Small company Credit Crunch

One of the goals of any well run company should always be expense manage. I had a boss that always said it was all the small expenses that will kill a business. Receiving money regarding goods or services is the absolute goal of a company. In a small business dealings, selling a widget to a customer, cash is usually the preferred method since there is no cost when a business accepts money for goods. Many other forms of transaction are acceptable in the retail plus wholesale markets.

In the wholesale market segment a buyer may get consideration and specific terms with regard to payment of goods sold, like 30 or 60 days before payment is in fact due. By delaying receipt associated with payment this costs the seller cash. In the retail world cash will be king but credit card payments are usually accepted. When a business chooses to accept credit card payments and you swipe your card in the little machine in the counter, a third party merchant services suppliers (MSP) is utilized. They facilitate the process of taking your money from the bank card account and paying the dealer, but there is a 3rd party handling charge.

The merchant services/credit card company fee structures vary in a couple various ways. All the different credit card companies and MSP’s cost some nominal fee for acting as the conduit for the money flow on each transaction. It could be 1% to 3% +/- depending on the credit card corporation and MSP contract and the volume or number of transactions. Each MSP has a multi tear, multi stage formula for each and every transaction, therefore the devil is in the details. The 3rd party merchant service fee structure (the credit card swipe machine) also differs depending on volume and type of transaction. Whenever I pay with the debit card, and the retailer requests me “debit or credit? ” I always tell them to do whichever is much better for them, and then I do debit so the retailer does not have to eat a 3rd party transactional fee. In most cases the employee behind the counter does not even know that debit card transactions save the business money and they should suggest that approach to payment if a customer has no choice.

A small business that accepts multiple forms of credit card payment must factor in the cost associated with merchant service fees.
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If they do accept credit it is likely protected in the mark up and profit margin for all the products they sell. If this expense is not factored into the company plan a 3% fee upon each transaction could be very costly in order to small business owners over time.

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