In the modern world, a large variety of payment types are available to please customers and move money quickly into your accounts. While some methods charge a small fee, the pros of the payment type may offset the costs. To optimize your profits, consider what types of payments are the most cost-effective for your business.
Cash is the only payment that is free to accept, but it comes with some severe limitations. Many people don’t carry cash, and you can’t accept cash for website transactions.
Along with the inherent inconveniences associated with cash, you need to take it to the bank and deposit it into your account. If you plan to keep a lot of cash on the premises, it’s a good idea to invest in a safe. Most importantly, numerous studies explain that consumers tend to spend more when they use credit cards – and as a business owner, you need to tap into that extra revenue potential.
If you’re thinking about accepting cash only, carefully consider whether that choice is feasible for your clients, and estimate how it may affect your revenue flow. If you want to encourage clients to pay in cash, consider offering a discount for cash payments. Ideally, make sure the discount is less than the fees you pay to process cheques or credit cards, or you don’t save any money.
Should Your Small Business Go Cashless?
Imagine saying to your next customer, “We don’t accept cash.” Radical? These days, small businesses going cashless is the trend rather than the unusual exception. Increasingly, Canadian consumers use credit and debit cards, mobile devices, and apps to make regular in-store purchases, and cash payments are going the way of the dinosaur. Consider going cashless to keep up, and create an easy checkout process that saves time and effort for you and your customers.
Can I Save Time?
If you wonder if adopting a completely cashless checkout system can save your employees time, the answer is probably yes. Better yet, a cashless system can save your customers time, keeping them happier as they complete their shopping with increased efficiency. According to a Cashless Cities report by Visa, seven out of 10 Canadians who use their smartphones for payment say convenience is the main reason they pay with their phone versus other payment methods.
Most small businesses accept credit card payments. Using a card pad to pay gives the customer more control over the payment process and cuts out the step of making change for cash. Upgrading your payment technology to accept mobile payments using a device such as a smartphone is the next step and makes paying a matter of a quick tap to access a mobile wallet. If you’re a quick-serve retailer, where getting customers in and out fast makes your business hum, going cashless might make the most sense based on time saved.
Can I Reduce Costs?
Accepting bills and coins comes with basic transaction costs. Your employees must make change, and it’s easy to lose a percentage of sales due to calculation errors. Plus, you probably pay someone to acquire the cash denominations your business needs, count the cash, fill out paperwork to account for the cash, and take it to the bank for deposit. Each step in the process of accepting cash comes with labour costs that a cashless payment system doesn’t require.
A cashless system is also more secure, reducing the costs associated with employee theft and other losses. While you may never think about how much your business spends to handle bills and coins, going cashless could end up helping your bottom line.
Can I Increase Sales?
Customers spend more when they use credit instead of cash, and mobile payments in a cashless system tap into that trend. Canadians are some of the most digitally savvy consumers in the world, with a high percentage owning a smartphone that they use to make mobile payments. Why not go all in on a cashless culture that has the added benefit of encouraging customers to spend?
It’s never easy to embrace innovation and disruption, but a report from payment technology company Moneris estimates that cash may account for only 10% of the money spent in Canada by 2030. Going cashless has its drawbacks, such as the higher fees associated with credit card processing and security concerns involving customers’ electronic information, but it’s possibly the trend that can invigorate your bottom line.
Most banks accept cheque deposits for free, but you may pay a monthly fee to have a chequing account. If all of your clients write cheques that don’t bounce, this is one of the most cost-effective payment methods.
If customers write bad cheques, you may incur fees. Account balance fluctuations due to bad cheques may cause outgoing payments to bounce, resulting in additional assessment of fees. If you have a relatively small pool of clients you trust, accepting cheques may be the right option. But when you own a coffee shop, a store, or any other business with lots of customers, you may find it financially cumbersome to accept cheques from customers due to the potential for insufficient funds or fraud.
With credit cards, the processing fee varies based on the processor you select for your company. The cost to you is a nominal fee per transaction and a percentage of each sale.
For example, as of 2018, QuickBooks Online Payments charges 25 cents and 2.9% per transaction. So, if you run a credit card payment for $100, you would incur a fee of $3.15. This is more than the cost of accepting cash and cheques, but it is considerably less than the cost of dealing with a bad cheque. With credit card transactions, you don’t have to run to the bank, as the funds automatically transfer to your bank account. Ultimately, you need to decide if the cost outweighs the convenience and potential for extra spending by your customers.
When it comes to new and improved payment technology infrastructure, Canadian businesses lead the way, thanks to domestic corporations’ receptiveness and support of new payment technology. A recent report found that 80% of Canadian retailers possess terminals with near-field communication, or NFC, capability. In fact, one out of 10 transactions is made contact-less, and 80% of major retailers in Canada accept contact-less payments.
Contact-less chip cards are by far the preferred method of NFC payment in Canada. In the United States, most credit cards lack contact-less capabilities, so consumers turn to mobile payments on their smartphones instead. With Canadian contact-less payments growing at a rapid pace of 16.4% a year, your small business is smart to offer these modern payment options to your customers.
Direct Debit Payment Services
With direct debit payments, you draw the money for a transaction directly from the bank account of your customer. This type of payments offers several benefits to both businesses and consumers:
- Reducing late payments: With direct debit, late payments don’t have to be an issue as payments automatically occur, which means a reduction in debtor-tracking time for your business.
- Easy setup: A payment method that’s hassle-free and easy to set up is a huge selling point for customers, and creating a direct debit account is a cinch.
- Saving money: Employing direct debit within your business saves plenty of time and money, and you can pass these savings along to your clients.
On the downside, if a customer doesn’t have money in the linked account, a direct debit payment fails, just as if a cheque had bounced. While you don’t receive a fee for failed payments, as you do for bounced cheques, you also don’t receive the money on time.
If you invoice clients for your products or services, consider moving the entire process online. Rather than sending out a paper invoice through the post, create an online invoice and send it to your client’s email account. If you use a service such as QuickBooks, you simply have to tick a box to enable online payments. When your customers receive the invoice, they select Pay and follow the prompts to pay with a credit card.
In the past, opening up a Canadian merchant account so you could process credit cards was expensive and often reserved for large businesses. Now the service is widespread and quite affordable. In many cases, you simply pay a small fee per transaction as well as a very small percentage of the sale. Small fees per transaction mean that you don’t have to worry about processing a set volume of payments. Whether you accept hundreds of payments a day or a couple of online payments per month, this type of service can work for you.
In some cases, you may want to set up your online payment portal so your customers can pay with an automatic clearing house transfer. With ACH transfers, customers simply enter their routing and account numbers from their cheques and initiate an electronic payment.
This process occurs faster than waiting for paper cheques in the mail and physically depositing them into your bank account. If you have a lot of B2B clients, they may prefer to use cheques rather than business credit cards. In spite of a huge decline in the practice, Canadians still write up to 1 billion cheques per year.
Syncing Payments and Accounting
Electronic payments and credit cards make transactions more convenient for your clients, but they can also help you streamline your accounting records. If you use a payment processing service that’s compatible with your accounting software, the information automatically uploads to your accounting software as you receive payments. That saves you time and eliminates the mistakes associated with manual entry.
Swiping Credit Cards on the Go
If you prefer to process payments on site right away, you need a credit card reader. Modern card readers don’t need the support of expensive point-of-sale software. You can find small readers that connect to your tablet or smartphone. Using these tools is as simple as opening the app, entering the amount of the purchase, and selecting the sales tax rate. When you swipe the card, the funds move to your bank account. The fee schedule is similar to that of an online payment service.
Handling Taxes From Payments
Whether you have a brick-and-mortar storefront, run your business in the field, or work exclusively online, you need to collect sales tax if you sell taxable goods and services. This can be a cumbersome and sometimes confusing process, but a bit of knowledge and the right tools can help.
If you have a storefront, a point-of-sale (POS) system can help you tack sales tax onto each sale. You can buy a traditional system with software that you download onto computers or use a cloud-based POS system such as Instore. This app, which runs on an iPad, everything a small business owner needs to process sales, including automatic sales tax calculation.
If you’re out in the field, you need a program that can calculate sales tax instantly and accept credit card payments. An app such as QuickBooks Payments or Square can help. You simply create a bill with the relevant pricing and sales tax rate, then swipe your customer’s credit card. Like other payment processing programs, QuickBooks Payments charges a nominal fee per transaction and a percentage of each sale, and it dispatches the funds to your account after the transaction is processed.
If you sell products or services on your website, you need an e-commerce solution that can help you with processing credit cards, electronic cheques, digital currency such as Bitcoin, or whichever types of payments you accept. Companies such as Helcim and NXGEN offer merchant accounts for e-commerce sites. When comparing options, look at the processing fees, but also keep sales tax capabilities in mind. In most cases, when people order a product or service in Canada, they pay sales tax based on where they live. As a small business owner, you need an application that can apply sales tax based on the shipping address of the customer.
If you don’t like any of the tech tools listed above or if they simply aren’t right for your circumstances, you may want to use something more basic to calculate sales tax rates. For example, you could use a free invoice template that lets you customize the sales tax rate. Alternatively, you may use accounting software that creates invoices with sales tax or opt for an online shopping cart that generates federal and provincial sales tax based on the shipping address of your clients.
Tracking Sales Tax Payments
If you decide to use paper invoices, you need to track your sales tax payments manually. In this case, you simply enter the amount of the sale and the amount of the sales tax in different parts of your accounting software. If you use a cloud-based solution, such as a POS app, a mobile credit card processor, or an e-commerce payment portal, you should sync it with your accounting software. This way, you always have your sales tax information well-organized, and you don’t have to worry about forgetting to note any payments.
Receiving and processing payments is an essential part of running your own business, and you have options. No matter which ones you select, you want to manage your cash flow and ensure your business thrives. QuickBooks Self-Employed app helps you as a freelancer, contractor, or sole proprietor track and manage your business on the go. Download the app.