How are You Getting Paid?

Will that be cash or charge?

When was the last time you heard that phrase? Or - and here’s a bigger throwback for you - when someone asked if you wanted to pay by check? It seems wild that just twenty years ago, we could walk into the mall (remember those?) and leave with a new pair of shoes simply by putting our John Hancock on a slip of paper (with the logo of our favorite football team in the background) that may or may not clear once it hit the bank. 

How we pay for things continues to evolve, and as a small business owner, you must understand how these changes affect your bottom line. (Spoiler alert: It ALL affects your bottom line.) We now have cash, credit cards, debit cards, ACH payments, checks, mobile wallets, and various peer-to-peer payment and online platforms to choose from. 

So which ones should you accept? And which of them should you kick to the curb? 

The jerk-knee response is, “take them all,” right? You want to make it as convenient as possible for the most people to pay you, otherwise, you’re leaving money on the table. That’s not the wrong answer. But it also might not be the right answer. (Confused yet?) As we said, you need to be aware of the pros and cons of each to make the best decision for your business. 

By far, credit cards are one of the most popular forms of payment these days. While cash is still used most often for transactions under $100, its popularity continues to slip. The average person has four credit cards, accounting for 81% of transactions in 2020. 

Why You Should Accept Credit Card Payments:

• Universally Used - almost everyone carries a credit card (especially after the pandemic when cash was all but ostracized), and people expect to be able to pay by card
• More Revenue - a variety of studies have shown that consumers are likely to spend more when using credit, plus they aren’t limited to buying based on the amount of cash they happen to have on hand at the moment.
• Safety - Both business owners and consumers find credit card purchases are more secure.
• Tracking Purposes - Credit card payments come with an automatic and electronic register of transactions… no manual bookkeeping required!
• Improves Cash Flow - a credit card payment will reach your bank account in a few days; meanwhile, invoicing takes time and energy and can cause significant delays to your cash flow as you wait for your customers to pay.

The Downside of Taking Credit Card Payments:

• Fees - the cost of accepting credit card payments is the Number One Turnoff. You have to think about equipment costs, minimum monthly charges, interchange fees, and processing fees (basically, the “cost of doing business” can be anywhere from 1% to 3% of a transaction - that adds up quickly!) 
• Customer Disputes - consumers have a right to dispute charges, valid or not, and if they’re unhappy with your product or service, you may have to not only refund their purchase but pay an additional chargeback fee

So while credit cards are a popular and convenient choice, bear in mind that it comes with some strings attached. Regular analysis of these fees will help you protect your profit margins and reduce costs.

Whether you run a brick-and-mortar store, operate only in the ethernet, or do a bit of both, there are some additional options on the table. We won’t spend time on cash or checks (those are pretty obvious), but instead want to highlight some of the “new(er) kids on the block,” so to speak. Are they worth looking into for your business?

Apple Pay and Google Pay: These options allow consumers to store the credit and debit cards of their choice on their Apple or Google pay accounts.

• Pros - no up-front fees for you, extra security, popular with the Millennial and Gen Z crowds, quick transaction
• Cons - in-person payments will require NFC-enabled credit card readers, Apple Pay is available only on Apple devices (so those Android users are SOL), Google Pay is available on iOS but can’t be used in-person.

PayPal: No longer just for eBay purchases!

• Pros - doesn’t require a merchant account (so no merchant fees), extra security, has a variety of payment methods including Pay Later and recurring payments and subscription options, easy integration, and name recognition.
• Cons - higher chargeback fees, 1-3 business days for the money to transfer to your bank (although you do have instant access to the funds in your PayPal balance that you can use immediately for PayPal-supported purchases)

Venmo: What originally started as a way to allow friends to split the bar tab has quickly morphed into a very popular method for small business owners to get paid.

• Pros - easy to install and use app available on Android and iOS devices, lower fees than credit cards (1.9% + 10 cents per transaction), owned by PayPal
• Cons - currently only available in the U.S., like PayPal, it takes 1-3 business days for the money to transfer to your bank account, it may be more appropriate for a side hustle-level business.

Amazon Pay: There’s a reason Amazon does so well, and it’s not (only) because of its 2-day shipping. The one-click ordering makes it super convenient to purchase just about everything, and you can harness that same convenience for your own gains.

• Pros - if your customer already has an Amazon account (and let’s face it, they probably do), they don’t need to input their payment information when it’s time to check out = increased conversions, get your products in front of new shoppers with co-marketing, name recognition, easy online integration, 
• Cons - not supported for in-person use, 3-5 business days for funds to transfer to your bank account

Ultimately, you want to strike that balance between keeping it simple and convenient for the most people to pay you - while still protecting your bottom line. Your industry, your customers, where you operate, and what you sell are all going to play a significant role in the decision-making process.