How much it really costs your business not to accept credit cards?
Paying credit card processing fees can be less expensive than spending time chasing delinquent customers who don't use 'old-school' checkbooks
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
My business only accepts checks because we don't want to pay credit card processing fees. Does that make business sense?
Fewer consumers of all ages are using checks these days, and many have adopted automatic payment options they can link to either their bank accounts or credit cards.
If your business doesn't accept credit cards because you think you may be paying too much in credit card processing fees, you might want to reconsider.
Spending time chasing customers who haven't paid you because they don't have a checkbook or don't like paying by check might prove more expensive to your business in the long run.
Dear Your Business Credit,
My husband and I run a small household cleaning service. We’ve always mailed our invoices to our customers on a postcard and asked them to pay us by check.
Some of the younger customers don’t like checks. They tell me they do all their payments online and want to use credit cards. They keep telling me they lose the bills and that’s why they’re paying me late, but I don’t understand how that happens. I don’t lose my bills!
I don’t want to accept credit cards. Frankly, I don’t want to pay the processing fees. A few customers have asked me to accept ACH payments, but I’m not crazy about that idea, either. There are so many hacking incidents today, and banks make so much money on fees I’m sure I’ll get burned somehow.
I don’t see why it’s a big deal for these customers to write a check – other businesses expect to get payments this way, too. Many of my customers do write them. How do I persuade them to pay me by check? – Madeline
Change is very hard, but I don’t think you’re going to get very far persuading people who prefer digital payments to break out their checkbooks.
Fewer consumers use checks now
For one thing, many people no longer have checkbooks or want to get one just to pay one or two bills where digital payments aren’t possible. As a Federal Reserve study found, the number of check payments fell to 17.3 billion in 2016, down 2.5 billion since 2012.
Younger customers who grew up in the online and mobile era – and older ones who’ve embraced it – are accustomed to paying for things online, so it’s very possible they’re losing paper bills because they don’t have a system for dealing with them. The way they organize things is often through automated payments.
In your situation, I’d ask myself a critical question: How much do I want to grow my business in the future?
Diversifying payment options helps businesses grow
If you are happy keeping your business where it is and could withstand the loss of the customers who prefer digital payments and might be tempted to go with a competitor, then you could explain to them that not accepting credit cards allows you to keep prices low in a note on your bills.
However, I can’t think of any business reason not to make it possible to accept bank-to-bank ACH payments. They are free.
I don’t think you’ll get very far telling customers you don’t trust the banking system and won’t use it for digital payments if you are accepting checks, which are part of the same system.
However, if you want to retain the customers you already have and win more, then I’d advise you to ask around in your industry for the name of a good merchant account provider who can set you up to accept credit and debit card payments.
Tip: Merchants who believe they are overpaying their merchant services provider can find tips on how to shop around for one in "Is it time to negotiate a new merchant account?"
The real cost of not accepting credit cards
You will have to pay fees, but it’s also important to realize there’s a value to the time you spend chasing customers who lost their bills, as well as a value to having a healthy cash flow, which getting paid on time will facilitate.
Let’s do the math:
- The average credit card processing fee ranges from 1.4 to 3 percent.
- Say the average customer is paying you $100 a month and the fee is on the high end of the range. You’d be paying $3 on the transaction, but would have the $97 in your bank account then and there.
- If you spent a half-hour reaching out to the customer to get a late bill paid, and your time is worth, say, $100 an hour as the owner of the business, you’d have spent $50 of your time to save $3.
- Since many of your customers do pay by check, you’d only be paying this fee for the customers who prefer credit cards.
The cost of accepting credit cards is also not very high when you look at what it would cost you to chase around late or noncomplying payers.
No business owner likes paying credit card processing fees, but in your situation, offering the payment options your customers are asking for seems like it makes good business sense.
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