Small Business Cents

[#1]

Should your business accept debit and credit cards? What are the costs and benefits? Choosing to accept debit and credit card payments is a big step but often necessary in running a successful business. It is important to be aware of all the benefits, downfalls, and laws that regulate their use.

Accepting Card Payments

Although the battle continues between debit and credit cards as the best payment method, businesses don't have to pick a side because it is easy to accept both forms. Both cards are convenient, flexible, and have become increasingly important in business commerce. In addition to the demand for card services in the traditional business environment, accepting these payment methods are necessary for telephone and online sales.

Accepting Credit Cards

Credit cards allow customers to make payments or purchases by drawing from a reserved line of approved credit. Credit cards are considered the preferred and most popular purchasing power, especially for people with limited funds or those who often make large purchases. If you're considering accepting credit cards, be sure to go over the pros and cons adding this form of payment...

Pro Credit cards are easy to use and make paying bills or making store purchases hassle-free for customers.

Pro The convenience of using credit generally increases the likelihood of consumer "impulse purchases," and ultimately contributes to an increase in a business' average sale.

Pro A business that accepts credit cards gives customers another payment option.  Since most businesses accept credit, it's possible that your business may lose customers if you only accept cash.

Con Compared to other forms of payment, credit cards come with an increased risk of fraud.  However, through laws like the Fair Credit Billing Act, credit cards offer additional protection and flexibility for businesses dealing with fraudulent charges or defaulted payments.

Con Businesses see small processing fees for each credit card transaction.  While you wouldn't encounter such fees through cash transactions, it's argued that the increased sales volume that credit affords makes up for these fees in the long run.

Con Credit card transactions add another layer of detail to your business's bookkeeping practices.

Accepting Debit Cards

Debit cards let customers make payments to a business by withdrawing funds directly from their personal checking account. This allows customers to pull from their expendable income, not a line of credit. If you're considering accepting debit cards, be sure to go over the pros and cons adding this form of payment...

Pro Debit cards give customers a sense of security that they are not spending above their means. Some customers spend more with credit cards because they have a high limit that they can take time paying back.  However, others who don't like to acquire any debt feel more confident making purchases knowing they have the available funds to pay for their purchase as they would with cash.  This may prompt them to spend more than they generally might with a credit card.

Pro Debit cards are used when a customer is sure they have the available funds to make a purchase.  Compared to credit cards, debit cards payments generally have a faster approval time, which means faster access to revenue.

Pro Accepting debit cards gives your business access to consumers that do not have credit cards.

Pro Because the debit process is similar to a cash transaction, the fees that a business pays on debit transaction are smaller than credit card or check fees. 

Con While debit fees are usually less expensive than credit or check fees, they can still add up.

Con Choosing to accept debit cards requires the minor, but additional, step of adding a pin pad to a credit card terminal.

Want to Accept Debit and Credit and Purchases?

To enable your business to accept debit and credit card purchases, you'll need to establish a Merchant Account.  A Merchant Account sets up your business to receive card payments and chargebacks as a business's designated bank account. Obtaining merchant account status is not always easy, so advertising your business as a Merchant Account holder who accepts card payments may increase your credibility.   For more information see Managing Finances.

Already Accepting Debit and Credit Cards?

Read more about your responsibilities to protect your customers' privacy and secure their personal information.

Additional Resources

• Determining the Best Customer Payment Options for Your Small Business - and Managing the Bad Ones
• Federal Law Prohibits Showing Credit Card Numbers on Receipts
• Considering a Business Credit Card?
• Accepting Cash and Checks

Message Edited by JamieD on 10-20-2009 09:45 AM

[#2]

I think data liability would be another con; most systems require the storage of credit/debit card data. If this data got stolen, your business would suffer loss of reputation and possibly financial liability if a user's data is used for fraudulent purchases.

[#3]

good point, jaymar!