July 16, 2019 Getting Paid en_US How small businesses accept credits to improve their profitability and operations, and make their customers' experience more efficient. https://quickbooks.intuit.com/cas/dam/IMAGE/A2XBcODpx/f4b1b58447b526f124a49bee8ee10f90.jpg https://quickbooks.intuit.com/r/getting-paid/how-accepting-credit-cards-can-improve-business-results How accepting credit cards can improve business results
Getting Paid

How accepting credit cards can improve business results

By Ken Boyd July 16, 2019

How easy is it for customers to do business with your company?

Customers value speed and convenience.

The last thing you need is to make it difficult for your customers to pay you. Yet, a GoPayment survey noted that 55% of US small businesses do not accept credit cards. Accepting credit cards will help you make the sale process easier for your clients.

Accepting credit cards must be part of your company’s growth strategy, and there’s plenty of evidence to explain why.

Understand customer preferences

Customers prefer the convenience of using credit cards, and buyers are moving away from using cash for purchases. Consider the following:

  • According to a recent survey, 10% of buyers say that they don’t carry any cash for purchases. This article points out that 41% of shoppers have reduced the amount of cash they use, and the vast majority have replaced cash spending with credit card and debit card payments.
  • The increased use of credit cards is also driven by online purchases. A 2017 American Express survey found that 73% of respondents have made three or more online purchases in the prior 12 months.
  • The convenience of mobile devices is a factor. Payment processor TSYS conducted a 2018 survey of merchants and customer payment trends, which found that 71% of merchants saw an increase in online and mobile purchases over the prior year.
  • Your customers will spend more money (about 18% more) when using a credit card rather than cash.

You can take advantage of changing customer preferences because your competitors may not be responding to these trends.

Want to position your firm as more legitimate than your competitors? Display credit card logos on your website and in your physical store locations. Your trust level with many customers will increase, and they may choose to do more business with you.

Accepting credit cards is about more than just customer preferences. There are a number of benefits your business can receive when you start accepting credit cards.

Speed up cash collections

Accepting credit cards helps you collect cash sooner.

No business can operate for long without generating sufficient cash inflows. You need cash to purchase inventory, meet your payroll and cover marketing costs. If you can’t get cash in the door, you can’t operate.

Accepting credit cards motivates your customers to pay by credit card immediately, rather than paying after they receive an invoice. By making the process more convenient, the customer can pay now and complete the process, which is one less task to do later.

What’s the financial benefit to you?

Imagine that you generate $50,000 in sales for the month of May. 70% of your customers pay immediately using cash or check, and that other 30% pay after receiving an invoice. In terms of dollars, $35,000 is paid right away, and $15,000 ($50,000 X 30%) is not paid on the day of the sale.

You change your policy and accept credit cards on June 1, and find that 85% of your June customers pay immediately. If you generate the same $50,000 in sales, you collect $42,500 right away, and only $7,500 (15%) is paid later.

By accepting credit cards, you increase the immediate payment amount by $7,500 on the same dollar amount of sales. You collect cash sooner, and you’re less likely to run short on cash and need to borrow funds.

Accepting credit cards increases cash inflows, and reduces the risk of theft.

Reduce the risk of theft

Business owners must protect all assets from theft, and the easiest asset for a customer or an employee to steal is cash (checks come in a close second). As your firm grows and you process more sale transactions, the risk of theft increases.

Theft is more difficult to uncover when two or more people work together. This concept is defined as collusion, and the biggest thefts in business involve collusion.

Think about a clothing store with three cash registers, and assume that most sales are paid for with cash. Here are two potential risks of theft:

  • Employee A changes the price tag on a shirt from $55 to $70. Employee B, at the cash register, charges the customer $70, which is paid in cash. The two employees steal the extra $15 paid.
  • Bob, the store manager, is responsible for approving payments for returned items. Julie returns a shirt that was purchased for $60. In this case, an employee (Bob) is colluding with a customer (Julie). Bob refunds Julie $80 in cash for the shirt, and changes the accounting system to report that an $80 shirt was returned. Bob and Julie share the $20 in stolen cash.

Documentation of cash transactions can be easily manipulated, which increases the risk of theft. Now, assume that the two transactions were completed using credit cards:

Changing the price tag

The customer is charged $70 for a shirt that is priced in the inventory system at $55, but pays by credit card. Even if Employee A is able to change the price tag, Employee B can’t “keep” the $15 difference because that would require a second credit card transaction.

The store refund

Assume that the shirt was purchased by credit card for $60. To approve a refund, the store manager must locate and reference the original $60 purchase and refund $60 on the same credit card. There is no opportunity for theft by changing the dollar amount of the refund.

Employees catch on fast

When you put a credit card system in place, employees who are tempted to steal will quickly realize that credit card transactions make theft more difficult.

Your risk of theft will decrease as you move away from cash transactions. In fact, accepting credit cards makes your whole operation easier to manage.

Simplify operations and accounting

When you accept credit cards, you create documentation that is much easier to manage, and your accounting system is more efficient. Consider these transactions:

  • A retailer purchases 20 men’s blue dress shirts, size XL, for $40 each.
  • During June, all 20 shirts are sold through credit card transactions at a retail price of $70.
  • In the last week of June, two shirts are returned, and both customers are refunded $70 by credit card.

At the end of June, the owner reviews the bank statement, and a report listing all credit card transactions. The owner can verify that $1,400 was received for 20 shorts sold for $70 each, and that two shirts were refunded by credit card payments.

The credit card activity can be automatically posted to the accounting system so that sales, refunds and changes in inventory occur as soon as the credit card is swiped.

Cash activity, on the other hand, requires an owner to review cash counts at each cash register each day. Cash activity is much more difficult to trace to a particular transaction.

For example, if a store sells a $70 shirt to Ms. Smith on Monday by credit card, the data is easy to locate and review. If the sale is for cash, the documentation is weaker.

Your month-end bank reconciliation will also be easier. You’ll have fewer checks to track in a bank reconciliation, and you can reconcile your bank account faster.

Finally, when you need to generate financial statements and put together your tax return, you’ll find that credit card documentation is easier to compile and the data is more reliable.

Implement a credit card processing system

What you’re setting up is referred to as a payment gateway. Your gateway facilitates transactions from a payment portal, which may be your website, point of sale terminals in a retail setting or both.

The credit card payments move from the payment portal to a processing entity, typically a bank. Here’s what happens when your customer pays by credit card:

  • The transaction is approved by the processing entity.
  • The dollars are posted to your company merchant account.
  • Dollars in the merchant account are moved to your business bank account.

Start the process by setting up a merchant account. These accounts include a setup fee that can range from $50 to $200. By setting up a merchant account, you avoid paying the higher fees that third-party processors, such as PayPal, charge to process credit card payments.

To use your merchant account, you’ll pay a fee per transaction, or a monthly fee. If you have physical store locations, you’ll also need POS terminals.

A merchant account can be integrated with accounting software, and the combination offers some great features. You can create invoices automatically, and offer a credit card payment option for invoices. Businesses can accept payments by phone and through mobile credit card readers.

Best of all, the payment data is updated in real time.

Prepare to scale

Accepting credit cards is a great strategy to grow your business while controlling your costs.

If you don’t have a strong online sales presence, you can develop online sales by enhancing your website and providing credit card payments as an option.

By moving away from cash and checks to credit card payments, you can do more work in less time. It’s easier to manage a 50% increase in sales processed using credit cards because so much of the process is automated.

Company growth can happen in several ways:

  • You may have the opportunity to open a new store location, or start a new product line.
  • If a competitor is struggling, or goes out of business, you can pick up new customers from a competitor.
  • A successful marketing campaign can also increase sales.

If you accept credit cards, you’re in a better position to manage any type of growth. Also, potential investors look for companies that can scale, and accepting credit cards makes your business more attractive.

Action steps to take

Now

Talk with other business owners about accepting credit cards. Ask them if they’ve seen increased sales and more business efficiency by making the change. If a particular owner is satisfied with his or her payment processor, ask for a referral.

Within 30 days

If you decide that accepting credit cards will improve your business, don’t wait. Give yourself a 30-day deadline to get the system in place. If you don’t put a deadline in place, the idea will fall to the bottom of your to-do list.

Contact a payment processor and get started. Once your system is in place, train your staff on the new process and document the steps in a procedures manual. Emphasize the goal of moving away from cash payments and the company benefits of accepting credit cards.

Ongoing

Each month, analyze your sales and compute the percentage of total sales that were paid by credit card. Keep credit cards as a focus in your employee training.

Meet customers where they are

Customers are moving away from using cash and moving toward credit card use. As online purchases become a bigger part of the economy, credit card use is increasing.

Successful companies meet customers where they are, and that includes accepting credit cards. If you make the change now, you may be able to pull business away from your competitors and gain market share.

Have the confidence to make this important change. You got this!