10 Jul How Accepting Credit Cards Can Eat Into Your Margins
Most businesses, large and small, opt to use a credit card processing account. With merchant accounts, companies can accept multiple forms of payment with ease. Of course, there is a downside to credit card processing. Here are five reasons why accepting credit cards will eat into the margins of a business.
Fees: While merchant accounts are helpful, a company will pay a heavy amount of fees. With a credit card transaction, the business will spend almost three dollars on every hundred dollars of revenue they bring in from a customer. Over time, this will add up and hurt the overall profits of a company.
Fraud: With credit card transactions, one will have plenty of problems with fraud. In fact, a large percentage of online transactions are committed by criminals who are taking advantage of lax security. While a business will enjoy some protection, fraudulent transactions will take a lot of money from a company.
Equipment: Not only will a company spend money per transaction, but they will also need to spend money on equipment and online shopping carts. Over a month, some businesses will spend at least $100 paying for or renting their credit card processing equipment. Now, for a large company, this is not an enormous expense; however, a small business will feel the pinch when renting a credit card reader or creating shopping cart software.
Float: When taking in cash or checks, one will see the money in their bank account quickly. On the other hand, one may see their credit card payments in a week or two. When taking in the money, most merchant companies will take a while to verify the details and send the money to the company. Now, this does not make a difference for some, but a small company will certainly experience problems with cash flow when it takes two weeks to receive their funds.
Chargebacks: Many times, a customer will file a chargeback against the merchant. In most cases, a merchant will lose the case unless they fight back and send in the supporting information. When this happens, not only will the company lose the income, they will have to pay a fee to their merchant services provider. Sadly, a few chargebacks a month will kill the long-term profitability of a small organization.
When running a company, one will pay plenty of fees to accept credit cards. Unfortunately, most businesses cannot avoid this cost as it would be difficult to attract new customers without accepting multiple payment forms.