Merchant Services

Ten ways to reduce your cost of accepting credit cards

SBOCTeam — Fri, 03 Oct 2008 17:03:00 GMT

by amspcs

In tough economic times, small businesses seek out ways to cut expenses. One of the best places to start is to lower the cost of credit card processing.

Here are ten proven ideas that every merchant can and should implement. To learn more about each item, please refer to the resource links provided below.

1.) Minimize surcharges Circumventing terminal prompts such as bypassing Address Verification (AVS) or failing to settle batches properly cause transactions to downgrade to higher rates. Adhering to proper procedurees will reduce your rates.

2.) Avoid chargebacks A common avoidable chargeback reasons is unauthorized use of card. This is easily avoided when cashiers are trained to compare, check and verify signatures on each and every transaction.

3.) Consider adjusting your discounting method Does your processor have you on gross processing or net processing? Daily or monthly discounting? Does your particular business qualify for one plan over the other, and would you benefit from it? Learning these fine points can mean extra profit for your business.

4.) Discontinue the Merchant Club membership Many merchants pay $9.95 or more monthly for Merchant Club dues; not knowing this fee is optional. These programs offer benefits like free terminal repair and free supplies. In rare cases, it's worthwhile. But most merchants accomplish nothing more than spending over $100 per year for maybe $30 worth of free supplies; hardly a justifiable expense. Betters to buy supplies from a local office supply outlet, and opt out of the merchant club.

5.) Verify PCI Compliance In the wake of data breaches and identity thefts, Payment Card Industry (PCI) security standards is a serious matter. This involves the manner in which merchants safeguard and store customer credit card data, among other things. The processing industry has established well defined procedures and regulations, failure to adhere to which can lead to nasty fines. Small businesses are not immune. Contact your processor and make sure you are compliant.

6.) Update your processing equipment Replacing obsolete processing equipment can net significant monetary savings very quickly. Examples: Replacing a dial-up credit card machine with a wireless machine and dropping a costly dedicated telephone line can pay for itself in no time. Newer terminals supporting the latest security programming can actually reduce some discount rates. Newer machines using thermal paper eliminate the need for costly ink cartridges and ribbons altogether.

7.) Invest in a Pin Pad A pin pad and a subscription to a true debit gateway enables merchants to process pin debit as opposed to signature debit at greatly reduced costs. For example, the cost of processing a $500 sale could conceivably be reduced from over $8 to under $1 by processing as pin debit instead of signature debit.

8.) Don't fall for the Cold Call scam Unethical processing reps make their living by cold calling merchants, performing an audit of their merchant statements, and promising huge savings if the merchant switches processors. The problem is that it's a big lie; comparing real world numbers with contrived assumption-based fantasy scenarios isn't a valid comparison. More often than not, duped merchants find themselves locked into long-term contracts with higher processing fees than before. Legitimate mainstream processors simply don't operate this way. Their growth is based on performance and legitimate referrals, not by dispatching droves of amateur salespeople to knock on doors. If you are approached in this manner, make sure you run their 'offer' past your current processor before you sign off. Chances are he'll enlighten you to what it really is nonsense. And worst case scenario, if it's legitimate, he'll probably meet or beat it.

9.) Get rid of the No Checks Accepted sign True, the world pays mostly with plastic these days. But there are still millions of checks written every day, Most of them are good. Problem is, when you turn away all checks in hopes of avoiding the bad ones, you're turning away tons of good ones too! The fact is: With modern check guarantee technology, accepting checks is as secure as credit card acceptance, and often cheaper. Furthermore, there are legitimate service providers offering 100% free collection services for NSF checks. There's really no reason to give your competitor the advantage by handing over your check revenue business on a silver platter

10.) Take advantage of free training offered by your processor Legitimate credit card processors offer training to teach you and your staff the right and wrong ways to accept electronic payments. Take advantage of it. Training teaches how to avoid mistakes, surcharges, and chargebacks. How to properly settle your batch, when to run a void instead of a refund (there IS a difference), what to do (and not to do) when you get a decline response to avoid wasting dollars, and much more. If your processor does not offer training, you are being severely short-changed and overcharged.

RESOURCES:

To learn about CREDIT CARD SURCHARGES visit http://www.MerchantServices-help.com/discount-rate.html

To learn about CHARGEBACKS visit http://www.MerchantServices-help.com/chargeback.html

To learn about DISCOUNTING METHODS, visit http://www.MerchantServices-help.com/processing.html

To learn about PCI COMPLIANCE, visit http://www.MerchantServices-help.com/PCIcompliance.html

To learn about DEBIT PROCESSING, visit http://www.MerchantServices-help.com/debit-card.html

To learn about SALES SCAMS, visit http://www.MerchantServices-help.com/merchantmistakes.html

To learn about CHECK GUARANTEE services, visit http://www.MerchantServices-help.com/check-services.html

To learn about FREE CHECK COLLECTION, visit http://www.MerchantServices-help.com/nsfcheck.html

Barry Godofsky operates Automated Merchant Solutions, Inc., a Florida based Independent Sales Office (ISO) representing several of the largest credit card processing Acquirer institutions in the nation. For more information regarding small business credit card processing issues including unbiased tips, FAQs, and resources, please visit http://www.MerchantServices-help.com

Credit Card Processing For Business

SBOCTeam — Wed, 23 Jul 2008 19:52:00 GMT

Rate Reduction Strategies That Work

By amspcs

Has this happened to you? A credit cards merchant account salesperson sold you on a really low credit card discount processing rate. You thought you negotiated a pretty good deal. But lo and behold, you realize that you're paying much more than expected! What happened? And what can you do about it?

The culprit in the above scenario is merchant lack of understanding of "Interchange", the price structure of credit card transaction processing. Without this knowledge, the process of selecting merchant account service processors is usually limited to phoning every processor in the yellow pages and signing on with whoever quotes the lowest 'rate'. The reasoning : 'low rate' equates to 'low cost'. Therein lies the problem.

"Interchange defined"

Interchange is the wholesale price structure of credit card transaction services charged by Visa USA and MasterCard Worldwide to processors. The processors in turn mark up and re-sell these services to credit card accepting businesses, not unlike any other wholesale-retail relationship. Wholesale interchange is exactly the same for all U.S processors large and small, although low-risk and mega merchants enjoy the volume leverage of being able to purchase processing services from processors at smaller profit margins than small businesses are.

The flaw in the 'lowest rate wins' strategy is that merchants mistakenly assume the low rate quoted will apply to all of their transactions. Not so. Interchange in fact comprises some 125 separate rate categories, each of which is assigned a unique qualification criteria and corresponding price structure. The typical merchant will knowingly or otherwise process cards in several of these categories, not just one, and will pay appropriate surcharge rates for each. The low advertised rate is nothing more than a starting point for the entire spectrum of interchange charges.

Reasons for processing surcharges include:

HOW a card is presented affects rate. For example, Swiped vs. non-swiped. Card present vs. mail/phone order. AVS match or mismatch.
The TYPE of credit card processed accounts for many increased pricing criteria. Among them: Business (as opposed to personal) cards, foreign cards , rewards cards, purchasing cards and so on always result in increased rates.
POS equipment may affect rate structure. Older equipment unable to accommodate fully compliant processing software may lead to transactions being downgraded to higher rates.

The significance of this to the merchant is:

When a credit card processing service is selected solely on the basis of one singular advertised 'cheap' merchant account rate quote -often a loss leader--by necessity (no business can sell for below their dead cost....right?) the advertised teaser rate will apply only to a limited number (if any) of the credit card transactions processed by the business, based on very narrow interchange criteria. The remainder of the merchant's transactions that do NOT meet these criteria to qualify for the low rate quoted will be downgraded to a higher rate interchange category, thus allowing the processor to make up his margin and then some.

These higher rate categories will include ALL of the following:

non-swiped sales
rewards card sales
business card transactions
foreign cards
government purchasing cards
everything except personal swiped domestic cards

These non qualified fees compensate for, probably many times over, the low teaser rate afforded by the minority of the transaction volume. As a result, the actual fee paid by the merchant won't remotely resemble the low rate expected. This results in a quite unusual circumstance that many people find impossible to grasp: The lowest rate quotes result in the HIGHEST net cost to the merchant, not the lowest as one might expect. . Strange but true.

Three strategies to avoid this pitfall:

When evaluating a credit card acceptance account (or shopping for a new account), insist on disclosure of all interchange rates involved, not just the 'advertised' rate. The goal is to get the lowest rates in the interchange categories where your business will be, not just the lowest top tier rate quote.

To circumvent rate downgrade increases for incorrect data entry procedures, insist on on-site training by your processor to assure that your staff understands the proper procedures necessary to qualify for the lowest rates. Merchants using no frills processors who skimp on training and support-skimping on services is how they are able to offer cheaper rates in the first place-- are particularly vulnerable to unnecessary non-compliance surcharges.

Have your processor audit your merchant statement periodically to detect any changes in your credit card qualification criteria mix and make adjustments as necessary. Some merchants are still using the same antiquated processing schedule they used on the day they first opened their doors. A program geared to how you do business today, not five years ago, may result in significant processing savings..

Barry Godofsky operates Automated Merchant Solutions, Inc., a Florida based Independent Sales Office (ISO) representing several of the largest credit card processing Acquirer institutions in the nation. For more information regarding small business credit card processing issues including unbiased tips, FAQs, and resources, please visit http://www.MerchantServices-help.com

Are You Compliant

SBOCTeam — Thu, 17 Apr 2008 12:41:00 GMT

PCI Compliance
If you don't understand the current Payment Card Industry guidelines for your business, you may be putting yourself and your customers at risk

By Reed Richardson

Over the past three decades, as our society has increasingly shifted toward one where both consumers and merchants prefer credit over cash (as a recent Visa commercial not so subtly pointed out), the threats from fraud have also radically increased. Gone are the days when criminals are satisfied with the paper bills in your wallet, now they really want the numbers on the plastic in your purse. So, protecting all this financial data, which can be found everywhere from credit cards to company databases to online servers, must now be a major focus of even the smallest of businesses.

Make no mistake: Credit card fraud is expensive. In fact, it cost U.S. consumers and businesses an estimated $3.2 billion in 2007, up more than 35% from just four years earlier, according to a tracking study by Celent Communications. In fact, credit card security is now a major or moderate concern of more than three quarters of the population. And though small retailers have-so far-not been hit as hard, another recent survey found that as many as one out of six had experienced online credit card fraud losses totaling more than 1% of their annual revenue.

Therefore, after years of merchant confusion concerning different brand-specific requirements, along with the continuation of massive credit card data breaches, the five major credit card issuers joined together to create a single standard for protecting credit card data. As a result, the Payment Card Industry, or PCI as it's known, which consists of Visa, MasterCard, American Express, DiscoverCard, and JCB International (a Japanese credit card issuer), finally established an industry wide protocol of best practices in June 2005 called the PCI Data Security Standard (PCI DSS). The goal of the PCI DSS is to reassure customers that their credit card data and transaction information is safe from hackers or any other malicious system intrusion.

"But I only process a few credit card payments a week on my website, do these new rules apply to my small business?" you might ask. The likely answer is yes. "The rule of thumb is this: If you house credit card information, in whatever form, if you house the information in your server-the server that you own or you added-then you are basically responsible for complying with PCI DSS," explains Khalid Kark, an analyst with Forrest Research.

Get the Facts: Know Your Classification
To promote its compliance efforts, the PCI set up a website http://www.pcicomplianceguide.org/ devoted to helping businesses understand these new expectations. Fortunately, the PCI recognized that data security, as well as the ability to invest in it, varies greatly depending on the size of the company. Accordingly, the PCI separates merchants into four different levels, sorting them by their total annual credit card transactions. Most small companies fall under either Level 3 or 4 (less than one million annual Visa or MasterCard transactions) with the distinction between Levels 3 and 4 figured by how robust their online retail presence is (Level 3 companies are defined as having between 20,000 and one million annual e-commerce transactions, Level 4 firms are under 20,000 a year).

Spurred on by massive data security breaches like the one experienced by retailing giant TJX in 2005 and 2006 where the company took a $40.9 million hit to settle a lawsuit after it compromised more than 45 million Visa accounts the PCI initially focused on bringing larger, Level 1 firms into the fold. Smaller businesses were able to meet the PCI's 12 requirements through a less rigorous process that involved taking an annual risk assessment questionnaire and conducting quarterly network scanning. Both methods are fairly affordable for small businesses; the self assessment is free and many PCI approved scanning vendors (ASVs) charge between $12 and $40 a month for their services.

Recently, however, the PCI has broadened its focus to smaller companies for two main reasons: volume and vulnerability. Despite their small size, Level 4 merchants still account for 99% of all credit card merchants and, because of their limited resources, all these companies are more susceptible to security breaches. "Usually, Level 4 merchants do not have the technical expertise, nor the IT staff, to properly secure card holder data," notes Aaron Biddar, president of one of the PCI approved scanning vendors, ControlScan. "So, if I am a hacker, I'm going to go to the merchant that I know cannot afford the proper security or staff to mitigate that type of breach." As a result, Visa unveiled a new Level 4 merchant compliance program last May that seeks to educate small businesses on risk-profiling strategies and how to minimize the amount of customer data that they store.

The Risks of Non Compliance Are High
The role that the individual credit card companies play in the PCI compliance effort should not be overlooked. That's because enforcement of PCI compliance infractions is left to the specific credit card companies, like Visa, and their patience for non-compliance is quickly wearing thin. (In 2006, Visa alone levied almost $5 million in fines and, last year, the company imposed an $880,000 penalty against the bank complicit in TJX's mishandled credit card data.) Although most fines and penalties levied by the credit card companies target banks rather than small businesses themselves, there is a still a significant financial incentive to comply-it only takes one confirmed data breach at a Level 4 merchant to get that company reclassified to Level 1, which requires much more comprehensive and expensive security checks and audits.

Unfortunately, many businesses both large and small remain completely unaware of the PCI's requirements and the potential trouble their company could encounter if they don't comply soon. In fact, a recent poll on the PCI compliance website found a plurality of business owners 29% didn't even know their merchant level classification and a mere 11% said that they were currently in compliance. And, as might be expected, many myths about the topic have also blossomed.

In the end, PCI compliance should be considered just another cost of doing business in today's credit obsessed world. And though it might require an outlay of some capital and be a bit of an inconvenience, consider the cost of not safeguarding your customer's credit card data in terms of your company's reputation and ability to fight a long, protracted lawsuit. That's a price no small business is willing to pay.

Safety Is Important Online Too
In an interview on PracticaleCommerce.com in October of last year, John Munsell, founder and CEO of Bizzuka, a web design and development firm noted that online shoppers should make sure that their any business website where they plan to make a transaction should display a symbol verifying that it uses an approved scanning vendor, such as Scan Alert (Hacker Safe logo), ControlScan, Cybertrust, and VeriSign. "Merchants," he said, "should make sure that their vendors provide PCI compliance before proceeding." Also, he recommended checking to make sure that compliance by the vendor is ongoing, and not just during the delivery phase of the website. "I've seen a lot of merchants buy a shopping cart that was PCI compliant at the time of delivery, but 48 hours later, the cart became non-compliant and the vendor either disappeared or asked for more money to retain compliance."

The Data Less Retailer?
Still, Joe LaRocca, vice president of loss prevention for the National Retail Federation pointed out in an article on that organization's stores.org website recently that PCI compliance does not necessarily guarantee that a retailer is safe from having their customer data compromised. As a remedy, his organization is calling on banks and credit card companies to stop requiring merchants to store credit data in any manner. (Currently, retailers must store credit card numbers for up to 18 months in order to manage refunds, etc.) "If the goal is to make credit card data less vulnerable, the ultimate solution is to stop requiring merchants to store card data in the first place," LaRocca explained. "If you're not storing any credit card data, there's no incentive for the criminals to breach your systems."

Reed Richardson is an associate editor/writer for Business Minds magazine.

Farm it Out

SBOCTeam — Thu, 10 Jan 2008 14:28:00 GMT

Time is money. Intelligent outsourcing can save your business a bundle of both.

By Nate Hardcastle

You didn't go into business to spend hours administering payrolls, wading through changing tax rules and maintaining fickle computer systems but when your server went down one Thursday morning there was no one else to fix it and, before you knew it, you had spent the entire day getting the problem solved. With a critical business meeting scheduled for nine the next morning, you had no choice but to stay up all night preparing work that you should have been doing earlier that day. And when the meeting finally did roll around, you were so exhausted that you could barely focus on the issues at hand. Is this any way to run a business? Does it make sense to spend so much time on relatively minor operational tasks that have little or no bearing on your real, long term goals? And while you could hire and train full time employees to manage those tasks, wouldn't that be both expensive and time consuming?

To combat all these issues, you might consider the benefits of outsourcing. Increased numbers of small businesses are freeing up time and saving money by farming out non core functions such as information technology, payroll, human resources, and accounting. According to the Outsourcing Institute, based in Jericho, New York, small businesses have been outpacing larger companies in their use of outsourcing recently. And by 2009, industry analysts estimate that outsourcing by small and mid-size companies will exceed $25 billion annually.

"Outsourcing can be especially helpful for small firms," says John McClendon, a professor at Temple University's Fox School of Business in Philadelphia. "It can provide them with some of the advantages larger firms enjoy, such as economies of scale and specialized expertise."

Outsourcing does pose some potential risks, however. Pitfalls, including vendor incompetence, poor communication, culture conflicts, and misuse of your firm's proprietary information, sometimes make outsourcing less productive. Fortunately, you can avoid most of those problems with a methodical, carefully planned approach to the outsourcing process.

The Promise Of Outsourcing

The term "outsourcing" is often misinterpreted. Politicians and pundits typically use the word as shorthand for the practice of hiring cheap labor in developing countries a practice more accurately called "off-shoring." The true definition of outsourcing is both more mundane, and, to small businesses, more useful. "The bottom line is that outsourcing involves using an outside vendor to do something you've traditionally done in house," says McClendon. Outsourcing often makes intuitive sense. You hire an accountant to do your taxes, because it's not worth your time to familiarize yourself with the tax laws. Likewise, a technology consultant can upgrade your computer systems far more quickly and efficiently than you could. What's more, there is considerable empirical data suggesting that outsourcing can help small businesses. Robert Brown, small business outsourcing analyst for consulting firm Gartner Group in Stamford, Connecticut, has done extensive research into the benefits of outsourcing. Brown and other experts report the following benefits:
Access to expertise. Outsourcing allows small businesses to draw upon skill sets that would be far too expensive to develop and maintain in house. This know how can also provide a host of other benefits as well, such as the ability to spot developing opportunities or keep your businesses compliant with changing laws. For example, a technology consultant might help make your business more efficient by identifying ways to automate your supply chain. Similarly, a payroll vendor might keep you on the right side of new payroll tax regulations.
Time to focus on your core business. When you outsource time consuming but peripheral tasks, you and your employees can focus on what business experts like to call "core competencies." A doctor can spend more time with patients; a consultant can devote more hours to working with new and old clients; a designer can save his energy for his designs. The extra hours you and your employees devote to your firm's core business could make a real difference to the bottom line even after you take into account the money you spend on outsourcing. Perhaps it's no surprise, then, that "improving company focus" was the number one reason given for outsourcing business functions in a recent survey by The Outsourcing Institute, barely beating out "reducing operating costs." And among small businesses, this trend was even more pronounced, with 58 percent choosing "improved focus" as their primary reason for outsourcing compared with 41 percent who listed "cutting costs."
Improved morale. Employees generally are happiest doing what they do best. They often hate being distracted by tasks that have nothing to do with their essential functions. Just ask William Dailey, an accountant and comptroller for Trans-County Title Agency, a 25-employee title insurance firm in New Brunswick, New Jersey. He handled the firm's human resources for years he estimates HR duties took up 20% of his time before the company's owners finally hired a dedicated HR firm. "I wasn't qualified for that job," he says. "I never went to school for HR, and I don't have the personality for it. The company hired me for my ability to count money, and now I have the time to do that properly."
Lower costs. Economies of scale allow outside vendors to perform many business tasks far more efficiently than small businesses could do themselves and that translates into cost savings. "Small businesses can get access to experts for a much lower cost by outsourcing than by hiring," says Brian Klaas, professor of management at the University of South Carolina's Moore College of Business. "Essentially, outsourcing means that a number of businesses can share the cost of an expert's training and resources."
New perspectives. Outsourcing can provide ongoing input from an outside expert to help you improve your business. For example, an outside accountant or financial consulting firm will provide regular financial reports, produced and examined by an advisor with years of experience working with companies similar to yours. Gene Polley, a business advisor with small business consulting firm Fiducial, recently showed a client who owns an auto parts store that the prices he charged hadn't kept up with the industry average. "The next month, the client made an extra $5,000 in profit just from marking those items up to the going rates," he says.
Improved recruiting. Outsourcing certain functions also can help you attract and retain high-quality employees. "The marketplace for good people is very competitive," says Darren Dupriest, owner of background checking firm Clarence M. Kelley and Associates in Shawnee, Kansas. "Outsourcing HR and payroll allows us to offer a well designed package of benefits, and our employees know their paychecks will be handled professionally. We can make our employees happy without having to sweat the details."

Making The Most Of Outsourcing Opportunities

Outsourcing doesn't always work as planned, though. A recent study by consulting firm Dun & Bradstreet found that between 20 and 25 percent of outsourcing relationships fail in any given two year period, and half fail within five years. Likewise, a recent Gartner study predicts that 80 percent of organizations that have outsourced their customer service operations in order to cut costs will see no savings in the long run. Reasons for these failures are varied and can include hidden expenses, poor service, culture conflicts, and a lack of flexibility to address changes. But the following tips can help you reap outsourcing's benefits while avoiding its potential pitfalls:
Common sense check. Outsourcing works best for jobs and systems that are common to most businesses, such as IT, payroll, accounting, and human resources. An outside vendor may have trouble with processes that are unique to your firm. For example, many airlines save money by outsourcing new employee training but Southwest Airlines keeps that process in house. "Southwest views employee training as a crucial, unique element of its corporate culture so the company doesn't believe in using outside vendors for that task," notes John McClendon. "They spend more resources on training than their competitors, but they feel that it's worth it."
Compare cost. Calculate how much the job costs you now and how much it is likely to cost going forward. Include the costs of labor and materials, as well as the opportunity cost associated with diverting employees' time from their primary duties. That information will help you decide whether to keep doing it yourself or look for someone to take it off your hands.
Define your goals. Before shopping for vendors, figure out exactly what you want them to accomplish: whether it is to implement a particular technology, handle administrative functions to free up employees, provide a package of affordable benefits, or meet other goals. Also consider whether you're looking only for a vendor to administer a given businesses function, such as payroll, or if you want to consult the vendor about a wider range of business practices.
Start small. "Don't outsource everything, especially at first," says Gartner analyst Robert Brown. "Some companies overdo it, and run into trouble managing all their vendor relationships." Start by farming out one or two relatively simple, discreet tasks. Use references to find the right vendors. Get out and talk to other businesspeople. Referrals offer the best way to discover effective outsourcing partners. Look for a firm with a reputation for integrity and experience serving companies similar to yours. Interview several candidates before hiring a firm.
Evaluate prices. Brown notes that small businesses often pay proportionately much more than larger firms for similar services, in part because they are less vigilant about negotiating cost. Remember that economies of scale should allow vendors to perform the relevant tasks more cheaply than you can yourself. And don't allow vendors to sell you services you don't need.
Don't be afraid to trust your gut. Avoid vendors who make you feel uncomfortable, no matter how good their reputation. Consider whether you really want to work with a person, and whether you trust the vendor with sensitive information. "The relationship is number one," says Kelly and Associates' Dupriest. "Can you relate to the people you deal with, and do they understand you and your business?"
Demand flexibility. Consider the ways your relationship with the vendor might change in the future perhaps based on your firm's potential for growth. If you expect revenues to double during the coming year, will the vendor be able to keep up? If you expect flat or declining business, make sure your contract won't force you to pay for a higher level of service than you're receiving.
Measure the results to manage the relationship. Sara Cullen of Australian outsourcing consultant ABIE Source recommends measuring four components: service quality, financial results; the quality of the relationship; and whether the vendor has introduced better business practices. With those measurements in hand, you'll have a sound basis for judging the relationship. Reevaluate every one to three years, and use the opportunity to adjust the arrangement as needed.
Read the fine print. Make sure any outsourcing contract spells out the following: minimum service levels; conflict resolution provisions; an escape clause; who owns the work produced; and any incentives for good performance.

Prime Candidates For Outsourcing

Information technology. Outsourcing IT is a no brainer for many businesses, given its complicated nature and the speed with which it changes. However, its essential to define precisely what business results you want to achieve before entering an IT outsourcing relationship. Consider whether you're looking to fix specific problems or seize particular opportunities or if you want to determine how new technologies might help in ways you haven't considered. Referrals from other people in your industry are the best way to find a good vendor. Affiliations with professional organizations are good starting points, as are certifications from leading vendors of hardware and software systems, especially for the products your company uses. Ask the consultant for help achieving your business goals, rather than for a particular technology (unless there's a clear, compelling reason to do so). The consultant should be able to propose a plainspoken solution that you can understand be wary of technology consultants whose jargon leaves you confused. Be prepared to spend between $600 and $1,200 a day or more, depending on the complexity of the work.
Avoid getting stuck in an open ended project. Divide each project into discrete steps, each with a deadline and budget. Ask the consultant for written reports as the job progresses that will make it easier to maintain and upgrade the system in the future.
Accounting. Most small businesses already outsource end of year income tax preparation but experts contend that they shouldn't stop there. The duties your firm might outsource range from bookkeeping to more complex tasks such as business valuation and auditing. A seasoned accountant also can apprise you of the tax implications of business decisions you make throughout the year, helping stave off unpleasant surprises come April 15. What's more, he or she might act as a business owner's point person in crafting financially sound succession strategies or doing other financial planning. Rates depend on the complexity of your books and the tasks you outsource. You might begin your relationship paying an hourly rate, until the accountant understands your business well enough to quote a flat fee.
Keep in mind that outsourcing your firm's books does not mean washing your hands of them. Meet regularly with your accountant and make sure you understand where your business's money is and why you're undertaking particular financial strategies.
Payroll and Human Resources. Outsourcing payroll can remove a gorilla from the back of many small business employees, and can protect firms from costly errors. The IRS reports that 40 percent of small businesses are fined for filing payroll taxes late or incorrectly, to the average tune of $845 per year; some fines are far worse. "Payroll tax rules change every year," says Fiducial advisor Gene Polley. "If you're not careful you can get into a boatload of trouble."
A number of large firms as well as many major banks now offer payroll processing to small businesses and many offer the convenience of online connections. One potential benefit of this is a simplified accounting process that links directly to your back office accounting functions, eliminating the need for duplicate data entry. Other advantages include uptime guarantees that are typically better than you would get from running your own system as well as protection from penalties. The range of services varies with the price, so it's worth taking the time to compare the offerings to find the provider that offers you the best combination to fit your company.
Businesses looking for more consultative, personalized relationships might want to look into professional employer organizations (PEOs). These firms officially become co-employers of small businesses' employees, making the PEOs legally liable for any errors in payroll tax filings or other mistakes. PEOs also can handle a wide range of human resources functions, from offering comprehensive benefits packages to writing employee manuals to helping craft strategic compensation plans. Business professors John McClendon, Brian Klaas, and Thomas Gainey conducted a survey designed to gauge client satisfaction with PEOs. They found that 89% of respondents saved time, while 68% saved significant money. They also found that the more firms outsourced to PEOs, the more satisfied they were. "There's no reason why a small business person should have to handle all of their company's HR duties by themselves," concludes Klaas.

You are in business to succeed at doing work that you enjoy. Outsourcing tasks for which your firm is not well suited can help you achieve both of those goals. "Small businesspeople have enough headaches without trying to be the expert at everything," says William Dailey. "If you're overworked or putting important work aside just to keep your firm's basic systems running, you should think about outsourcing."

Nate Hardcastle is a freelance writer whose work has appeared Money, Worth, and Reader's Digest.

Ask And Ye Shall Receive

SBOCTeam — Mon, 24 Dec 2007 09:59:00 GMT

By Gene Marks

Meet Josh, the best negotiator in the world. Josh is six.

Whenever he wants something, he asks for it. "I want juice". "I want that game." "I want to watch Rugrats." "I want ice cream." And if he doesn’t get what he asks for? Well, he just keeps asking. And asking. Sometimes this tactic has the opposite effect. My wife or I will reprimand him. But a lot of times we cave. And he gets what he wants. Just to keep the peace. He’s relentless. He’s diabolical. He’s a great negotiator.

I know a lot of Josh’s in my professional life too. Like Gary. Gary’s forty six. He runs a small manufacturing shop. We agreed to help him with his accounting system. There was a ton of work that needed to be done. We had to migrate data from his old system to the new. Bring forward opening balances. Setup accounts. Do a little customization. Train, train and train. I estimated a good one to two hundred hours of work at the least. Gary understood. He didn’t flinch.

But when I told him our hourly rate was $140.00 here’s what he said: "Can you reduce it to $135.00?" The guy was about to spend in the neighborhood of $20-30K on services and all he cared about was reducing my rate by a measly five bucks an hour! I remember being taken aback. "Uh, sure Gary." I said.

What was five bucks an hour anyway on a project this size, I thought. Well, to Gary, it could be up to another thousand bucks he would save. That may not seem like a lot considering the total numbers involved, but a thousand bucks is a thousand bucks. Better it be in his pocket when the smoke clears than mine. He just asked and I gave it back to him. Josh would be proud. It costs nothing to ask. And oftentimes it results in saving something. Just ask my neighbor Naomi. She lives for this stuff.

Naomi was having an addition put onto her house. She had a few contractors in to look at the job and it wasn’t going to be cheap. Or fun. But hey, the pain of remodeling is just one of those hardships we sometimes choose to endure. Now, don’t feel too sorry for Naomi. She cut quite a few thousand dollars from the asking price. Did she drive a hard bargain? Ferociously negotiate? Call in the lawyers?

Nope. Like Gary the manufacturer, Naomi also asked. One contractor quoted her $30K to do the bathroom. Another quoted her $40K for the same room. She actually preferred the second contractor. All she did was show him the first quote and asked him what he could do to bring down the price. Everyone has his price. He wanted the work. In the end they met half way. He cut the price down to $35K. She saved five thousand bucks and all she had to do was ask.
Requesting a lower price during a purchase is one thing. Asking for a lower price when you’re already entitled to one is another thing altogether. A lot of us leave money on the table that we’re entitled to. How crazy is that?

For example, just by banking with your local bank you may already be entitled to discounts from retailers like Barnes & Noble, Dell and Office Depot. And speaking of those retailers, most of them have discount programs too which offer special incentives to buy their products. Are you asking? You do buy office supplies, right? Did you ask the retailer how to join their discount program? Are you asking your bank about the discount programs they offer?

If you’re like me, you scrutinize the dinner check fourteen times to make sure the waitress didn’t charge you for that second cup of coffee. You’re scouring the hotel bill on your family vacation for any incorrect amounts from the in room bar. You’re driving another six miles to save two cents on a gallon of gas. And yet you’re passing up on hundreds, even thousands of dollars of savings every year because you’re not asking for it. I’m guilty of this too. Let’s change together.

Let’s think of Josh. And of Gary. And Naomi. Let’s think of ourselves. It’s time to put our foot down and open our mouths. We shall ask for discounts. We shall demand what is entitled to us. There’s no shame in it. The worst that can happen is we’re told no. But I know we’ll find more times than not that just by asking we’ll get something in return. And ten times out of ten we’ll get a discount from a vendor’s program that’s already included us.

Gene Marks is the President of The Marks Group PC (www.marksgroup.net), a Philadelphia-based reseller of financial, customer relationship and service management technologies like Quickbooks, GoldMine, Microsoft CRM and other popular software. Gene is also the author of the best selling Streetwise Small Business Book of Lists (www.smallbizlists.net).

Consider The Source

SBOCTeam — Fri, 26 Oct 2007 13:11:00 GMT

Taking the time to carefully evaluate your vendors and suppliers can save your business some serious cash-and prevent some serious headaches for you
By Reed Richardson

It's a truism:
All businesses depend upon other businesses to survive, no matter what their size or industry. And while it's unlikely that any small business owner ever forgets this, after all they get plenty of bills to remind them of this every day and it's not uncommon for them to get so distracted running their own business, managing their own employees, and servicing their own customers that they fail to look upstream at their their suppliers and vendors with the same critical eye. But whether it's something as important as how you procure the raw materials for your best-selling product or as mundane as where you buy your copier paper, if you're not measuring the value that each of your vendors provides and examining ways to improve that relationship, you could be missing out on a significant opportunity.

"The purpose of the buyer/supplier relationship has not changed over time," acknowledges Dr. Laura Birou, writing in the Supply Management Handbook 2006. "However, the nature and characteristics of what makes these relationships effective has been dramatically altered." According to Birou, who is a senior supply chain consultant for ADR North America, the rapid rise of global sourcing, mass-customization, just-in-time delivery, e-commerce, and shortened product life cycles have all helped to dramatically refashion the two roles. And while these trends may appear to make the buyer-vendor connection increasingly distant and impersonal, Birou says this kind of thinking is a mistake. "On the contrary, supply chain relationships behave just as do all human relationships," she writes. "Some are stronger, resilient, and harmonious and can stand the test of time, while other relationships are full of conflict, unreliable, and crumble under pressure." So, the real question becomes: How does your small business ensure it promotes the former rather than the latter?

Pay for what you're getting. Don't pay for what you don't need.
The first thing small business owners must realize is that, just as their own company grows and evolves, so, too, must their relationships with their vendors and suppliers. "A lot of times, the small business owner was also the company's only purchasing agent when starting out," notes Birou, "So, there's a tendency on their part to want to go back to the same suppliers over and over again out of habit." This loyalty can have its drawbacks though, if it's not accompanied by a thorough understanding of why you're sticking with that particular vendor or supplier.

Perhaps the most common benchmark: price isn't necessarily the best, according to Birou. "You have to look at several different things" when assessing a supplier in the retail and manufacturing world, she says. "First off, you need to look at quality and capacity, and only then total cost, which is not the same as the piece price."

Likewise, the same principle holds true for professional firms and office-based small businesses, whose vendors are mostly confined to providing back office and administrative functions. Whether it's servicing your copier or insuring the health of your employees, if you're not considering intangible elements such as customer service and flexibility in addition to the hard dollar costs, you're not properly assessing the true value of what you're paying for.

If your current payroll provider, for example, has the ability to issue your employees' checks but can't manage programs like 401(k) retirement plans or wage garnishments, it might be time to upgrade to a company like ADP or Paychex that can handle these tasks, as well as other functions you may need such as benefits administration, background checks, etc. However, if you have a small, fairly stable office staff, paying substantial sums for a complex payroll system that has a lot of additional human resources bells and whistles might not be as cost effective as using a service that allows you or an employee to handle processing payroll online, giving you the basics such as check processing, tax filing, and direct deposit. Only you can make that judgment.

Similarly, when it comes to something as essential and as increasingly expensive as health insurance, it's important to fully understand your current coverage and whether it best meets your needs as well as that of your workforce. For instance, is your current plan charging you administrative costs above and beyond your monthly premiums? If so, that could mean your small business is being charged for services you're likely not using. By the same token, if your business deals in a heavy industry where workplace accidents can entail serious injury, like manufacturing or construction, and your health plan lacks a long-term disability option, you might have a hole in your coverage that undermines employee morale and fosters high turnover. Conversely, if your workforce consists largely of hourly and/or part-time administrative staff, there is no reason to be offering elaborate health insurance offering expensive long term care. There is no substitute for the task of reading your existing policy carefully so you can be sure you know what is in it.

The same analysis is necessary when considering all your other critical service vendors such as accountants, merchant processors, and telecom providers. For instance, is your accountant proactively looking for ways to save your business money by routinely reviewing your company's cash flow and tax structure or are they simply going through the motions of filing your quarterly and annual statements? Are your merchant providers offering lots of sophisticated credit card processing features more appropriate for a large department store than a relatively small operation like yours? Do you need to accept Visa, MasterCard, American Express, debit cards, and phone orders? If not, what are the alternatives most critical to you and your customers? (An aggregator site like creditcardproposal.com allows you to receive and compare proposals from multiple vendors and select the one that's right for you. A similar service is offered by ehealthinsurance.com for health insurance providers.) Similarly, is your telecom service able to scale and expand along with your business?

Again, if the answer to these questions is no, consider what alternatives are the most critical to you and your customers and then compare what they should cost to what you are paying. A little homework on alternative providers might save you a significant amount of money and get you better service as well. It takes time and discipline to go through the analysis, but in the end you'll be glad you did.

Score your way to better supplier performance
"If you don't measure it, you can't manage it," is now a firmly established mantra within the world of business. Yet many of the same companies that devote countless hours to tracking sales and projecting revenue may at the same time blithely ignore the overall performance of their vendors and suppliers. In fact, a 2006 study by Ventana Research found that when it came to the use of internal scorecards to track performance, companies deployed these measurement tools more than twice as often for the areas of finance (46 percent) and sales (41 percent) than they did for supply chain operations (18 percent).

Why is this? Cindy Jutras, vice president of the Aberdeen Group consulting firm, says it's because many small companies lack the dedicated purchasing departments or enterprise resource planning (ERP) software common at large corporations. "So, many times small business owners have to produce these metrics themselves," she points out.
Despite this admitted disadvantage, Jutras still considers a lack of a performance measurement system perhaps the single biggest mistake made by small businesses when it comes to supply chain management. Giving a vendor or supplier such a free pass, she explains will, in the long run, come back to haunt you. "Certainly, a business will have less influence over their suppliers if they don't measure performance in some way." In fact, some experts have even suggested that the mere act of telling a supplier you'll be measuring them can result in improved performance. Tom Hatfield, chairman of the Louisville, Kentucky chapter of SCORE heartily agrees. "Think of it like your employees," he says. "You'd never go for years without giving them a review to assess their performance, so why do that with your suppliers?"

Indeed, Hatfield, who owned his own food brokerage business for 27 years and has a background in purchasing and logistics management, says there's no excuse for putting together even the most rudimentary of performance scorecards to ensure some sort of accountability from your suppliers. "If I was a small business owner today with, say, 20 vendors, I'd tell them all right when I signed the contract with them that I will be giving them quarterly performance reviews," Hatfield says. "Then, every 90 days, we'd talk or sit down together and I'd either go over what things they need to improve upon, or I would tell them they're doing a great job. If they're doing well, they'll love it, because nobody hates to hear good things about themselves and even if you have complaints about them, how much more appreciative will they be hearing about it then, instead of when they suddenly lose your business?"

Are your suppliers a good match for your business?
When asked about why it's important for entrepreneurs to seek out suppliers that share similar values and build strong relationships with them, Laura Birou tells this story. "When one of the nationwide pizza delivery chains was just starting out, they experienced a cash flow problem and, consequently, couldn't pay all of their vendors on their regular terms. One of their key suppliers, the one that produced the cardboard pizza boxes, could have stopped supplying them and effectively shut the company down, but they didn't. Why? Because the pizza company had already been able to get them to buy in to the idea of their business plan."

That kind of loyalty won't show up on an invoice, but there's no denying that it has intrinsic value. But how do you find and cultivate this kind of commitment from a vendor or supplier? According to Birou, it requires taking a more nuanced approach toward understanding a potential supplier, the first step of which involves doing what she calls a "values audit." This audit, Birou writes in Supply Management Handbook 2006, should target the overall compatibility of a supplier with one's business by examining intangible characteristics such as its reputation, financial practices, and any similarities in cultures and backgrounds. This is no easy task, she acknowledges, but she points out that the extra effort pays off since a wealth of research has found that "supply chain relationships that rate high on compatibility outperform others." "There has to be an element of trust in your relationship if you want a vendor to think of your business beyond its next payment," Birou says. And predicting which suppliers would be more likely take a leap of faith with you becomes much easier if you can determine which of them wouldn't be risking their own company's futures in doing so. In other words, that reservoir of potential trust can be determined by not only examining a potential supplier's industry and market but their individual profit-loss situation as well.

"For instance, if your manufacturing business's break-even point is at 60 percent, but your supplier needs to be running at 90 percent of capacity to break even, they could go into the red very quickly" if you stop taking deliveries or making payments, Birou notes, hardly a scenario that would lend itself toward forgiveness and flexibility. Conversely, a supplier or vendor that has a diverse customer base and a low break-even point will probably be more amenable to weathering any storms with you. Accordingly, Birou recommends always asking potential suppliers about their break-even points before signing any contract. "Most should be willing to divulge this information, but even if they don't, there are trade groups where you should be able to find industry standards," Birou says. "It's a critical piece of information, still, I never see it asked."

Collaborate & Cooperate
In the end, a supplier-customer relationship boils down to two companies working together so that they both can succeed. And even though Aberdeen Group's Jutras is a strong advocate of scoring supplier performance, she maintains that this process should be thought of in something other than an adversarial light. "Not looking at supply chain relationship as a collaboration is probably the second-biggest mistake a business can make, after not measuring it," she says.Nonetheless, working together with a vendor or supplier can, at times, be difficult for small business owners, Jutras acknowledges. "Keeping a vendor at arm's length can still feel more natural," she says. "The fear is that working together involves a commitment that many small business owners feel unprepared to make because they typically aren't good at forecasting and they have little to no control over their customers."

But in today's increasingly fickle, just-in-time business environment, Jutras notes that even just giving a supplier a heads up about anticipated surges or drops in demand can be the difference between making and losing money."Retailers get upside revenue benefits as well as efficiencies with improved collaboration through suppliers," noted Gartner Research supply chain analyst Andrew White in a recent vendor performance white paper. According to White, these many benefits can include things like the introduction of new products ahead of competitors, lower distribution costs, and reductions in out-of-stock situations.

This last example should be of particular importance to small businesses, since a landmark 2002 study confirmed what might be an obvious point of commerce: You can't sell what you don't have. Of the 71,000 worldwide consumers surveyed, between 21 and 43 percent of them-depending on the product category-chose to instead make a purchase from a competing company when confronted with an out-of-stock situation. The survey also discovered that another 25 percent of customers never returned to complete the transaction. So, as study's authors point out, "retailers are likely to lose almost one-half of the intended purchases when a customer confronts an out-of-stock situation." SCORE's Joe Hatfield, certainly agrees and says that he, too, emphasizes the importance of working with suppliers in a cooperative manner to ensure on-time delivery to the small retail and manufacturing companies he counsels. "To put product on your dock precisely when you need it is just as critical as price is today," he says. "All in all, it takes a lot of hand-holding and cultivating" to make supply chain relationships work effectively, Hatfield notes. But in the end, he says that smart businesses realize "I need my suppliers as much as they need me."

Reed Richardson is an associate writer/editor for Business 24/7 magazine

Going Plastic

SBOCTeam — Tue, 09 Oct 2007 19:59:00 GMT

With credit and debit cards increasingly becoming the norm, the business that doesn't accept them could be setting themselves up for failure
By Chris Freeburn

In a recent VISA commercial, dozens of hungry customers march in an easy, rapid dance through a coffee shop, pausing only briefly to tap their VISA card on the cash register, paying for their food and moving on with the greatest efficiency. Unfortunately, one woeful customer who tries to pay for his coffee with cash brings the whole ensemble to a crashing halt, earning a look of stern disapproval from the cashier. The message to consumers is clear-credit cards are not only a faster way to pay, they're increasingly the way you are expected to pay. Though VISA targets consumers with its commercial, the message shouldn't be lost on merchants either: No purchase is too trivial to be paid for with plastic.

Pervasive Plastic
Credit and debit cards are now so often used by American consumers it is becoming ever more difficult for merchants to avoid accepting them. In 2004, a U.S. Federal Reserve study found that more than 74 percent of all American families held one or more credit cards. But credit cards are rapidly being eclipsed by debit card use. According to a 2006 Federal Reserve study, debit card use has grown by 20 percent a year since 1996, while the use of credit cards has stalled. Purchases by cash and personal checks were also found to have declined to a tiny percentage of overall consumer spending. In fact, the study revealed that over the past two years, debit cards have actually overtaken credit cards as consumers' favorite means of payment. "Debit is becoming the dominant form of payment for many consumers," the study's authors concluded.

Consumer Expectations and Lost Business
Today's consumers expect a wide array of payment options when they shop. With cash and check transactions in a sharp downward spiral, merchants who offer only those payment options are likely to find many consumers simply willing to pass them by in favor of competitors with more convenient options. "At this point, it's almost common sense," says Dave Bowman of TTG Consulting, a Los Angeles-based consulting firm. "Very few people carry enough cash with them to fund their every day purchases, and the idea of having to run to an ATM to get more cash to buy something is enough to put them off the idea of buying it at all."

More Sales with Plastic
Not only does accepting plastic prevent you from losing sales, it can bring in more business than cash transactions. "Studies have repeatedly shown that consumers will spend more money when charging purchases to a credit card than they would have with cash," says Gerri Detwieler, a consumer debt expert. "Cash in pocket sets a strict limit on what can be purchased," she says. "A credit card, on the other hand, takes away the tangible sense of money leaving their wallets, and leaves the idea of paying that debt off into the future."

Online Sales
If your business hopes to sell its products online, accepting some form of electronic payments is almost a requirement. Electronic payment insures instant payment in U.S. currency no matter where in the world your customer resides. This makes processing international (and domestic) purchases incredibly easy and speeds shipping. In addition to credit and debt cards, online electronic payment systems include eChecks and PayPal, eBay's dominant payment system.

Obtaining a Merchant Account
Not long ago, businesses had to jump through all sorts of hoops before being permitted to accept credit cards. Credit cards had complicated approval processes. High fees made it affordable to only those businesses that would see a large number of credit card transactions. Today, however, most financial institutions are eager to get their plastic accepted in as many places as possible. Numerous credit/debit card and electronic payment processing providers exist, including VantageCard, Sage Payments and Bank of America.

Chris Freeburn is an associate writer for Business 24/7 and Priority magazines.

Evaluating Vendors to Minimize Expenses

SBOCTeam — Sun, 29 Jul 2007 22:39:00 GMT

Many small business owners wait until the end of the year to reevaluate the services they currently use and to decide what new services they are going to implement in the coming year. Here are some tips you can use to evaluate financial and insurance services for your business.
By Chris Freeburn

Payroll
When you have employees who need to be paid, the one business function that must run error free is payroll. Accountants and companies like ADP or Paychex all offer the same basic services: payroll check creation/calculation and tax filing. You can also purchase software packages that do the same thing. The two biggest factors to weigh when considering any payroll option are its accuracy and total cost. In making your evaluation, think about the following:

Accuracy - Does this payroll option guarantee the accuracy of withholdings and tax filing? With the average small business incurring an $845.00 tax penalty, accurate tax filing and withholding is key.
Needed Services - What services do you actually need? Many payroll options offer ancillary services such as HR functions, wage garnishments, FICA tip credit calculations, etc. as a part of their basic package. If your payroll is just you and two employees, why spend $1,600 a year on payroll?
Direct Deposit - Do you want direct deposit? Many software packages and payroll companies charge for direct deposit. Yet direct deposit saves the payroll companies money because there is no production of live checks and no delivery fees. So why should you have to pay for it?
Regardless of how you manage your payroll, it is an extremely important business function and must be done correctly to avoid accounting headaches, tax penalties, and frustrated employees.

Credit and Debit Card Processing
When you break merchant processing down to its most basic requirements, you want to be able to accept payments from your customers and receive those funds as quickly as possible without incurring huge processing fees. Here are some things to consider when evaluating any card processing solution:

Card Acceptance - When most merchants think of the cards they’d like to accept, Visa®, Mastercard®, and American Express® come to mind. But there are many other card types including Discover®, Diners®, etc. that your customers may carry. And the more payment options you can offer your customers, the more likely you are to make a sale.
Processing Fees - All card processing services charge fees for allowing you to accept credit and debit cards from your customers. They may use flat fees, percentages of the sale, transaction fees, etc. to determine how much of your sale ultimately goes to them and how much stays with you. From a fee standpoint, it's important to understand how the fees are calculated and what you’ll have to pay. The better services will often customize your fees based on your business, rather than charging blanket or arbitrary fees.
Access to Funds - Accepting credit or debit cards for payment is not like accepting cash – you don’t have immediate access to the funds. However, you should not have to wait days to receive the proceeds from your sales either. And, depending on the type of business you run, waiting more than a few days for your credit or debit funds to be deposited can really affect your cash flow. So before choosing a merchant processing service, make sure you get a clear estimate of how long it will take to receive funds from a basic credit or debit transaction.

Insurance
Health insurance is a vital component in any employee benefits package, but it can be a major expense for small businesses. So keep these things in mind when searching for health insurance coverage:

Affordability is often a question of flexibility - Your goal as a business owner is to find a plan that balances the needs of your business with the health care concerns you have for your family and your employees. If comprehensive coverage is not economically feasible, look for alternative plans with high deductibles that still provide meaningful protection for you and your employees.
You should only have to pay a regular monthly premium - The services provided by a health insurance agent should be at no cost to you or your company. Typically, the compensation they receive comes from the insurance company that writes the policy.

Chris Freeburn is an associate editor/writer for Business 24/7 magazine.