Is Not Accepting Credit Cards Hurting Your Bottom Line?

Customers overwhelmingly prefer to pay with debit and credit cards. Credit card processing is essential for a small business to maximize its profitability.
Small businesses nationwide might be losing billions by not taking credit.
Businesses that are traditionally cash-only and have been for quite some time might be missing an opportunity to make more money.
Cash-only businesses may have simpler operations and fewer customers, but credit card processing can expand revenue and drive new business.
This article is for owners of cash-only businesses who are considering accepting credit cards.
To avoid credit card processing fees and sidestep the need for additional swipe and chip hardware, a surprising number of small businesses still don’t accept credit cards. Unfortunately, not accepting credit cards could be hurting your bottom line. Here’s a breakdown of why some businesses don’t accept cards, what you might be losing out on by refusing credit card transactions, and how you can get affordable credit card processing for your small business.

There could be some benefits to not accepting credit card transactions, even if they typically increase profitability.

No credit card processing fees
Any business that accepts credit card payments can attest to the challenges of credit card processing fees. For starters, many business owners find it difficult to comprehend credit card processing agreements. Additionally, credit card processing can cost a small business thousands of dollars per month, so if your company can’t afford substantial additional expenses, you may find cash-only operations appealing.

No pending payments
If you’ve ever paid for something by credit card, you know that credit card payments rarely clear right away. Usually, payments take one to three business days to clear (or longer for certain transactions). If waiting for cash to hit your accounts isn’t feasible for your company, then you might prefer the cash-only route.

Easier accounting
You must track your company’s spending and earning through either cash or accrual accounting. Although many small business experts advise using the latter, a 2018 survey found that one-third of small businesses use cash accounting. That’s because cash accounting focuses solely on cash in and cash out rather than additional, sometimes complex business concerns. Cash accounting may give a more realistic depiction of cash flow for a smaller business.

The cons of not accepting credit cards
Although some companies can feasibly survive as cash-only businesses, in other cases, not accepting credit cards can be detrimental. Here’s why:

Digital payment methods are increasingly prevalent.
Like it or not, the world is becoming less and less dependent on cash. Young people and tech-savvy consumers of all ages are flocking not just to credit, but to cashless and card-free transactions via such apps as Apple Pay and Google Pay, and major retailers like Starbucks and McDonald’s are offering alternative payment methods. Cash-only businesses were already losing billions of dollars a year as of 2013, and as this trend continues, businesses that don’t even accept standard credit cards will be viewed as even more outdated.

High-income customers use cashless payments more often.
A 2018 study by the Pew Research Center showed a steadily climbing trend toward cashless payment transactions, especially among high earners under 50.

“Roughly 3 in 10 U.S. adults (29%) say they make no purchases using cash during a typical week, up slightly from 24% in 2015,” the report reads.

The report notes the difference between high-income and low-income consumers, pointing out that “adults with an annual household income of $75,000 or more are more than twice as likely as those earning less than $30,000 a year to say they do not make any purchases using cash in a typical week (41% vs. 18%).”

You could lose money by not accepting credit cards.
As the expectation for customers to pay for goods and services through cashless transactions grows, the odds that you’re losing money by refusing to accept credit increase as well. This is especially true if you’re trying to appeal to high-income people and people under 50.

Customers are even less willing to pay cash when the purchase cost is more than $25, so if you’re not a low-cost retailer, you should seriously consider allowing credit card transactions. Multiple studies from banking institutions and independent research associations show that fewer Americans are carrying cash, and the trend appears to be continuing.

Key takeaway: The pros of cash-only businesses mostly pertain to simpler operations, and the main cons involve the potential for fewer sales.

Affordable credit card processing
Most small business owners have three major concerns about accepting credit cards: interchange fees, chargebacks, and the adoption of new technology (such as swipe or chip systems). However, there are many affordable options available to small business owners.

Interchange fees
There are transaction fees associated with credit card processing, but they are lower than you might think. The fees vary by type of credit card and are significantly lower for debit card payments than for credit card payments. The most widely accepted debit and credit cards have fees of 0.05% to 2% of the purchase price, which is why many retailers only accept certain cards and institute the legally allowed $10 minimum on card purchases.

A chargeback is when a customer who has paid for a transaction with a credit card gets their money back. The most common type of chargeback is when a customer returns a purchase and is issued a refund, but a customer can also request (though they might not necessarily receive) a chargeback if they feel they were unfairly charged for a good or service. This might occur if an employee accidentally charges a customer twice for the same good or service or otherwise overcharges them, but customers might also attempt to receive fraudulent chargebacks.

Chargebacks carry a processing fee, which is paid by the business owner and is part of why some businesses post policies such as “no refunds” or “store credit only.” Offering store credit allows a retailer to give the customer their money back without paying a chargeback fee to the credit processing company. If your business has a high percentage of returns or refund requests, you may want to institute a policy to offset chargeback processing costs.

Credit card processing software and hardware
If it’s been a few years since you last considered implementing credit card processing, you might want to revisit it, because the days of bulky POS systems that require thousands in upfront costs are in the rearview mirror. While those systems are still around, they’re no longer the only option; in fact, it’s much cheaper to set up a credit card system than it ever has been.

There are lots of lightweight POS-style solutions that are ideal for small spaces (and even mobile businesses), such as Square, which makes it easy to swipe on the go. There are online-only credit processing solutions too, like PayPal, which works very well for both low-volume and high-volume online businesses and even side hustles.

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