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payment processing for small business

How to Choose Credit Card Processing for Small Business

A surprising share of the nation's small businesses do not accept credit cards. Intuit estimates that 55 percent will not take plastic (1). Common reasons include a perception that credit cards are a net drain on the bottom line. A recent survey by Economists Incorporated debunked that calculus, showing the benefits of taking credit cards more than make up for any additional costs (2). 

If your business plans on adding a credit card payment option, it won't just have to make financial sense. Customers expect the act of paying with a credit card to be a breeze. Creating that seamless process, however, means taking care to research and choose the right credit card processing for small business.

Know rates and fees
The customer convenience of accepting credit cards comes at a cost that can range up to 5 percent of total sales, according to widely cited figures from the Small Business Administration (3). However, cash has its costs as well, sometimes outstripping those of credit cards for some types of small businesses.

Fees for credit cards include:

Interchange fees: These are the charges you'll pay every time you process a payment. Nerdwallet noted the varying factors behind this fee. It is more expensive to process riskier sales, such as those done online without the security of a customer in a store swiping a card and putting in a PIN, for instance.

Credit card companies charge the same interchange fees regardless of payment processor for a given type of purchase (for example, a particular brand of credit card keyed in by hand at a retail store.) However, businesses can use interchange optimization to build business practices that more often receive the lowest possible fees.

Merchant accounts: optional, but at a cost
If you operate an established business, you likely already have a merchant account. These bank accounts facilitate a rapid-fire lending process that takes place between the customer, you and the credit card company. Having a merchant account allows you to take advantage of the best rates from payment processors. A glance at current rates for processors requiring merchant accounts shows a range of 0.18 percent of the sale plus 8 cents per transaction, to 0.30 percent plus 15 cents per transaction.

However, the payment world is rapidly changing. Microfinance lender Accion noted that newer entrants to the marketplace offer merchant processing without merchant accounts (4). Of course, there's a price to pay for this convenience. One such company's flat rate of 2.75 percent of the transaction is much higher than that of more traditional processors.

For low-volume businesses, services that do not require merchant accounts might make financial sense. However, for retailers turning a moderate or high volume of sales, more traditional payment processing systems are likely a better deal.

Payment processors may also impose flat fees like monthly fees, gateway access fees, fees for not hitting a monthly minimum of dollar volume, and early termination fees. Some companies charge a Payment Card Industry compliance fee to underwrite the cost of keeping up with the latest security standards. Many of these fees can be negotiable.

Get good data
In choosing credit card processing for small business, a key element is the quality of data the processor gives back to you. The choice of a point of sale system impacts this aspect, as some POS systems are better at capturing customer data than others. When deciding between potential payment processors, ask to see the types of reports they can generate and how frequently. Increasingly, data is being streamed in real time or near-real time for managers to switch tactics during the business day.

Ensure you will receive customer support
Credit card processing is one of those mission-critical systems that should work with no fuss. However, when glitches happen, will you be alone? Some credit card processors offer 24-hour, 7-days-a-week support from POS experts based in the U.S.

A related aspect is whether your processor has a history of protecting you and your customers' data. Solid companies will take the above-mentioned PCI security standards seriously. They may go so far as to offer breach protection assistance for as much as $100,000 of certain costs related to financial damage from cyberthieves.

Focus on marketing support
Simply being able to accept credit cards may not be enough for your small business to compete. Full-service payment processors offer marketing support like loyalty programs, stored value cards and gift cards. These small additions to your business could mean the difference between bringing in one-time shoppers and creating repeat customers.

Choosing credit card processing for small business is a key decision. Before you decide on a processor, be sure to ask all the candidates probing questions about all the above topics before making a final decision.

1. http://quickbooks.intuit.com/r/getting-paid/cost-benefit-analysis-of-accepting-credit-cards-for-your-small-business
​2. http://www.ei.com/wp-content/uploads/2015/01/Executive_Summary.pdf
3. http://www.nerdwallet.com/blog/small-business/credit-card-processing-company-choose/
4. https://us.accion.org/business-resources/articles-videos/credit-card-processing-101

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