Getting Paid

Many times we find that entrepreneurs give little thought and wait until the last minute to address the issue of how they will collect payment.  Without the proper research, they fall victim to unfavorable contract terms and put in place poor business practices that expose them to fraud and losses.  However, with a little forethought and planning, business owners can lower their cost, improve efficiency and reduce their risk.

Of course every business is unique but there are some basic questions to start:

01.    Who will my customers be?  Consumer, business, corporate or government clients?
02.    What type of payments will I accept?  What payment methods will my customers prefer?
03.    When will I be paid?  After delivery or will you take deposits?
04.    Where will I interact with my customers?  Will I be face-to-face or over the phone or web? Will I be mobile?
05.    How much will I be paid?  Large transactions differ from small transactions.
06.    How often will I be paid?  Are my customers one time or recurring?
07.    What are my risks of non-payment / fraud?
08.    What type of disputes might I encounter?
09.    Will I extend trade credit and on what terms?
10.    What is my return policy?

After you answer these questions, you are ready to explore the world of choices in the payment industry.  From cash and check, to credit, debit and gift cards, to trade credit receivables, there is a mix of payment methods that should be considered.   Each payment method carries its own associated costs and advantages.  For example, accepting cash has a different cost than accepting a credit card card but there are still costs of handling cash and making change (making sure you have enough cash on hand, accounting for bills and coins, security issues including employee theft and risk of becoming a target of crime to name a few).   You may want to guarantee a paper check is good.  Your customers may demand 30 day payment terms.  Credit and debit card payments offer convenience but are not a guaranteed form of payment.  It is important to evaluate each payment method's benefit, risk and cost.

In today's business world it has almost become a necessity to accept card payments.  The convenience, speed, fraud protections, rewards and reporting provided by card payments are motivating factors that are taking market share from cash and paper check.  Consumers are using credit (specifically Rewards cards) and debit (Check Cards) to make purchases.  However, business-to-business, business-to-government and government-to-government card payments are experiencing major growth as each of these segments move to replace traditional invoices and purchase orders.  Purchasing cards (p-cards) offer speed and convenience while reducing the administrative expense of previously used methods of purchasing.  

As some of the most recognized brands in the world, Visa, MasterCard, Discover and American Express operate networks to issue and acquire card payments. In order to accept card payments, businesses need to establish a merchant account.  A merchant account is a financial account that allows businesses to take a card payment and convert it to an electronic cash deposit into their business checking account.  Merchant account fees, often referred to as discount rates, apply to each transaction processed through the card networks.  If you are accepting credit cards you are paying a percentage of your sales to do so.  And so are all the other businesses you are competing against.  It is important to take into consideration the cost of payment when pricing your product or service.  

Until recently, merchants had no resource for comparing rates with each other.  myRealRate.com creates a nationwide database for comparing and sharing card processing expenses.  Business owners can calculate their Real Rate to accept card payments and then benchmark their rate against others of the same size within their industry.   For businesses just starting out this is a great way to get a feel for your specific industry and the average costs of card acceptance based on your projected sales volume or transaction size.  For existing businesses, one of the keys to how to lower your cost of accepting credit and debit card payments is to calculate your real rate and then run comparisons within your industry to see if you should go shopping for a new provider. 

Your payment processing partner should help you understand the risk of payment fraud and help you implement best practices.  They should also help you select the proper payment solution.  Choosing the right payment technology is a key component in reducing cost and improving operational efficiency when accepting payments.  There are a variety of payment technologies to choose from including point of sale registers, wireless terminals, contactless readers, ecommerce payment gateways and check imagers to name just a few.  Depending on your customer profile and how they buy, you may need to implement and manage a variety of payment platforms.  

The payments industry is not a commodity business.  It is becoming more complex, with new rules and regulations, new pricing and qualification requirements, new payment technology and payment card industry data security compliance.   While it is important to have competitive rates, don't neglect the importance of the payment industry professional, whose advice and assistance will save you more money in the long run.