Getting paid is what separates professions from hobbies.
Of all the systems that can make or break a business, your financial system is the cornerstone. Not to discount sales, marketing, fulfillment, customer service, information technology, research and development, because they are all interdependent. But when cash flow dries up, all systems in your organization might as well cease, because the business will be closing soon. The Bureau of Labor Statistics reports half of all small businesses shut down within their first five years.
If you’re a small business owner, let’s explore how you get paid. In how many ways can your customer transfer wealth into your bank account in exchange for what you provide? What’s the best way for your business to receive payment?
Cash is king
In a 2016 poll, Gallup reports the number of Americans who pay cash for all or most of their purchases has dropped to 24%. That number is down significantly from five years ago. As expected, adults under 35 are leading the charge (no pun intended).
Who could blame them? Americans in general, and Millennials specifically, value the speed and convenience of electronic transactions.
Until it no longer is
With this persistent trend in consumer habits, will it become impossible for a small business to thrive on a cash-only basis? I asked the nicest credit card guy on earth (it says so on his business card), Butch Hofferbert, for his expert opinion.
Hofferbert has 18 years’ experience in merchant services, including 13 at First Data (FDC:NYSE), the leading processing company in the U.S. He was the corporation’s top producer in 2011, generating $350 million in volume that year.
While it is possible to operate as a cash-only business, Hofferbert believes the practice is detrimental in some cases.
“It’s often you’ll find people who don’t even have $20 on them,” he says. “They don’t carry cash; they carry their cards. If you don’t take credit cards, you’re limited by the amount of cash they have in their pocket.”
Businesses who accept non-cash payments often see a “lift in the ticket” – customers will spend more money per visit – because they have the confidence of knowing their purchase is covered by their bank account. Impulse purchases are made easier. Tips are usually more generous. If the consumer doesn’t “feel the pain” of counting out greenbacks, they’ll spend more money with you.
Best way to accept payment?
Non-cash transactions can be processed in multiple ways: tele-check, traditional terminal, virtual terminal, point-of-sale tablet (POS), or mobile phone app (ie: Square).
Butch’s Bottom Line: unless your volume is consistently above $5000 in credit card transactions every month, you will be more profitable with a Square account. Even though you might find a lower rate than Square (2.75%), the bank’s service charges, monthly fees and terminal rental can quickly add up.
Speaking of fees, one cost of accepting credit cards is a PCI DSS fee. PCI DSS stands for “Payment Card Industry Data Security Standard.” This is a global initiative to protect consumer information against data breach through secured hosting and continuously monitoring threats. If your business takes cards, you are charged a monthly or annual fee to support your processor’s PCI compliance technology.
October 2017 deadline
One development in PCI compliance is the microchip that’s embedded into all cards. This is the EuroPay MasterCard Visa (EMV) chip. EMV was first introduced in North America in 2012 with a 5-year plan for fully integrating PCI compliance in all ATM’s, fuel pumps and point-of-purchase readers. That five-year plan reaches its culmination on October 1 this year.
If you run a business that takes credit cards, make sure your card reader will accept the EMV chip. If fraudulent charges occur at your business, you could be fined if your terminal only reads the magnetic stripe. For more information, see this explanation by Visa.
“But worse than fines are the risk you run to your reputation, if there’s a data breach,” says Hofferbert, citing Target as an example. The retailer spent $202 million in legal fees and was fined $18.5 million for compromising customer information in 2013.
Showing a profit
The best way to accept payment is whatever way the customer is willing to give you money.
However, Hofferbert encourages his clients to seek non-cash methods that will expedite money flowing into your account.
If your business receives payment by check – property management companies and B2B transactions are mostly live checks – you may consider a Tele-check processor that makes deposits without a trip to the bank, and for a lower rate than credit cards.
If you use Quickbooks, Intuit and other third-party developers have developed plug-ins that create a “click to pay” button delivered via email to all customers who owe a balance. Merchants are receiving payments more quickly this way versus pre-paid envelopes through the mail.
“The number one goal of any business is to retain and grow their customer base,” Hofferbert says. “A loyalty app, combined with a point-of-sale system, will allow any small business to compete with the national chains. There are several that I really like, based on the business type.”
Butch Hofferbert (on the right) – The Nicest Credit Card Guy on Earth – serves restaurants, retailers, C-stores and businesses of all types across the U.S. and Canada. You’ll know him at the marina by his boat “Debit or Credit.” Contact Butch Hofferbert at butch@creditcardtn.com
