These days it seems like everyone who has ever even thought of starting their own business has an opinion about accepting credit cards. Some say they never will, thanks to processing fees and other costs, while others say it’s actually saved them money in the long run. Who has it right?
How Accepting Credit Cards Can Hurt Small Businesses
Fees. The long and short of it is that small business are run on tight budgets for the first two to three years, and the idea of cutting costs isn’t just something you hear from unsuccessful entrepreneurs. Even the most bustling small business can be forced to make hard financial decisions. How much does it cost? How much will it help? Is it worth it?
On average, a credit transaction costs small businesses between 2-4% of the purchase price, or a flat rate, usually five cents or under. For some, both of those fees are taken from every single credit transaction that takes place. That’s not even to mention the upfront cost of the hardware to make swiping the card possible, and the software to decipher what the magnetic strip on that piece of plastic means, and read it into a cash register. On top of that, many merchant service providers include a monthly or annual fee based on a business’ average number of transactions per month. Many small businesses get around many of these problems through to use of a mobile credit card reader, available from numerous companies , but the fee for use is still 2.75% or more per transaction.
These fees add up, especially in situations where a mobile reader workaround just won’t do, in small town Wi-Fi dead zones and industries where a paper receipt is a must. In this way, the cost of accepting a credit card seems to completely outweigh any good that they could do for the business.
How It Can Make a Positive Difference
While the fees related to processing credit cards can seem crippling, there are some important points to understand before calling credit cards a small business nightmare.
The average credit card transaction is 50% higher than transactions made in cash – the decision to accept credit cards in your small business could be the difference between a $25 and a $50 purchase. If you’re located in an area with few local businesses that accept plastic and make use of mobile credit card readers; it can also act as a major sales tool. The vast majority of people – as many as 7 out of 10 – confess to preferring plastic over cash as the lead occupant of their wallet. It’s easier to transport, has added security in the case of loss or theft, and gives peace of mind in the ability to have money almost anywhere.
Some other financial boons to accepting credit cards:
- The average plastic-using American has between three and four different bank cards, giving them more payment options if they want something that might seem a little out of their price range. This makes them more likely to buy.
- The volume of credit card purchase volume is increasing at close to three times the average increase in purchases overall.
- Credit cards now account for close to 25% of all purchases. This means that not accepting them could cost you one out of every four daily sales.
For small businesses, this consumer preference is a major deciding factor. At the end of the day, it might be worth losing 3% of every sale for the chance to double the amount of money changing hands in that transaction, but it’s not something to jump into blindly. Check the books and the budget before you invest in changing the face of your business. Remember, it costs money to make money.