Rapid growth in digital technology affects every aspect of our lives – from how many of us navigate around town, to how we consume news, to how we make purchases.
The same is true for the owners of the nearly 510,000 small businesses across Minnesota. Technology changes the way they track expenses, monitor inventory and even pay their employees.
But one aspect many business owners in Minnesota and across the country haven’t changed is how they accept payments from their customers.
The National Federation of Independent Business found that only about half of small businesses accept electronic payments. As customers increasingly prefer to make payments electronically, it becomes even more important for small businesses to accept cards and mobile technologies to stay competitive.
Not only does accepting electronic payments help level the playing field between small businesses and larger competitors, it also expands the marketplace for small businesses, creating more opportunities for them to sell their goods and services.
For example, accepting online purchases allows businesses to expand their customer base. In fact, Business Insider’s BI Intelligence research and information service reports that 224 million consumers shop online, up by nearly 20 million from 2015 to 2016.
Accepting payments electronically helps small businesses better compete with larger businesses, minimizes potential losses associated with handling cash and expand into online sales. In fact, a recent study led by Oxford Economics and Charney Research on the “Future of Money” found that the fastest growing firms in terms of revenue are those that conduct e-commerce via their websites and mobile apps.
However, like any other purchase decision, there are basic best practices that apply to accepting electronic payments. If you’re a small business owner interested in accepting payments using cards and mobile technologies, here are six important tips to consider:
1. ?Find a payment processor that fits your business.
There is no shortage of options available to small businesses. However, it is important to find a payment processor with experience and expertise in your type of business and the goods or services you offer.
Often, your fellow business owners can be good resources for recommendations. Technology providers you already work with can also be a good resource for you. For example, if you already have a point-of-sale solution, ask that technology provider for opinions on payment processors.? Lastly, if you have a good relationship with your bank, consider starting with them – you’ll be working with a known entity and you may be able to leverage your bundle of services to your benefit.
2. ?Understand contract terms and how fees are calculated.
When it comes to the adoption of electronic payments, navigating the fee structures from payment processors can seem overwhelming. Remember, like with any contract, it’s important to ensure that you understand all terms and conditions, including when and how you get paid, start and end dates of service, and any conditions of automatic renewal. In addition, request a clear list of fees and make sure you understand how the merchant discount rate is calculated and any conditions that affect the rate — including card type or card-not-present transactions. Try to negotiate on all fee elements and be aware that any additional monthly and annual fees from the processor can add up quickly. Ask the processor trying to win your business for an example statement that includes all the fees you would be charged. If the processor cannot or will not provide this, consider exploring other options.
3. ?Decide whether you want to purchase or lease equipment.
Many payment processors will try to gain customers with low processing fees, but charge a significant amount for leasing equipment. Generally, leasing is the most expensive choice for obtaining equipment and unless you don’t have other options, consider avoiding leasing. Leasing can mean additional monthly charges, while purchasing is usually a one-time fee. If you instead decide to work with a third-party hardware vendor to obtain your equipment, make sure their system is compatible with the payment processor you have chosen to use.
4. ?Make sure your equipment has the latest security technology.
The U.S. market has now embraced chip card functionality. Europay, Mastercard and Visa (EMV) chip cards work directly with the terminal to generate a code that makes each transaction unique and impossible to duplicate. For the security of your business and your customers, prioritize hardware that can accept EMV chip cards. Talk to your payment processor about your options for accepting these chip cards and make sure you also can accept mobile payments, mobile wallets and other contactless payment methods. Mobile payments represent a quickly growing market – they are expected to reach $142 billion in the United States by 2019, according to Forrester.
5. ?Explore options for integration.
When considering electronic payment systems, it is important to find out if the service you choose will be compatible with other technology. For example, many businesses look for an electronic payment system that can be integrated with accounting software, making it easier and more efficient to manage money.
6. ?Get the support you need.
Look for a payment processor that offers phone and technical support, 24 hours a day, seven days a week. You should have a dedicated customer service team or account manager, and they should be able to explain clearly the steps they take when handling support for customer payment-related issues. In addition, programs like “Master Your Card” offer information and resources to help small business owners understand and use electronic payments.
Technology is changing the world more quickly than ever before. Shifting away from the status quo can be difficult for small businesses. Fortunately, today’s resources make it easier for them to find an electronic payment system that fits their unique business needs. By adopting the latest business and financial technology, small business owners can set themselves on a path to growth and success.
Pat Moran is managing director of BlackLine Advisory Group and a member of the Master Your Card Small Business Advisory Panel: 877.751.5565;