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Providing your customers with a range of different payment options can help to increase sales. At the same time, you need to maximize profits and understand when it may be beneficial to restrict certain payment options. This typically comes down to the value of the products or services you’re selling.
Below is an example of how different value transactions can affect payment options.
Under $5
In this day and age, every business needs to accept card payments. However, there may be some instances where you want to limit card payments so that you can make sure you’re actually making a profit.
Every time a customer makes a transaction via credit card, you must pay a merchant fee. This is usually a flat charge of $0.10, plus a transaction percentage. With some small transactions (such as a gallon of milk from a convenience store or a takeaway coffee), this merchant fee could be enough to eliminate any profit. Setting a minimum card spend limit can force customers to either pay in cash or select more items until the amount is over the minimum spend limit. Businesses are legally allowed to set minimum card spend limits of up to $10, but $5 is likely to be more reasonable in many cases.
Over $50
Studies show that while many Americans carry cash, very few ever carry more than $50. At this point, accepting credit card payments should therefore be a necessity.
Even if you mostly deal with lots of small transactions, you should accept credit payments if there is still a likelihood that a customer may pay more than $50 for a transaction. Accepting credit card payments is easy and there are many different ways to do it from online processors to portable terminals. The likes of the North.com website can help you explore different options for different industries. When used in a physical setting, a credit card is often used with a POS system.
Over $500
It’s important to remember that the larger the purchase, the larger the merchant fee is that you will pay if a customer uses a credit card. Therefore if you are making very slim profits on big ticket items, you need to be careful of promoting card payments.
Beyond $500 you may find that some customers cannot pay by credit card anyhow. Some customers have very low credit card limits. Some do not have credit cards at all and only use debit cards – and they are unlikely to have $500 sitting in their account.
So what is the alternative form of payment for these situations? You could a) set up an interest free installment plan that allows customers to pay in installments, or b) partner up with third-party lenders to offer finance. In both cases, you do not have to pay merchant fees. That said, there are potential risks and downsides to both payment solutions. With in-house installment plans, you must chase up customers payments yourself and may have to deal with customers who don’t pay up. With third-party finance, some lenders may still ask for additional commission fees. So you need to work out what is really the most profitable option.
