Imagine this: You’re visiting a major metropolitan city and—after hours of sightseeing—your stomach starts to grumble. Lucky for you, a street vendor is selling your favorite food just a few feet away. You approach their “Cash Only” stand, pull out your purse or wallet, and find: nothing. No cash means no treat for you.
This story could be a daily reality for your customer base. According to a U.S. Bank survey of more than 2,000 people, 50% of respondents fail to carry cash with them more than half of the times they go out. When the same respondents do carry cash, nearly half said they carry less than $20. That’s a lot of grumbling stomachs.
If you own a cash-only small or medium-sized business, you’re potentially missing out on a huge market. How huge? Try half; one study showed that 55% of the total recorded transactions made in 2022 were made via debit or credit card.
To amend your potential losses, it’s time to start accepting debit and credit cards with a credit card processing service.
Read on to learn the basics of credit card processing: what it is, why it’s important to your bottom line, a few key pitfalls, and how to get started.
Credit Card Processing: The Basics
A credit card processing company provides the software, hardware, and transactional services necessary for a business owner to accept credit or debit cards as payment–whether in-person, over the phone, or online.
Although it only takes a second for a customer to tap, insert, or swipe their card, every credit card transaction is only able to function due to a complex chain of events. Once a customer makes a credit-based purchase, a series of banks, financial institutions, and computer algorithms must communicate back and forth to approve the transaction and move the appropriate funds around.
To better outline credit card processing as a service, let’s compare the logistics behind two purchasing journeys. In Example A, Customer Joe pays Owner-Operator Olivia for a $5 latte with cash; in Example B, Customer Joe pays for the same $5 drink with a credit card. The table below details what happens behind the scenes:
Customer Joe and Owner-Operator Olivia
Now, you might be thinking to yourself that the process of accepting credit cards sounds a bit complicated. Luckily, business owners can simplify this process with help from a credit card processing company.
Credit card processors offer several credit card-savvy services intended for small or medium-sized businesses, which may include:
- Selling the hardware and software necessary to quickly accept credit or debit cards.
- Taking the place of the acquiring bank to lower merchant costs and hasten transfer times.
What’s in It for Your Business?
Accepting credit cards at your business means more than a little added convenience for your customers. If your business accepts cards, that could result in more sales, tighter record keeping, and smoother transactions.
When you accept credit cards at your business, you dodge the opportunity costs associated with accepting only cash. While a cash-only business may make great sales, it loses untold amounts of revenue from would-be credit card customers who are turned away; these lost sales are the opportunity cost of not accepting card payments.
Opportunity cost adds up quickly. One study by Intuit estimated that cash-only businesses miss out on $100 billion in sales each year, or about $7,000 in opportunity cost per business.
As credit card processing services are completely digital, purchases made via credit or debit card are also far easier to track. Many credit card processing companies will keep advanced records of your transactions, making it all the easier to prepare taxes, crunch performance numbers, and divvy up profits.
To sweeten the pot, most credit card processing companies offer Point of Sale (POS) system technologies. POS systems allow businesses to customize their digital cashier experience, making even the strangest customer request an easy-to-ring-up transaction. For example, a restaurant owner could update his waiters’ POS system by the hour, deleting menu options as they sell out or lowering alcohol prices during happy hour.
Drawbacks of Credit Card Processing
Credit card processing comes with a few disadvantages, including:
- Fees: Credit card processing companies will charge a flat rate per transaction, typically 1.5%–3.5% of each sale.
- Delayed Funds: Sale revenue may take some time to end up in your business’ bank account compared to cash, as each transaction is supervised by several banks.
- Internet connection requirement: Your business must be connected to the internet to use credit card processing technology.
For most small businesses, the benefits of sales, better record keeping, and simpler transactions associated with accepting credit cards far outweigh the costs.
How to Start Accepting Credit Cards
The best way to choose a credit card processing company is to research which companies work best with your business model. Do you own a takeout restaurant? You’ll need to process cards over the phone and online through your website. Own a brick-and-mortar retail shop? You’ll want a cashier hub device to accept cards.
For details on pricing, functionality, and in-depth reviews, check out our list of top-rated credit card processing companies.
