TFC #05 - Balancing Convenience and Cost for Credit Card Payments

In today's digital age, customers expect quick and convenient payment options.

10 years ago, how many people asked if you accepted credit cards?

5 years ago, how many people asked if you accepted credit cards?

How many people are you asking about it today?

I'm sure you can see the massive spike in the last few years. It is going from a convenience to a necessity for a small business. And not just for stores and restaurants.

In this newsletter, we will be exploring why customers love to pay with credit cards and how you as a business owner can best handle the massive fees that are typically paid by the business.

Why Customers Love Paying With Credit Cards

I'm probably a fair example of a typical customer now because I love using credit cards. Responsibly of course. 😉

I'm probably going to go in to a lot of detail on why I love credit cards, so bear with me.

It might give you some perspective on why your customers are so desperately asking for it.

Convenience

First in the list is the most obvious, convenience.

I'm the type of person that never has any cash in his wallet. If I go somewhere that doesn't accept cards, I have to make a trip to the ATM.

So for me to be able to quickly pay for my products with a credit card is very important.

Most of us would agree that for stores and restaurants it is a must have, but why is it different for cabinet shops?

Obviously I'm not just making impulse purchases and its a much larger number, but I would argue that customers still want to use their credit cards.

I remember when I first opened my checking account when I was 15, I ordered a checkbook with 100 checks in it. I was super excited and couldn't wait to use it.

Fast forward.... I still have almost all of those checks in my file cabinet at home.

I very seldom write a check. It is a very non-typical month for me to write 1 check. I might even go as far to say, I only write checks 1-2 times per year.

So when I go to a business that says, cash or check only.

Suddenly the transaction is not as easy as I am accustomed to and now I have to go home... find a check... and remember how to fill it out....and then hand deliver it or mail it to the business......

I know it sounds silly to say that out loud, but I know its true for myself and a lot of consumers probably feel the same way.

The last thing I want to mention on the convenience topic is the simplicity of tracking expenses when you use a credit card.

I started using Wave for my business accounting and I love the idea of creating an accurate chart of accounts and categorizing every transaction that comes in so you know what you are spending each month.

After using it for my business, I had the bright idea of treating my personal finances as a business too and now, every Monday, my wife and I look at every transaction that we make in a weeks time and assign them to the appropriate category such as utilities, restaurants, books, etc.

The reason for saying all of this is because using credit cards makes this process of tracking and budgeting our finances much easier because we can simply connect our credit card accounts and every transaction automatically shows up, ready to be categorized.

Credit Card Rewards

Ah, rewards.

This is a good reason right here.

I remember several years ago, I didn't pay much mind to credit card rewards and I often just used my bank debit card for day-to-day transactions because I thought the whole credit card rewards system was cheesy.

Wooowww, spend your 100,000 points you've been earning for 3 years and win a ... toothbrush.......

Haha, maybe it wasn't that bad.

But now...I have totally changed my mind!

My wife is brilliant with this. We love to travel and go new places and so in the past couple years, we have been focused on using good travel specific credit card rewards such as the Chase Sapphire and Capital One Venture X card.

My mind is blown every time we go on a trip.

We almost always get free flights with our points when we go somewhere, and sometimes we even use our points on hotels.

For example, we have a trip coming up in April to go to Germany, Switzerland, France, and Italy. We are super excited to say the least! 😊

Under normal circumstances, we probably couldn't afford a trip like this, however, we literally got flights for both of us for free, and hotels for 15 nights for free!

Crazy stuff.

So yes, when people are begging you to accept credit cards, sometimes, its stories like this that make it important to them.

Security

Security is becoming a big reason to use credit cards today. As a consumer, I have no personal liability for fraudulent charges.

This means that, unlike my bank debit card, if someone gets my credit card number and makes a charge on it, I can simply report it the credit card company and get my money back, no questions asked.

It also gives consumers the ability to do chargebacks if they are not satisfied with the service or product, or if they never received it.

....some consumers really abuse this privilege.

Benefits of Accepting Credit Cards

Here are three benefits of accepting credit cards at your cabinetshop.

Improved Cash Flow

Credit card payments are processed quickly, which means, you can receive payment for your jobs more quickly.

Yes, credit cards help prevent sending those invoice overdue reminders. By making it easier to pay, you are making it more likely that customers will pay on time.

You all know the importance of cash flow in a business so I'm not going to go into more detail on this.

Improved Customer Experience

You can greatly enhance your customers experience by making it easier and more convenient for customers to make payments.

Happy customers = Positive reviews and repeat business

Competitive Advantage

By accepting credit cards, your shop can stand out from your competition and appeal to a wider customer base.

Reference the above section about what people love about using credit cards if you don't believe this gives you a competitive advantage.

The Negative Side of Accepting Credit Cards

So now that I've made my argument of why people love credit cards and the benefits it can bring to your business by accepting credit cards, lets dig in to the common drawbacks.

Make sure to keep reading so you find my system to best handle these drawbacks.

#1 reason - Payment Processing Fees

This is why most people have avoided accepted credit cards. Especially for high ticket items and bigger transactions.

The average processing fees for a small business is 2.9% + $0.30 per transaction. (you can get cheaper rates as you do more volume)

So lets look at an example:

You sold a nice custom set of kitchen cabinets along with a deluxe master bath for $40,000. You want to do a 25% deposit and then get paid in full when the job is complete.

So you send an invoice to the customer for the initial deposit and the customer decides to utilize your new credit card payment option and completes the transaction the same day.

So the customer is charged $10,000 and you are excited and a couple days later, sure enough, the money is in your account. Except instead of $10,000, you see $9,709.70.

Your fees for this transaction were as follows:

• 2.9% of $10,000 = $290

• $.30 per transaction

• Total fees = $290.30

Then, you complete the job and the customer is super happy with your work and you send them the final invoice for $30,000. The customer immediately hops on your payment link and makes the payment.

Your fees for this transaction were as follows:

• 2.9% of $30,000 = $870

• $.30 per transaction

• Total fees = $870.30

So for the entire $40,000 job, your fees are as follows:

• 2.9% of $40,000 = $1,160

• $.30 for 2 transactions = $0.60

• Total fees = $1,160.60

This will start to add up really fast! If you're doing a lot of jobs every month, you have to be sure to account for this expense or it will really cut in to your profit margin.

Do some simple math on your annual revenue and see how much you would be paying in fees if everyone started paying with credit cards.

You can just multiple your revenue by .029 to get a reasonable estimate. (your actual fees would get lower if you were doing a lot of volume)

$1,000,000/year = $29,000 in fees

$5,000,000/year = $145,000 in fees

So you have a couple of options:

• increase your pricing to allow for a handful of customers to be able to pay with credit cards

• do nothing and absorb the cost and hope most customers pay with a check

• pass the fees on to the customer

I'll go in to my recommendation for cabinet shops further down this post.

Complexity of Processing

The process of accepting and processing credit card payments can also be complex and difficult to understand, particularly for small business owners who are new to the process.

Some of the questions you will have to answer are:

• Which of the hundreds or thousands of merchant processors will I choose?

• How will I implement accepting credit cards into my current system I have in place?

• Should I choose fixed rate fees or variable rate fees based on the card that is used?

• Will I take payments over the phone or add a link on my Quickbooks invoices?

• How will I account for credit card fees in my accounting if I receive the sales amount minus the fees in my bank?

• Can I accept payments in person in my showroom using the same merchant account I have for my invoice payments?

The Risk of Chargebacks

Credit card companies do everything they can to keep the consumer happy.... not the business.

What is a chargeback? also called a payment dispute.

A customer can request a chargeback if they are unhappy with the service or product or if they never received the product. It is essentially a reversal of funds.

Some customers who are... difficult... might choose to issue a chargeback if they paid with a credit card and they are unhappy with your service.

Here is what you can generally expect from a chargeback:

1. Purchase transaction is completed successfully

2. Customer disputes the charge

3. Chargeback process is initiated

4. Funds are removed from YOUR account until the dispute is resolved

5. You have the opportunity to rebut the chargeback and provide evidence

6. Issuing bank makes a decision

Here is the bad part.

It is very very very difficult to win a chargeback case as a small business.

I have seen lots of cases where the business provided iron-clad evidence that they delivered the product and everything was in order, but the issuing bank still rules in the consumers favor.

Now the good news is, most people you deal with won't do this. But it is good to still be aware of the possibility because it could cost you a lot of money if this did happen to come up on a large job.

Payment Processing Options

Here are a few of the options you have as a cabinetshop if you decide to start accepting payments:

Quickbooks Payments

This is a popular option because it is familiar, and super easy to setup. You can simply complete the application and a pay now button will show up on your invoices.

The downsides to Quickbooks Payments are the high fees, no automated surcharging option, and less flexibility to use it for website payments or in store payments compared to other options.

Stripe

Stripe is the most common payment processor. It charges a flat rate 2.9% fee regardless what type of card the customer uses.

It has a lot of integrations with website builders and software platforms.

However, it is not an all in one system. You have to be pretty technical to piece together a system using Stripe. For example, if you use Quickbooks or Sage or other accounting tools for invoices, you will need a separate software that integrates with Stripe to be able to add a payment link to your invoices.

The other downside is, you will have difficulty doing in person payments using your same Stripe account that you are using for your invoice payments.

+100s more processing companies

These are far from the only two options available. You could research for days looking at all of the available options.

Some will charge lower fees plus a monthly fee, some will charge a variable rate per card type, some will have fixed rates, and many other types of models.

The most important thing you can do is find a company that you trust, that is willing to offer support, and is able to support multiple platforms such as website, invoices, and in person payments, and they can implement their solution into your process without changing your entire accounting process.

My Recommendation

I have built over 30 websites for small businesses and tried multiple different options for accepting payments. I love using Stripe for simple website payments but I was never satisfied with the all in one high ticket payment options I was finding.

I finally found a method that I think makes the most sense for large transaction businesses.

Here is the exact system I recommend and have helps a handful of shops setup:

• Surcharge customers who pay with credit cards or ACH

  • This allows you to keep your current pricing

  • This prevents you from penalizing customers who pay by check

  • This gives them the opportunity to use other payment methods, at their cost. (you will be surprised how many will pay the surcharge simply for the convenience)

  • Note: Not all merchant processors allow surcharging

• Integrate with your existing accounting software

  • You do not need to start invoicing in a separate software to accept payments

  • You can continue your exact same process and still get the benefit of accepting payment

  • You do not need to mark invoices as paid with the accounting integration. It handles it all when a payment is made.

  • The system I use integrates with Quickbooks (online and desktop), Acumatica, Odoo, Netsuite, Sage, Zoho, and more.

• Plan for accepting payments in various ways (even if you don't need them right now, its best to plan ahead)

  • you want to have the ability to add a pay now button on your invoice

  • you want to have the ability to do a customer portal for your repeat customers that allows them to see their own invoices and make payments as needed

  • You want to have the ability to accept payments on a website

  • You want to have the ability to add a credit card machine in your showroom/office

  • You want to have the ability to take payments over the phone

  • This system I use can offer all of these

Its basically a no risk situation for you. You are able to offer the customer payment options if they choose to do so, without giving up your profit margin and changing your current pricing.

If you're interested in having a chat about utilizing my recommended system for accepting payments in your shop, shoot me an email and I can get you connected with a system that can do exactly what I described here. 😁

Otherwise, I hope this article was informative for you and gave you a better understanding of how to tackle (or not tackle) this whole credit card thing for your business.

In conclusion, there are several reasons why customers love to pay with credit cards, including convenience, credit card rewards, and security.

As a business owner, it is important to understand the benefits of accepting credit cards in order to provide your customers with the payment options they desire. However, it is also important to consider the fees associated with credit card transactions and find a balance between convenience and cost.

By understanding the motivations behind customer demand for credit card payments, you can make an informed decision about the best way to handle these payments and provide your customers with the best possible experience.

Have a good Friday and see you next week!