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Accepting Credit Card Payments: A Small Business Owners Guide

Financial Tasks for Small Business Owners

If you hope to be competitive in the current marketplace, you have no choice but to start accepting credit card payments. However, many small businesses aren’t as prepared as they ought to be in order to manage this function.

Is that your situation? Not only do credit card transactions cost you money, but they can expose you to dangerous security risks that may compromise your company’s operations and stability.

But if you know how to accept credit card payments in a safe and efficient manner, that will go a long way toward establishing your firm as a successful player in your industry.

The Cash vs. Credit Debate

As you probably know from personal experience, credit is a more common method of payment than cash. As cash has become less of a feature in point-of-sale (POS) transactions, fewer and fewer merchants choose to operate on a cash-only basis.

Though cash is handy in the sense that it doesn’t involve any fees and the transaction is complete as soon as the money trades hands, it’s cumbersome in a number of other respects. Cash has to be protected and stored and requires regular trips to the bank.

Cash also requires exact change, which means either the buyer or seller has to have the right bills and coins on hand to make the transaction balance. It’s harder to trace, which can be a challenge when it comes to accounting (especially if discrepancies occur).

Credit Transaction Benefits

Despite entailing processing fees, credit transactions are more efficient and flexible. They offer merchants — both the online and brick-and-mortar variety — a number of tangible benefits, such as:

  • Increased sales. Many customers expect you to accept credit cards. Not only are they easy for them, but consumers also get benefits from using their card. From cash back to travel rewards, credit card companies offer generous perks to whoever uses their cards. This makes shoppers more likely to spring for a large purchase.
  • Leveled playing field. Your competition is almost certainly accepting credit cards. If you’re the odd man out, then you’re losing sales because you don’t offer one of the most common and convenient payment options.
  • More impulse buys. Credit card purchases are simple, almost effortless. You just insert or swipe the card and the transaction gets processed in seconds. A customer is much more likely to make an impulse buy when he or she doesn’t have to get cash out of an ATM or take the time and effort to write a check.
  • Improved cash flow. In a traditional invoicing process, it’s typical to send an invoice, wait a few days or weeks for the client to send a check, then have to wait a few more days for the check to clear. In credit card transactions, the money arrives in your bank within a day or two, no matter how far away the buyer lives. This improves cash flow and keeps your firm operating smoothly.
  • Eliminated risk of bounced checks. When you accept checks, there’s always a risk that one will bounce. Though you usually have enough information to track the customer down, it’s not fun. With a credit card purchases, you get paid no matter what.

Potential Credit Card Transaction Risks

This isn’t to say credit cards are a perfect solution. As with any payment method, there are some potential disadvantages and risks; for example:

  • Risk of fraud. Some credit card processing methods are safer than others — which we’ll discuss later in this article — but there’s always the potential for fraud. This can be costly, and it usually involves a lot of back-and-forth with multiple parties.
  • Processing fees. Credit card processing isn’t free. You’re going to have to pay one way or another. Most companies charge a percentage of every transaction, which adds up (especially when margins are razor thin).
  • Chargebacks. The dreaded chargeback is one of the painful realities of credit card processing. These are disputed transactions that customers initiate when they aren’t satisfied with a purchase. Even if you’re in the right and the customer is not, it’s difficult and costly to override chargebacks (just 21 percent are decided in favor of the merchant).

The pros of accepting credit cards typically outweigh the risks, but your company needs to understand what it’s getting into. In order to stay safe and secure, you’ll have to be extra vigilant about how you proceed.

Different Credit Card Payment Options 

It’s not as simple as deciding you will accept credit card payments, period. There are a number of different ways to accept payments, and you’ll have to select the option that’s suitable for you. 

  • Merchant account. With a merchant account, you can accept credit card payments anywhere: online, in-store, or on the go. This is great for businesses with omnichannel presences that want maximum flexibility. Once you get your account up and running, it’s also a cost-effective choice. 
  • POS system. If you don’t have a strong need to accept online payments, a POS system is an excellent choice. It combines a merchant account with software and equipment that lets you process in-person transactions. 
  • Mobile payment processor. For businesses that process only a handful of credit card transactions on the go, a mobile payment processor is probably the best option. One of the simplest is the new PIN on Glass technology, which eliminates the terminal and keypad for simple, safe transactions. 
  • Online payment gateway. If you do business strictly online, you won’t have much of a need for a POS system or mobile payment processor. What you need is an online payment gateway. This method is especially useful for businesses that don’t handle a ton of credit card volume or operate in a high-risk industry.

Five Tips and Best Practices for Safe and Efficient Payments 

Regardless of how you accept credit card payments, you need to make sure you’re doing so safely, securely, and efficiently. There’s an art to doing this well. Check out a few tips and best practices: 

1. Only Use Approved Software and Equipment

There are lots of different POS systems and equipment on the market. You need to be extra cautious when you select products and services. Make sure you’re using only PCI-compliant hardware and software.

In addition to PCI compliance, you also want to read reviews and do proper due diligence to ascertain which options have been tested and approved by users. 

2. Don’t Store Customer Payment Card Data

One of the biggest problems businesses have encountered recently is getting caught storing customer payment card data. Although there’s nothing technically wrong with the practice, it makes you extremely vulnerable. 

“When you hold on to cardholder data, whether from an individual or another business, you run the risk of that information being seen by people who shouldn’t have access to it,” Staples Business Hub explains. “That’s one reason why it’s preferable to securely dispose of any payment information immediately following a transaction.” 

This is one of the first things you have to address. The longer you wait before settling this issue, the greater the risk you’re apt to face. Unlike some of the other mistakes that you could make with credit card processing, this one has the potential to shut down your business.

3. Develop Employee Handling Policies

It’s not enough to select the best software/equipment and avoid storing payment card data. You can have a perfect strategy in place from an executive leadership perspective, but it will all be worthless if your employees — the ones who will handle the cards and transactions — aren’t versed in what to do.

One of the best ways to reduce the risk of card fraud is to implement an employee policy for proper handling of customer credit card data. More specifically, each individual employee should be given his or her own unique pin code to track sales and transactions.

In addition to creating another layer of security, this imposes an added measure of accountability.

4. Always Verify Shipping and Billing Addresses

You should take particular steps when processing a card-not-present transaction. This will ensure the individual who makes the purchase is actually the authorized user. One of the best is to verify the billing address for the card. If the billing address doesn’t match the shipping address, you might want to follow up with the purchaser for an explanation.

5. Be Extra Careful With Online Purchases

“With purchases made online, the retailer is 100 percent liable for fraudulent purchases,” says Don Bush, VP of marketing for Kount, a fraud prevention and risk management technology provider.

“Neither the bank that approved the transaction nor the payment processing service that reviewed the transaction are held responsible for fraudulent purchases. It’s all on the merchant. That means if your company accepts a bad or stolen credit or debit card, the total liability of the loss is yours.”

In other words, you have little choice but to be extra cautious with online purchases. If you ever have doubts, it’s best to ask for another form of payment or deny the purchase altogether.

Push Your Business Forward and Start Accepting Credit Card Payments

We operate in a business universe where credit is the norm. If you aren’t accepting credit card payments, you’re inarguably falling behind.

Just make sure you prioritize security and efficiency as you transition. If you do, you’ll establish a solid foundation for sustainable business growth.

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