Any decision a small business owner makes must be carefully weighed by all the pros and cons—especially decisions that affect your bottom line. One of those decisions is whether or not to accept credit cards as a form of payment. While accepting credit cards has many advantages and makes sense for most companies, you may end up losing revenue by not carefully considering and planning for the disadvantages.
Convenience: Consumers love using credit cards—it’s a fact. Federal Reserve research shows that in 2003 19 billion credit card transactions were processed, making credit cards the most often used form of electronic payment. Debit card usage is also increasingly gaining momentum with consumers. Paying with checks or cash, on the other hand, has been decreasing in popularity over the past few years. So if you offer credit cards as a form of payment you will likely gain access to more customers and increased revenue.
Increased Credibility: Obtaining Merchant Account status is not always easy to get, especially if you run an online business, and requires a credit history check. So if you qualify to offer credit card payments, then consumers may view your company as more solid and reliable.
Fees: You will incur a wide range of costs from fees alone. Set-up fees range from $30 to $200 for face-to-face payments all the way up to thousands of dollars for a web site if you decide to accept online payments. Some of the other most common fees include (but are not limited to):
Equipment: $30 to $1,000
Monthly statements: $4 to $20
Transaction fees: 5 to 50 cents each
Discount rate: 1.5% to 3% per transaction
Chargeback fees: Up to $30 for each return
And don’t underestimate the miscellaneous costs such as communicating with the processor for a price of 5 to 12 cents per connection, cancellation fees for closing your account of $300 to $800, keeping a supply of charge slips, and web-site hosting fees. Depending on your business, the benefits may not outweigh the costs.
Charge-backs: Most often charge-backs occur because of bank error, misunderstanding by the customer, or fraud. However, if a customer disputes a charge, funds can be refunded from your account before you ever know or agree to the transaction, even if goods are never returned. Additionally, you the merchant are responsible for providing documentation showing goods or services were actually provided. Finally, top it all off with more fees—Merchant Account Provider documentation request fee of $10 and the $30 charge-back fee—and you have the potential for losing revenue.
The Cost of Time: Money is not the only cost you need to budget—you also need to budget time. You will be learning new terms and technology, which is critical because if a credit card payment is not processed correctly you will lose money. In addition, accepting online payments requires additional time for learning how to update, maintain, and secure your web site—the best sites are both secure and frequently updated.
Fraud potential: Accepting credit card payments increases your exposure to fraud whether the transaction is face-to-face or online. Keep in mind that you may still be held financially responsible even if you obtain proper authorization for the transaction. Also, consumers generally have more protection than merchants for online transactions, so merchants often get stuck with the bill.
Knowing some of the advantages and disadvantages of accepting cards beforehand will give you the power to protect your bottom line. And what business owner doesn't want to protect their bottom line? :)