service is $75, generally one would pay $75 for one hour each time they use my service. I wanted to make a deal where the person could pay up front $700 for 10 hours of service, to be done one session at a time over a couple of months. Essentially, a discount on condition that I see the money first. This would be to get the commitment to 10 sessions and minimize pointless cancellations.)

    [Reply]

    Naomi Reply:

    HI Chava,
    Kol hakavod that you did that and thanks for sharing.
    I have emailed them and asked for more clarification. I have since read the Artscroll book about the laws of Ribbis, and it seems to concur with the other sources quoted in this article 100%.
    However, I am certainly open to other views, and I will post if/when I hear back from them.
    Thanks
    Naomi

    [Reply]

    Naomi Reply:

    Here is the reply I received:
    Thank you so much for contacting us about this important matter and I apologize for the delayed response. Your commenter is indeed correct that we answered that what she wanted to do is permitted. As you mentioned in your blog the laws of ribbis are indeed complex and one should consult each time when possible questions arise. Since you mentioned R’ Reisman’s sefer please look at pages 198-199 paragraphs 14 and 15 with note 23. Although the context there is rental of land the same principle applies to the commentators question regarding tutoring.

    Hatzlacha Rabba,

    Gershon Schaffel

    Business Halacha Institute

    [Reply]

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