Card Payments: The Facts
Most of us will use a debit or credit card to pay for something on a daily basis. This might be in a shop, on-line or over the phone but whatever we’re buying we do expect to be able to pay for it with a card. And so will your customers!
If you run a business there are many benefits of taking card payments – it really is a ‘no-brainer’ for retail businesses. Customers will typically spend 10-30% more in shops that take cards than they will in those that take cash only. Many customers carry little or no cash so you could be losing customers by not accepting cards.
What happens if you do not have a shop?
Card payment machines can be set up to take payments over the phone. Alternatively, a ‘Virtual Terminal’ allows you to log into a secure payment portal from your tablet or laptop, enter the cardholders’ details and process the transaction on-line. All of this can make it easier for your clients to do business with you and for you to get paid quicker! You can encourage clients to pre-pay in full or in part for a bespoke product or service. Clients are far less likely to change their mind once a payment has been made.
You can also embed a ‘Pay Now’ button into your email when sending invoices. This will take your client through to a secure card payment page. Once payment has been made, both you and your client get immediate email confirmation. This can reduce time taken checking and chasing payments.
To sell on-line, you or your web developer will need to set up your web site for e-commerce. Customers will browse your site loading items into their basket. Once they have finished shopping they ‘Proceed to Checkout’. This takes them away from your site into a secure payment environment provided by your card payment provider.
What does all of this cost?
Firstly, you will pay a fee for the payment facility itself, be it a card machine, virtual terminal or an e-commerce payments gateway.
Secondly, you will pay a processing charge which is usually a % of the value plus a fee for each transaction.
Card Payment Machines
They can connect via a fixed phone line, Wi-Fi or the GPRS network. Most businesses will pay a monthly rental for a machine. This can typically vary from around £15-£30 + VAT per month.
Pay as You Go can be a safer option for any business that does not wish to commit to a monthly payment contract. After payment of a one-off upfront fee you are not charged a monthly rental and can walk away at any time without penalty. The transaction charges are a little higher but this is offset by the lower risk and the fact that you only pay for actual usage with no other monthly costs.
Monthly costs for this facility are typically around £10 + VAT per month. Payments can be made from any internet enabled device, ideally a tablet, laptop or PC. As well as the cardholder’s card details you will need to enter additional information including their address. This can work well for your business if most payments are made by phone but bear in mind that each transaction takes a little longer so this solution is not well suited to high volume retail environments.
If you are likely to be selling a high volume or high value products on line, then paying a monthly fee for the facility is likely to give you lower transaction fees and better overall value. If anticipated volumes or values are low then a Pay As You Go option where you are only paying for transactions, with no monthly fee may be the better option.
These charges are based primarily on the type of card used and your projected card turnover, the higher the turnover the lower the rate. Different types of cards are charged at different rates. Consumer Credit Cards are usually charged at less than 2%, Consumer Debit Cards at less than 1%. You may occasionally see a Corporate Purchase Card which is charged at a higher rate. American Express cards used to be prohibitively expensive for many merchants but are now charged at 1.9% by most companies.
You will also be charged a small Authorisation Fee for each transaction. This is usually around 4p.
Payments made by phone go through additional layers of security to minimise the risk of fraud. There is usually a small additional charge for this which can be a percentage or a fixed fee for each transaction.
You will need to become PCIDSS Compliant (Payment Card Industry Data Security Standards) when you start taking card payments. It can be done on line or by phone and carries a small monthly or annual cost. You usually have around 60 days to do this and your card company will advise you.
What Are The Pitfalls?
Many businesses will share stories of experiences they have had with a card company. Most bad experiences could have been avoided by doing a bit of research and taking some simple precautions. Here are a few things you should check carefully.
Length of contract
– They can vary from 12 months to 5 years
– At the end of the initial contract period they usually roll for the same period again
– You will usually be liable for the remaining contract period should you wish to terminate early
– Ensure that what you are told by the salesperson is confirmed in writing and keep a copy of anything signed or received by email
– Make a diary note to review your options about 3 months before your contract expires
Minimum Monthly Service Charges
– Most companies have a minimum charge
– If your transaction fees fall below a certain value in a given month your invoice will be topped up to this amount
– These are typically set at £15/month upwards
Who am I dealing with?
– You may unknowingly be signing contracts with more than one company
– One may be renting you a terminal, the other processing your payments
– Many terminal rental companies are unregulated and employ ‘Commission Only’ sales people
– Check the relevant T’s and C’s for BOTH contracts
– Check if the company is regulated by the Financial Conduct Authority?
All that said, millions of businesses find card payments an essential tool enabling business growth, improving cash flow and helping their clients interact with them. Like most things in business, there is an expense but the benefits can outweigh this many times over. Do your research; don’t be afraid to ask trusted friends and professionals.
Don’t forget, if you need help, the team at Virgate Accounts can put you directly in touch with industry professionals who can advise on all aspects of card payment processing.