What are the pros and cons of accepting credit cards as a small business?
Are you working full time Monday to Friday and have a small business service running on the side during nights and weekends? Most of us do, and itâs very common at some point you start considering to begin accepting credit card as a form of payment.
Most small business owners that provide a service only receive cash and cheques and itâs working fine for them. However as technology advances some customers are starting to adapt and ask for alternative payment method.
The question now is, should you accept credit card as an alternative payment method? Whatâs my investments and what are the benefits?
This article assumes youâre dealing with service type of business. If youâre a business selling physical products, then you should be already accepting credit cards, there are no excuses.
Basically there are 3 things that you must consider first before diving into card payments:
Transaction value
The universe is moving towards digital - EVERYTHING. People donât even like carrying cash anymore. For as little as $3 a coffee, consumers have adapted to pay via credit card or by phone.
If your service involves large transaction value, most likely people will be more comfortable paying by credit card or email transfers, because paying by cash and mailing a cheque is just a hassle.
The downside for accepting credit cards of course is the fees that may incur, therefore you might need to consider points 2 and 3.
Listen to your customers
Really what do your customers really want? Lots of business owners fail to listen. Are they asking you to pay via credit card? If so why? Sometimes finding out through your current customers are the best way to understand what people really want.
Fees
Afterall, thereâs this fear that we all face. The fees. Can you afford it? Most credit card portals roughly takes away 3% of the transaction value as a fee. Which makes sense because they have built a nice portal for the ease of use.
One way to test this out is, sign up a credit card service demo for a month or two, advertise that you are now accepting credit cards on your existing channels. Then measure your results. Hereâs a little algorithm that helps you make that decision whether you should continue accepting credit cards:
(change in sales % * average transaction value) - (credit card fees % * avg. transaction value)
If you get a negative number then that means you canât afford the fees. However (which most likely) if you get a positive number, then by all means go for it. It is helping your business!
Finally, you maybe asking, what about credit card frauds and charge backs? Most portals deal with these issues already, if you sign up with a good one. Here are a list of recommended apps/portals that help you get started with accepting credit card payments:
Waveapps
The company's core product, Accounting by Wave, is a double entry accounting tool. Services include direct bank data imports, invoicing and expense tracking. Accounting by Wave integrates with expense tracking software Shoeboxed, and e-commerce website Etsy.
Freshbook
FreshBooks is a cloud-based accounting software service designed for owners of the types of small client-service businesses that send invoices to clients and get paid for their time and expertise.
Shopify
In August 2013, Shopify announced the launch of Shopify Payments, which allowed merchants to accept credit cards without requiring a third party payment gateway. The company also announced the launch of an iPad-centric POS system for in-store purchases.
Paypal
PayPal Holdings, Inc. is an American company operating a worldwide online payments system. Online money transfers serve as electronic alternatives to traditional paper methods like checks and money orders. PayPal is one of the world's largest internet payment companies.[6] The company operates as an acquirer, performing payment processing for online vendors, auction sites and other commercial users, for which it charges a fee.
Square
Square, Inc. is a financial services, merchant services aggregator and mobile payment company based in San Francisco, California. The company markets several software and hardware payments products, including Square Register and Square Reader, and has expanded into small business services such as Square Capital, a financing program, and Square Payroll.
Hack
If you still canât decide whether to move to credit card payments you can always start with Email transfer!
Email transfer is a little hack that I did before accepting credit cards. Because the fee is absorbed by the person sending money. Not the receiver. Not only does it enhance your professionality it also make things very efficient for customers who are just too âlazyâ to pay by cheque or cash. Email transfer fee are usually quite low $1 - $2 (not a %) but has a limited amount usually. Hey itâs a good way to start though!
Conclusion
Before considering accepting credit card payments for your small medium size business. Always keep in mind of these three things:Â
Whatâs your average transaction value? Is it high enough to produce inconvenience for your customers to pay in cash? Or is it too high to be paid by credit card?
Listen to what your customers say. Do you have customers asking you if they could pay by credit card? Often missed by business owners, but youâll be surprised how much insights you will get from your existing customers to improve your quality of the business.
Fees. It could be daunting first, but afterall these service providers such as Square, Paypal or equivalent do create convenience for you to accept credit card payments. So give them some credit! (pun intended)
