Nearly every credit card processing company has some sort of free equipment offer. Some processors give you a terminal if you sign a contract, while others have a free placement program in which you borrow the equipment.
Accepting free equipment sounds like a great way to save money, but as a perceptive businessperson, you know that "free" often isn't really free, and you need to do the math to determine whether the free option is actually the best option for your small business.
Buying processing hardware outright is nearly always your best bet. Although it may be an expensive upfront cost, over time it's less expensive and less restrictive than other equipment options. You can keep your purchasing costs low by shopping around for the best price, choosing a basic terminal instead of a fancy POS system and inquiring if used equipment is available for purchase.
As you shop around for equipment, you want to find out if the equipment is proprietary or "locked." This is an important consideration, because you don't want your purchased equipment to be unusable if you switch processors. If you already own unlocked equipment or if you decide to shop for new or used equipment online, check with your new processor to see how much it charges to reprogram the equipment, including shipping and handling costs, and how long the process takes.
Although free sounds fantastic, even the best processors may require you to sign a contract in return for free equipment. The best contract terms for free equipment are one-year long and then go forward on a month-to-month basis. Most free equipment contracts last for three years, and many automatically renew for two-year terms. Some companies require you to sign up for a different pricing plan if you choose to accept free equipment.
Another thing to be aware of if you accept free equipment is that some processors may charge you the full price of the terminal in addition to an early-termination fee if you end your relationship with the company before your contract expires. Before accepting free equipment, consider whether being tied to a contract or accepting higher processing costs is worth the purchase price of the equipment.
Free Placement Programs
These may initially sound like a good deal, and many processors offer this option, but like free-equipment offers, you may be required to sign a contract. However, when your contract expires, or you switch processors, you're required to return the equipment.
Many free placement programs come with monthly fees and may include additional monthly minimum requirements that you must meet to avoid penalty fees. Be sure to request the contract and a list of all the fees associated with the program to read over before you agree to accept such an arrangement.
Many processors encourage you to accept a lease on equipment because it's a very lucrative arrangement for them. Some reps give very persuasive reasons for leasing equipment, such as "It's like a cell phone plan" or "Many customers choose to lease for tax reasons." However, carefully consider every other option before you lease equipment as this is generally one of the worst decisions that a small business can make when setting up credit card processing.
Consider the following leasing myths and truths.
Leasing Myth No. 1: It's like getting a cell phone, which means that if equipment breaks, the processor will replace it.
Truth: While technically true, most equipment comes with a manufacturer's warranty, and you may be able to purchase an extended warranty or insurance. If your purchased equipment breaks while under warranty or while insured, the manufacturer replaces the equipment anyway, according to the terms of the warranty or insurance.
Leasing Myth No. 2: It's easier to update to the newest model if you lease your equipment.
Truth: This myth assumes that if you purchase equipment, you probably keep it longer than the four-year term of your lease. The processor expects that when your lease expires, instead of purchasing your existing equipment, you'll take out a new lease on new equipment. However, the money that you save by purchasing the equipment outright puts you in a better position to buy new equipment when it becomes available.
Leasing Myth No. 3: Leasing is better for tax write-offs since you'll have an expense that you can write off yearly instead of just a one-time purchase.
Truth: The long-term expense of leasing is still more expensive than purchasing equipment outright, even if you factor in the tax write offs that you expect to receive. If you're considering leasing for these tax reasons, you want to do the math to verify that the costs and savings are in fact what they're purported to be.
Remember, leasing is short-term cheap and long-term expensive. Often, you'll find that for the amount of money you pay over the life of the lease, you could purchase the equipment several times over. Additionally, most equipment leasing contracts are noncancelable, which means that you can't return the equipment and, further, you pay a fee to get out of it. Even if your business fails, you return the equipment and you get out of your processing contract, you'll still be held personally responsible for the remaining time on your equipment lease.