Business Financing Tips

How to Decide If Your Small Business Should Accept Credit Cards

Many consumers enjoy the convenience of using credit cards for both large and small purchases. Medium and large businesses usually accept at least one form of credit card, but small business owners sometimes question whether it would be in their best interest to accept cards. There are costs associated with accepting credit cards. If you own a small business, you need to assess whether the sales you would generate by accepting credit cards would be enough to cover the costs of accepting them and make it worthwhile.

Accepting credit cards offers advantages to businesses. Funds are deposited directly in the company’s account, which eliminates worries about bad checks, collecting cash and going to the bank, or having to wait for customers to pay invoices. Accepting credit cards can make a business seem more credible in the eyes of customers than one that only accepts cash. Customers who use credit cards may also be more likely to make impulse purchases or to buy more expensive items than they would if they were required to pay with cash.

Estimate how much it would cost your business if you were to accept credit cards. You will have startup costs to purchase or rent credit card processing equipment and to set up a telecommunications line to process transactions. You will also have ongoing costs, including monthly statement fees, transaction fees, and a percentage of each sale. Some of these are based on sales volume, and others will be constant every month. There is also a risk of chargebacks if a customer is unhappy with your product or service and contests the charge.

Figure out at what point you would break even if you accepted credit cards. If your operating profit margin is greater than what the cost of accepting credit cards would be, it would make sense to accept them. However, if you have a business with a lower operating margin or do not have many retail customers, it might make more sense not to accept credit cards.

Think about how much accepting credit cards could potentially help boost sales. Some businesses do not need to accept credit cards to thrive, but others, such as restaurants, could potentially be missing out on many sales if they only accept cash.

You can set a minimum purchase requirement for customers who want to use credit cards. The law allows businesses to set a minimum purchase up to $10, as long as all cards are treated the same. Setting a minimum purchase amount could help you maintain margins on less expensive items. Be careful where you set the minimum amount to avoid driving away customers who tend to make small purchases.

Useful Business Financing Tips