How Accepting Credit Cards can Revitalize your Plateauing Business

We are often told that nine out of ten new businesses fail within the first year.  No one knows who said it first, but it was provocative enough to catch the public’s attention and people have been repeating it ever since. The truth is that only about twenty-five percent of new businesses close their doors within the first year. However, when we extend the time horizon to three years, we find that sixty percent of new businesses fail.

Well, perhaps fail is not the right word.  There are many reasons why business owners decide to close up shop. Poor health, divorce and burnout are commonly cited. New businesses are recorded as failures if they change hands or even if they change their name. But probably the most common reason new businesses shut down is that profits level off. Economists refer to this phenomenon as a business-growth plateau.

As you might expect, most new businesses start out in debt. Their owners typically borrow money from a bank or lending institution, and they have to work hard to pay it back. If they can survive the first year, most new businesses actually start making money in the second year. They build a loyal customer base and they settle into a sort of comfort zone.  This is when profits stagnate or plateau.

Now, some business owners are more than happy to do just enough to keep the doors open. They love what they do and they aren’t interested in getting rich. But most business owners want to make money, and when profits hit the wall, they are forced to make a decision. Do they work extra hard to attract new customers or do they give up? Many business owners choose the latter.

There is, however, a simple solution to this problem. As incredible as it sounds, many small businesses still do not accept credit and debit card payments.  In this article we will discuss the costs and benefits of the merchant service account.

What is it?
Before a business can accept electronic payments, it must obtain a merchant service account. The service account provider is typically a bank or other authorized financial institution.  It is their job to confirm the validity of the credit/debit card and to collect payment from the customer’s bank. Once they receive this payment, they deduct their service fees before they deposit the funds in the merchant’s account.

Why are they necessary?
Statistics alone tell the story.  Six out of every ten retail purchases are made with a debit/credit card. Online figures are even more lopsided, with nine in ten customers paying with plastic. Only about thirty percent of retail transactions involved cash; the remaining ten percent pay with checks, money orders, or gift cards.

We also know that the average credit card sale is twenty dollars higher than the average cash sale. There are many reasonable explanations for this. Perhaps it is as simple as the fact that Americans love spending beyond their means. After all, the average American household has over 15 thousand dollars of credit card debt. But we are not here today to talk about debt.  We are here to talk about merchant service accounts for struggling businesses.

What can they do for you?
Most businesses that begin to accept electronic payments report substantial sales increases. Monthly volume generally grows as does the amount of the average sale. There are several reasons for this. First and most importantly, modern customers expect multiple payment options. When their preferred payment method is refused at the register, the chances that they will return are next to none.

Customer surveys also confirm that shoppers consider a business more legitimate if they accept credit and debit cards. When businesses remain cash-only for years, shoppers sometimes get suspicious. They often assume that the business has bad credit and that it could not obtain a valid merchant service account. But whatever the assumption, the bottom line is that it hurts their reputation.

Accepting credit/debit cards also has a positive effect on cash flow. Unlike personal checks, electronic payments are typically processed in one to two days. That means your business will have more money on hand when it needs it. There is also no risk that the payment will not be delivered, since the service provider checks the account before the transaction is even approved.

Last but not least, accepting credit cards increases the number of impulse buys.  Yes, it may seem a bit shady, but there’s a reason why eye-catching items are placed near the register. Americans are slaves to instant gratification, and when they submit to it, they almost always pay with a credit card.

What are the costs?
The most common misconception held by business owners who refuse to apply for a merchant service account is that it is expensive. But the truth is that if your business accepts payments in person, a merchant service account is quite affordable. Even a small increase in your customer base is often more than enough to pay for the basic service fees.

But don’t take our word for it. Compare merchant service account rates and fees on the Internet. Look for reputable providers that have experience in your industry and select a service account that meets your needs.