Should You Accept Credit Cards? Here's how to decide

By:  Ralph Prado - June 1998

Here's how to decide if accepting credit cards will be affordable for your business, or not. First, how much money in total sales do you do each month? Do you bring in at least $1000? Second, can you afford to pay $35 a month for this service, if you had no sales at all certain months? If you plan on receiving very few credit card sales and are starting on a shoestring, what is your cost benefit dollar amount? Meaning, at what dollar amount is NOT accepting credit cards going to make the difference between making a profit versus not making money?

It all comes down to what you're willing to accept as a cost of doing business. If you are simply going to accept credit cards to satisfy your clients needs, how much is that customer worth to you? Also, if you know that most of your clients will be paying you over the phone or by mail order, you will have to accept credit cards regardless, to keep up with competitors.

Here's the bottom line. If it costs you $35 a month to make $1000 a month by accepting credit cards, is the $1000 significant enough for you? If yes, then accept credit cards.

If you are a very small home based business, here is what you should be concerned with - the monthly minimum in fees you will pay must be affordable enough for you to remain in business, even if your sales are small or if you do zero credit card sales in a month. $25 per month is normal.  Covering your monthly costs will show you whether or not you can afford to accept credit cards. 

Therefore if your merchant account costs are $10 for the statement fee and $25 for your monthly minimum, this means you would need to have at least $1472 in credit card sales if you have a 1.7% swiped qualified rate to produce $25 in minimum processing fees. At the end of the month, the only true monthly deduction would be your $10 statement fee because your $25 would already be deducted from the transactions.

Does this make sense? Ok, let me explain this differently. During the course of a month, you are going to have so many Visa/Mastercard sales (X). Out of each sale, you will be charged a transaction fee, in this example 1.7% (Y).  This fee is deducted at the time of the sale, and at the end of the month is added up and compared to your Monthly Minimum. If these fees, that have already been deducted, equal or are above your Monthly Minimum nothing else is charged to your account, because the minimum required has already been deducted for the month. However, if your total fees end up being less than the Monthly Minimum, expect for your account to be debited for the difference. Also, if you have no sales during the month you will end up paying $10 for your monthly statement fee, plus $25 for the monthly minimum - a total of $35.

Formula: X ($ credit card sales) × Y (% discount rate) = Discount Fees = or > Monthly Minimum

This dollar amount really shouldn't be an issue for most average sized companies. However, it is a concern when your business is very small. The way I explain it to people is, if you can budget $35 a month toward credit card processing expenses, you can accept credit cards. On the other hand, I have also advised people not to accept credit cards when I know their sales will be very small and every dollar counts. I usually tell people to come back when their sales rise up into the $2,000 range. 

Some people have asked me, "Why don't you just say it costs $35 a month to have a merchant account?" My response is, "well that wouldn't be a true statement."  People forget that the discount rate is a percentage (fee) that the monthly minimum is based on. Therefore, no matter how much your total sales are, you will still be charged fees based on a percentage. So, if you sold $100,000 through Visa/Mastercard one month, the monthly fees to show up on your statement would be roughly $1,700, not $35. So, in this scenario, it would cost more than $35.

Aside from costs associated with accepting credit cards, it's more important to understand what your customers want and who they are.  It could be business suicide to completely avoid accepting credit or debit cards if you operate a fast food restaurant or clothing shop for example.  Unless your business is located far away from any other competitor, you will lose some business if you don't cater to your clients needs. For example, people feel safe not carrying cash. Credit card companies offer their clients incentives for using their credit cards too. In today's world we're almost forced to carry some sort of non-cash payment card. And because you're not likely to change the world, why try to limit your sales?

If you need help saving more money while accepting credit cards, give me a call. To learn more about how to buy a credit card machines or open a merchant account correctly dial 1 (888) 604-3443.