Managing your money
5 Benefits of Using Card Payments for your Small Business
In 2016, the majority of spending was carried out through debit cards; including an impressive £114 billion in the food and drink sector, and three quarters of retail spending processed on cards. With one in four payments now being carried out via contactless and 125 taps occurring every second in the UK, card payments are now just a way of life for the everyday consumer.
However, for many small businesses, card payments can still seem a long way off and there can be a reluctance to move away from the familiarity of cash. With risk of getting left behind, here are a few benefits that businesses should consider when introducing card payments:
1. A boost in sales and impulse buys
In a marketing study conducted by The Massachusetts Institute of Technology, research found that customers are more likely to make purchases when using a credit card. Customers are also more likely to make impulse purchases when using credit cards to pay.
This could be because handing over cash feels like something is coming directly out of their pocket and the use of a card lessens this to some extent. But it is most likely down to the sensitivity of the purchase window. This is the time bracket in which the customer confirms their commitment to the purchase, marking the likelihood of them spending more or even spending at all. If the option to pay by card wasn't available, they may lose interest whilst worrying about having enough cash with them or dashing out to the nearest ATM.
2. Better cashflow management
As card transactions are processed electronically, cash flow is a lot more visible and far easier to track and trace. As payments are made automatically, they’ll show up in a business account within a few days which means businesses will be able to access and review all their end-of-day sales. This not only saves time with the handling process and tracking, but also helps businesses to quickly spot errors and discrepancies, resulting in better overall financial management.
3. Added security
A lot of businesses will have experienced receiving a fradulent cheque or counterfeit notes which can result in a loss of hard-earned profits. However, card payments can offer more security to business owners.
For instance, as a customer makes a debit card payment their bank will need to approve the payment before the sale is completed. The transaction will only be authroised here if the customer has enough funds in their account; provided which, the merchant will be forwarded approval of the transaction. This usually only takes a few seconds and means the money will instantly be on its way to the business account, providing security for both the business and the customer. Card payments can also help reduce the amount of mistakes made during a customer transaction as there’s less chance of charging the wrong amount or returning the incorrect change.
In addition, businesses can feel more secure knowing that the majority of their profits are sitting in the bank rather than physically on their premises. They also don't need to take time out of running their businesses to take their cash earnings to the bank.
4. The return is likely to outweigh the cost
A lot of businesses are worried about the cost of implementing card payments into their business. However, with so many businesses now adopting card payment options, the costs are kept low and designed to cater to most budgets. The processing rates for credit cards can vary between 2% and 6% of the transaction, and for debit cards there’s often a flat rate of a few pence per transaction. There will also be a monthly fee to rent the card terminal and PSP (payment service provider) charges, which are either charged monthly or per transaction.
Although this may seem like a lot, the increase in sales and improved cash flow means that the benefits, especially the extra profits, are likely to exceed the costs.
5. Access to more flexible finance
Dealing in card payments could also help businesses gain access to more flexible finance options; such as taking out a merchant cash advance, which serves as an alternative to a bank loan. This is seen as a viable option for businesses who need an injection of cash but might have a sensitive credit history, or want to avoid the possibility of building up unmanageable repayments.
Once the advanced amount has been agreed, repayments are taken as a percentage of card payments, working in sync with cash flow. As it’s not secured to any assets and late repayments don’t exist, it provides a far more responsible and flexible option when it comes to borrowing money.
With debit card spending expected to reach £718 billion by 2024 (up 76% from 2014), card payments are evolving at an increasingly rapid rate - we only need to look at how contactless and mobile payments have taken off in the last year! With customer experience now taking priority, it is more important than ever for businesses to get on board and offer them what they need: fast, easy and secure card payments.