The decision to accept credit cards for a small business can be a toughie. On the one hand, credit card processing costs have the potential to eat into your margins. Fees, hovering around 3%, can add up quickly. At the same time, credit cards can help you collect payments that would otherwise become delayed, faster. Rather than going through the process of cutting your business a check or initiating a wire transfer, your customer can very easily make a payment on the spot, upon receiving your invoice.
Small business owners need to find the right balance between speeding up cash flow and paying fees on top of the payments that customers owe. The solution is not as simple as passing processing costs on to customers: depending on your line of business or state of residence, this practice could be illegal. Not to mention, customers often don’t appreciate the perception of being “nickeled and dimed” for every expense that crosses your business. Sometimes, it’s best not to reveal every line item for how your business operates.
Instead, make some systematic changes to your business, to ensure that credit card processing fees don’t eat into your margins. Here are a few tips to guide you:
Raise Your Rates
If you’re in the fortunate position to control costs within your business, raise your rates across the board. To arrive at the right number, take a look at your accounts receivables and build a forecast for how much you expect to pay in credit card processing costs.
Raise your rates, over all, to offset the total cost that you anticipate paying in processing fees. This holistic perspective will ensure that, on the whole, you remain profitable—in spite of the fees that you’re paying to processing services.
Set Up ACH Payments
Using ACH transfers, your customers can connect their bank accounts to yours—making it easy to send direct wire transfers. For you, these payments will be less costly. For your customers, the costs are likely to be minimal. The difference between using a credit card and making a transfer may be inconsequential from the perspective of someone making a payment.
Give your customer a heads up about the fees that you incur due to credit card processing costs, and mention that you prefer ACH whenever possible. If it makes sense for your business model, you could even offer a small discount, perk, or loyalty program benefit for using ACH over credit cards.
If you’re a QuickBooks user, for instance, you can enable online payments—a mix of credit card and direct wire transfers—with a few clicks of a button. Your customer can self-select between the options that you’ve enabled. You can choose to accept credit cards on a case-by-case basis.
For repeat customers, you can also enable recurring, automatic payments on a monthly basis: set up transfers via ACH instead of credit cards.
Sweat the Details
Choose a payment processor that’s most appropriate for your type and volume of business to get the best rates and service. Each account type has its own rate and qualification requirements.
Before you select an account, do your research. Know what your business needs so that you can avoid bloat. While you’re comparison shopping, seek out the following:
- What are your nonqualified rates?
- What are your monthly fees?
- What are your monthly minimums?
- Are there any contracts or cancellation fees?
- Do they charge extra when you contact customer service?
The biggest upfront costs are setup, equipment, and software. A variety of terminals are available at a range of prices depending on their printing and connection functionality. Here are some money-saving tips regarding terminals for credit-card processing:
- Don’t pay extra for terminal functions you’ll never use.
- Use processing software instead of a terminal if all your business is done online and over the phone.
- Ask the provider if it can reprogram your existing terminal.
- Be cautious about leasing a terminal to lower your monthly costs. High cancellation fees and long-term contracts will likely cost you more in the long run.
Most of your costs to accept credit cards will take the form of transaction-processing fees and charges based on whether you qualify for your best rate (called a “discount rate”) or not. In addition to varying rates, there are fees to be aware of, too, including interchange fees and chargebacks. Work with your credit card processing service to anticipate and avoid these fees.
Certain credit cards cost more to process than others. It’s up to you to choose what works best for your business. To help offset the cost of processing more expensive card types, make sure your transactions meet as many of the qualifying requirements as possible.
Debit cards have grown in popularity. They often serve as both a check and a debit card. Deciding whether to process a charge as online or offline can make a difference in your rates, so keep the following in mind:
- Online transactions get processed through the credit card interchange and are charged at an online (nonqualified) rate.
- Offline transactions get processed through the debit network and are charged a flat per-transaction fee.
- You can reduce your costs by processing low-cost items at the offline rate and larger items at the online rate.
Weigh Costs Against Business Value
If you accept credit and debit cards, you’ll have to pay fees. Your best defense against hidden costs and unnecessary downgrades is to keep accurate records of your processing costs. Audit your records regularly to build your own benchmarks and evaluate the cost-effectiveness of your business rules and practices. Here are some steps that you can follow:
- Understand all the fees involved and read the fine print before signing any vendor contract or application.
- Learn about the different types of processing rates and find out whether the provider charges for terminating your contract.
- Choose a provider that will work with you to help grow your business.
Based on this data, you can continue to optimize the way you do business. Just remember that accepting credit cards should help — not hurt — your bottom line.