What are the pros and cons of accepting credit cards as a small business?
I am a relatively small business (I work full time M-F and have a small business I run nights and weekends). Not sure if it would be beneficial for me to begin accepting CC as a form of payment. I have always accepted cash and checks with no problems at all... yet.
If your business is considering various forms of payment, like accepting credit cards, you’ll want to consider the pros and cons of these payments. Accepting card payments expands purchasing options for your customers, but can also add extra bookkeeping work and credit card processing rates to your overhead. Keep reading for a comprehensive list of pros and cons.
Cards, Cards, Everywhere a Card
Credit and debit cards are the most commonly used form of payment today. In fact only 27 percent of all POS purchases were made with cash, and that number is expected to get smaller and smaller. Simply stated, customers make more purchases with payment cards, and they expect to be able to use them wherever they go.
Easier Than Ever
It’s also easier than ever before to accept card payments. Online payment gateways have opened the door to easier options for taking credit cards. All kinds of vendors, from traditional brick and mortar shops to pop up and mobile markets, can accept and process credit card purchases.
Increase Your Sales
It’s a simple fact that people don’t carry large amounts of cash. If a customer walks into your business and can’t make a purchase because you don’t accept cards, you’ll most likely lose that sale. Offering card payment options increases impulse buys.
Accepting credit cards means that you’ll also take on extra expenses to operate your business. Most payment gateways require initial set up fees as well as additional credit card processing rates. While these fees are fairly small, over time they can add up and eat away at your profits
Adding card payment options also means extra bookkeeping. You’ll need to develop and implement a strategy to track and balance all of your card payments, credit card processing rates, and other fees associated with merchant accounts and payment gateways.
Fraud and Security
Finally, adding credit and debit card payment options increase the risk of fraud and other security issues. Credit cards are easily stolen and accepting them increases the chance of fraudulent card use. Card payment gateways facilitate the communication of sensitive personal and financial data. If this information isn’t safeguarded by solid security features, it can be compromised.
To Charge or Not to Charge
Ultimately, choosing whether or not to accept card payment options is an important decision. In the modern world, customers carry less cash than they used to and rely on credit and debit cards for everyday purchases both big and small. If you want your business to grow and thrive you simply need to add a card payment option.
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There are a couple of great advantages of accepting credit cards:
1. Increase your sales - That increased level of convenience means that more of your customers are actually willing to open their wallets and pay.
2. Improve customer experience - Paying with a card offers a far more streamlined experience than needing to dig change out of their pockets or fill out a check.
On the other hand, here are the main drawbacks:
1. Fees - The fees associated with accepting credit cards are one of the biggest hurdles for businesses who are debating accepting this form of payment.
2. Chargebacks - Accepting credit card payments also introduces a few risks for small businesses, such as the potential for chargebacks.
There’s no denying that there are some negatives related to accepting credit card payments. But those are generally more than balanced out by the benefits, such as increased customer loyalty and even greater sales.
Pros: You get money sooner, and it's more convenient.
Cons: The fees.
Pros of Credit Card Payments:
MasterCard & Visa credit cards are quickly becoming the most popular means of customer payment. This is due to a number of reasons, among which include the fact that businesses can easily set themselves up to accept them.
Convenience is the major factor for why consumers use credit cards. It's less convenient to have to stop at an ATM and take out money for a purchase. It's also very convenient to have a credit card handy for impulse purchases, which are much more likely to happen on credit than cash. The forced opportunity to think about the purchase price and the purchase itself during the time it takes to get cash drastically decreases probability of a sale. These individuals have to: leave the purchase point, travel to the bank or home where cash is kept, obtain the right amount and travel back to the store. That means that many who leave the store to "get cash" are not coming back for their purchase. Offering the ability to pay for a credit card will improve sales noticeably in almost every situation.
Cons of Credit Card Payments:
Credit card fraud is a concern for some who are considering various forms of payment. Though there are plenty of laws inhibiting those who would engage in fraudulent behavior, credit cards are still more likely to be "stolen" in comparison to cash. It is important to consider your company's ability to protect your customers and the security of their personal financial information when accepting credit cards as payment.
The other reason businesses might prefer to remain cash only is because every transaction processed using a credit card comes with a small fee. Some businesses find themselves refusing to offer the chance to pay with a credit card simply on principle. Others feel that due to their specific niche, product, etc. the fees add up and aren't worth it in comparison to total sales. In most cases, the increase in sales more than makes up for the minimal fees associated with credit card payment processing, but each business should consider the associated fees of their chosen provider in association with their average sale prices, etc.
Businesses considering adding the option for credit card payment to their company's repertoire should consider the costs of setup as well as any fees associate with credit processing services. Additionally, depending on the method of bookkeeping, business owners might find that adding credit cards as a payment option leaves them with a hassle when they attempt to maintain the business accounts.
If nothing else, it will cost a little bit of money to start accepting MasterCard & Visa credit card payments. However, this can be a necessary expense for your small business in exchange for the convenience and likelihood of impulse purchases. The popularity of credit cards as a means of payment has changed the name of the game for business owners. The ability to pay using a credit card is no longer a handy convenience or luxury. It's now something that consumers expect. If consumers aren't offered the option to pay with a credit card, many will find somewhere else to spend their money.
Credit cards are more convenient for customers and people will tend to purchase more if they have access to more of their money versus cash on hand.
The downside are the processing fee's and the potential for charge backs, also known for forced return of their funds if they disagree with your product or service invoice or work. Those are usually few and far between as long as your business fulfills its promises.
Hi Tamara, In a previous life i oversaw as part of my finance role the credit card business to merchants.
You will have to find a "merchant acquirer", next time you are paying debit or cc look at whose name is on the terminal. Such as "Moneris" or "Chase"
Depending on the size of your business you may have to pay a monthly fee, and face a "holdback", for a period of time on receipts you process.
In addition, you will have to pay fees of up to around 3% on transactions.
Upside: Its convenient for your customers, people get points (hence the high % transaction).
It really depends on what kind of business you are in, and what makes sense for your customers (is it a pain point for them, not being able to pay by debit or CC?)
Rob Szold, CFA
Thank you, I have just been looking for information about this topic for ages and yours is the
best I’ve found out so far. But, what concerning the bottom line?
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Pros - it is an expected and essential payment method when selling online.
Cons - charge-backs are they main pitfall, but risk can be minimised with the right payment gateway and your own vigorous procedures.
Are you and your payment processor ready to comply with PCI DSS v3.1 requirements? If the phrase "PCI DSS v3.1 compliance" isn't something your or your payment vendor understand then you are not ready.
Don't Sweat the Small Stuff - accept credit cards. Nowadays, is not only what you prefer or what you considerbest, but what can you do to ease your clients payment processing, how can you charge right away, how not to make them think twice. Engage, offer, and cashinggggg. Accept credit card on websites and mobiles right away.
Thanks all for your thoughtful replies!!!
I am really a very small business, and so far cash and checks have not been a problem. I think I"ll wait until I hit it big to ramp up to credit cards. I've only had one or two people ask me if I took cc's.
No cons Tamara. People are used to paying with credit cards for everything, even items as small as a cup of coffee at Starbucks. The 3% or so you pay in fees saves your clients the hassle of writing a check of having to pay with cash -- if it makes it easy for them, it's good for your business.
If you feel that you are getting the maximum business using cash and checks , and their are no security problems the only reason to accept credit cards would be to obtain new and added clients. Remember that accepting credit cards means added processing costs and risks with the new EMV regulations meaning learning compliance rules. Figure an added 3-4% additional costs plus the fact that you must monitor your statement every month. Many merchants neglect this and some processors take advantage by adding complicated and hidden charges.
Hope that this helps.
Good morning Tamara,
Over the past 25 years working with all types and sizes of businesses from flea markets to giants, I have never seen an instance where CC acceptance did not help. In the small business scenario, average ticket goes up as well as revenue. It will cost roughly 3% (overall) to accept CCs, but the increase in profitability from growth will far overshadow the cost. Additionally, clients see you as more trustworthy and better established if you do accept CCs. If I can be of service, please don't hesitate to contact me.
Great question as long as you know exactly what your objectives are. Two things I could think of that should be consider, transaction value and listen to your customers. If your transaction value is so large that credit card is not an option and stick with what's working. If your customers are often asking for credit card payments, then offering alternative payment methods almost always better, because it's less hassle and easier on your accounting (because everything is automated)
People will say go mobile, but if your customers are not ready for mobile, there is no point going mobile payments (or you'll need to spend more time educating them). I worked with restaurant owners on web development, some of them don't even have email addresses! So I ended up helping them setup email accounts.
Some of the pros are: alternative payment options provides efficiency for the customer, organized accounting on your side, professionalism
cons: frauds, some fees might be involved
In general it's quite easy now to setup credit card payments for your small business.
You have several options that I recommended:
Square (if you want to take CC payments in real person) | squareup.com
Shopify (if you need an eCommerce website that takes CC) | https://www.shopify.com/?ref=secretshop
Wave (if you need to send invoices and accept CC) | waveapps.com
Hope this helps!
There are load's of pros and cons.
Charge backs are the biggest evil the visa guarantee scheme
in so many words if you didn't give the customer the right goods, service there getting there money back.
You need a pretty good credit rating.
There are pros like being able to take payment on the spot.
Increasing takings cause most people don't carry cash.
I would weigh the pros and cons up ask your self why do i need this ? is my customers or clients asking for this ? can you cover the charges by taking card payment?
I think we are at a time when most everyone expects to be able to pay with a credit card. Of course one of the negatives of accepting credit cards are the fees. A few seem to worry about charge backs but we have accepted credit cards for years without any significant problems. The plus side of it is you don't have to worry about checks bouncing and it will increase your sales. My guess is the increase will more than cover the fees involved.
As Marta suggested one option you can look at is PayPal. I do think at some point actually taking credit cards is the better way to go but PayPal might serve as a bridge in the meantime.
I used to pay for most everything with cash or check but find myself mostly shopping with my credit card these days for the convenience and record keeping.
The universe is moving towards mobile - EVERYTHING. Therefore you have to keep up with current technology. There are plenty of portals which are protected and encoded for protection against ID theft. Don't be scared. Paypal is a perfectly acceptable option and its basicly free and super easy to set up. It also has some great options for small business owners such as auto invoicing etc. Download the app onto your phone and you can accept cards straight from your mobile device. Bam.