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2010
An entrepreneur's guide to the different forms of customer payment

Many small business owners just starting out find that banking enough sales to simply survive can provide more than enough to worry about, so concerns about the different ways customers might pay your business once you do make a sale often get overlooked. But understanding the myriad options for payment-and the advantages and disadvantages of each-can be an integral part of achieving long-term success. And make no mistake; consumers do have a lot of choices these days in how they choose to make purchases.

In fact, according to the Federal Reserve's most recent Survey of Consumer Payment Choices (SCPC), released this past January, American consumers now can choose from among nine different payment instruments for making purchases and paying bills each month. What's more, that same survey found that the average American has already adopted five of those nine options for purchases and uses four out of the five at least once a month. So, if your business's potential customers are clearly picking and choosing how they would like to pay, so too should your business think about how you'd like your customers to pay you.

Helpful Tip: To see the entire Fed SCPC survey online, go here: http://www.bos.frb.org/economic/ppdp/2009/ppdp0910.pdf or for a nice statistical roundup of the survey's data, check out http://www.allpaynews.com/blog/2008-survey

PayPal
Advantages: PayPal is of a class of new payment instruments known as EBADs (electronic bank account deduction) that lets consumers make payments electronically through a third party site. Thanks to its ease of use and ability to shield the payer's bank account information from the payee, PayPal has grown very popular online and almost any small start-up can now use it to start accepting debit or credit card payments, greatly expanding their potential customer base. Through the addition of one of PayPal's merchant account buttons to a company website--which takes about 15 minutes and requires zero setup fees--almost any business with a bank account can begin selling products or services online to almost anyone around the world, even those customers who don't have a PayPal account at the time of purchase. Best of all, PayPal's well-established name recognition and reputation for safeguarding its users' financial data means potential customers will be more comfortable doing business with you as well, freeing your company from having to invest in lots of expensive financial data management and security software.

 


Drawbacks: PayPal does extract a small fee for its services, which ranges roughly between 2.5% to 3.2% of a transaction's total (up to a $100,000 per month in sales) when using its "Standard" tier, prices that are similar to what some credit card-processing companies charge. For those small businesses looking to add both PayPal access and direct credit card-processing functionality to their website, PayPal offers a more robust "Pro" package, but this plan adds a flat $30 monthly charge in addition to the per-transaction fee. Alas, there are a couple of logistical downsides to using PayPal, however. One, potential customers must leave your company's website to complete their online purchase, which sometimes frustrates attempts to go back and add additional items to their shopping cart mid-purchase. Also, it's important to note that after each transaction your customer's money is initially deposited into a merchant PayPal account instead of directly into your small business's bank account. This setup allows PayPal to better protect against fraudulent sellers and buyers, but on occasion, disputes over a payment's legitimacy have left small businesses unable to access funds that came from a completed sale.

 


Helpful Tip: For more on PayPal's merchant services and to view its customer ratings on the Better Business Bureau website, check out http://merchant.paypal.com/ and http://sanjose.bbb.org/Business-Report/PayPal-Inc-210387

Credit Cards
Advantages: Credit cards have become a staple of American consumers and each year their growing acceptance nudges the economy one step further away from the notion of currency as a physical object that one must carry around. Indeed, in an era when even micro-transactions like vending machine purchases can now be done with credit cards, it's clear that the marketplace is trying to appease consumers who want the best of both worlds. Or, as the Fed's recent SCPC survey noted in its conclusions: "Security and ease of use are the two most important characteristics of payment instruments to the U.S. consumer." Perhaps not coincidentally, in that same survey, paying by credit card was ranked highest among consumers for ease of use--even higher than using cash or debit cards--and second highest in terms of transaction security--just behind EBADs. Add to these findings the knowledge that, per capita, Americans now own nearly three different credit cards each and use these cards almost as frequently as they do cash and one can make a very good case for why almost any small business should accept credit card payments. Of course, for small companies whose transactions are exclusively online or via phone, accepting credit cards is something approaching a fiscal necessity. But even if you've just opened up a bricks-and-mortar retail storefront and engage in a lot of small cash transactions, accepting credit cards--perhaps with a suggested $20 transaction minimum--can be beneficial as it could both boost sales while also lending your start-up a much-needed air of legitimacy.

 


Drawbacks: Consumer's love credit cards because it enables them to buy now but pay later. Unfortunately, the same is true for businesses that accept credit cards: they enjoy a sale today, but don't get paid until the credit card processing company, or acquirer, authenticates the transaction, which might not happen until tomorrow or several business days from today. Besides the delay in payment, the other large drawback with credit card payments involves the processing fees charged to handle the transaction. Most banks and some third-party specialized firms offer credit card processing services--usually via one to three-year contracts--and typically charge merchant fees ranging from 2.0% to 5.0% of each transaction cost. (Visa and MasterCard usually charge credit card processors 1.65% of the transaction cost, so merchant fee rates usually can't go below that.) Also, most processors charge an additional flat fee--$0.15 to $0.20--per credit card swipe. But that's not all, the credit card processing machines used in point-of-sale swiping can also cost anywhere from $300 to $800 each, if they aren't already included as a rental item in your service contract, and other fees associated with minimum usage, monthly statements, customer service, and chargebacks can commonly crop up as well. Chargebacks--refunds issued by the credit card issuer due to things like insufficient funds, billing errors, quality disputes, or potential fraud--can be particularly onerous to small business owners. That's because in addition to the zeroed-out sale, credit card processors often assess anywhere from a $10 to $35 chargeback penalty against the merchant, leaving the business losing significant money on the transaction in the end. And finally, if your business takes in customer credit card information, whether via a card swipe, online billing form, or manually over the phone, it has also taken on a pressing responsibility to safeguard that confidential information. There's no sooner way to lose a customer and ruin your business's reputation (or possibly spark a lawsuit) than to be caught negligently handling customer credit card data.

 


Helpful Tip: For an informative illustration of the chain of events that follows a revolving credit card purchase, check out MasterCard's online demonstration here: http://www.mastercard.com/au/merchant/en/how_works/index.html

 


Debit Card
Advantages: Combining the versatility of credit cards without the looming debt, debit cards are rapidly outpacing cash, checks, and even credit cards in terms of popularity among American consumers. In fact, the Fed's recent SCPC survey found that as of 2008, debit cards had far surpassed all the other major payment instruments, even cash in terms of use by consumers each month. For businesses, the advantages of debit cards mirror those of credit cards--it gives your potential customers another way to buy and, when they do, pay a price for their purchase based on available funds, not simply cash on their person at that moment. And, because debit cards are linked to already secured funds--typically to a bank checking account--customers leery of taking on too much credit card debt might be more likely to make a purchase at a business that also accepts debit cards. What's more, since debit card transactions typically take less time at the cash register and are less of a hassle to reconcile later than paper checks, both the customer and the business can benefit.

 


Drawbacks: Debit card processing, as with credit cards, is typically handled by a small business's bank or a third-party servicing firm, which will charge a small fee for every card transaction. And while the behind-the-scenes processing for debit vs. credit cards often looks the same to merchants, the differences in fees can be substantial. That's because the two major debit card issuers, Visa and MasterCard, are also the country's major credit card issuers and they have typically let their customers choose between the two when it comes to verification methods and then charged merchants different interchange rates accordingly. Up until recently, for example, an accepted $100 debit transaction paid for with a Visa Check Card could have cost a small merchant either $0.50 to $1.20 in processing fees, depending upon if the customer keyed in a four-digit PIN code or used his or her signature, respectively, to approve the purchase. This practice had driven many retail businesses that accept debit cards to rent or purchase PIN code keypads in an effort to keep processing fees down. As of April 2010, Visa will end this two-tier fee scale on its check cards, but small businesses should nevertheless remain vigilant about understanding the differing debit card fees their processing service could be charging them.

 


Helpful Tip: For a comparison of the new and old Visa Check Card processing fees, go here: http://blog.vantagecard.com/post/Visas-Debit-Rates-Converge.aspx)
SBC Team

Upgrading in a Downturn

Posted by SBC Team Apr 16, 2010

Right now, finding a good deal on a new location for your business, or improving the one you already have, might be the smart move

 


During an economic slowdown, many small businesses pore over their top-line expenses, looking to cut any fat out of their operating costs and overhead in order to keep their company afloat and buoy their profits. But all too often they ignore their literal overhead-the roof above their heads and the square footage below their feet-and in the process miss a great opportunity for both short-term cash flow gains as well as long-term growth.

 


The Landlord-Tenant Relationship is a Two-Way Street

 


It's important to recognize that just as much as you need a location for your business, your landlord also needs businesses like yours to fill his or her building. It's a business relationship. Without each other, neither will be successful in the long run.

 


So, with that in mind, it's imperative that you keep your landlord abreast of major changes in your business's financial situation. It's never a good idea, for example, for a landlord to first find out about a tenant's negative cash flow situation because of a bounced check or missed payment. By that point, you've burned up a lot of your goodwill and injected an unhealthy dose of doubt into your landlord's impression of your company's reputation. That kind of damage can take years to repair.

 


Instead, it's better to sit down with your landlord early on if the scuffling economy has your business struggling to pay the bills. Even if your lease isn't up for renewal for several years, most landlords will still agree to sit down and discuss renegotiating the terms of a lease with a company that is having a hard time keeping its head above water, even if only temporarily. This is especially the case if, for them, renegotiation means the difference between keeping and losing a tenant. After all, discounted rent is better than no rent at all.

 


Another Advantage: It's Still a Renter's Market

 


Keep in mind that the broad slowdown currently affecting the U.S. economy has hit the commercial real estate market particularly hard; meaning your landlord is probably not too keen to lose any tenants right now. Since 2007, nationwide vacancy rates for U.S. office and industrial buildings have been increasing every quarter, reaching 16.3 percent by the end of 2009 according to reports from the National Association of Realtors. And although the rate of office vacancies has slowed recently, analysts from CBRE Econometrics Advisors expect this trend to continue well into 2010 and bottom out at a near-historic 18.6 percent before improving moderately in 2011.

 


Moreover, in many areas of the country, including southern California, southern Florida, Phoenix, and Las Vegas, vacancy rates have jumped even further, to levels not seen since the beginning of the decade. If you add in new and not yet completed commercial construction projects to this total, it means that some areas of country now have the equivalent of one in five business locations sitting idle.

 


Despite this, statistics still show that the most obvious lease negotiation request from the tenant's point of view-lower rent-is also one of the least likely points of concession by landlords. For instance, surveys show that while retail and industrial vacancy rates were skyrocketing in late 2007 and 2008, the average asking rent still continued a slow but steady uptick despite the growing glut of available office space. It wasn't until last year that commercial rent rates finally peaked and began to adjust to the the excess supply of office real estate. For the rest of 2010, analysts expect further rent decreases as the market pulls back to better match diminished demand, with declines estimated to average around the three-percent mark.

 


Of course, like most businesses, landlords would still prefer to raise prices than lower them and so, even in bad times, they will often agree to rent decreases only as a last resort. As a result, an unhappy tenant may get some relief from their current landlord if they play the role of squeaky wheel. But if your current landlord is uninterested in changing your lease terms or if your business has outgrown its current space, now is a very good time to shop for that better, larger location. Landlords, particularly those with a brand-new building to fill, have shown they are quite willing to lure in new tenants with sweetheart deals, sometimes offering very affordable, long-term leases or even charging zero rent for the first few months.

 

 


Know Your Circumstances, Test Your Leverage

 


Even if your small business is quite content with its current situation and location, it's still not a bad idea to sit down and talk with your landlord about both the future of your business and his. Before this meeting, however, you should have an internal discussion to identify and clarify your business's long-term goals relative to your location. From this, you can derive a list of topics to bring up with your landlord that go beyond rent. But why should you want to discuss your landlord's financial health as well, you may ask? Well, the Congressional Oversight Panel-the watchdog agency tasked to oversee the financial bailout-now estimates half of commercial real estate mortgages will be underwater by the end of the year. That's a sobering statistic. So, from a tenant's perspective, it makes even more sense to stay abreast of potential changes to your building owner's status so you can keep your leasing options as open as possible, lest you wake up one day to find your overleveraged landlord has suddenly gone belly up or been forced to sell off the building you occupy to a new, unfamiliar owner.

 


Many times, these frank discussions with your landlord will prompt him or her to address long overdue maintenance issues or agree to technology upgrades or other modernization efforts. Some typical capital improvements worth bringing up might include new carpeting and fresh paint in your offices, setting up a high-speed Internet connection or Wi-Fi hotspot in your building, or even something as simple as reserved spaces for your company employees in the building's parking lot. Sometimes, landlords will agree to shorten the length of a lease contract or amend it to waive penalties for early termination to please a balky tenant. These later concessions are attractive from a tenant's standpoint because they provide businesses more financial flexibility in the long run. Landlords, on the other hand, don't object to these types of concessions as much because they don't involve offering steep discounts on the monthly rent.
After a long, and in some parts of the country an especially hard, winter, the arrival of spring is a good time to clean up and clear out the clutter that may be costing your small business precious dollars.

Office/Retail Space

For owners of a professional practice, nothing quite gives off the same negative first impression as an unkempt or dismal waiting room or reception area. Those far out-of date magazines scattered around on the tables and those dying plants withering away in the corners not so subtly speak to a lack of attention to detail and suggest that you might neglect them just as you do your waiting room. So, take the time this spring to purge or update those magazine subscriptions and refresh any industry reference material lying about and don't wait when it comes to either resuscitating or replacing dying plants with something more cheerful and alive.

Small business retailers could take advantage of the warmer weather to refreshen their store shelves and do a reassessment of product stock. Take a hard look at poor-selling items and consider ways to rekindle their prospects through tactics like in-store advertising or a reshuffling of product displays. And if the recent recession hasn't let you think about it for a while, now might be a good time to finally relook at your pricing structure.

In addition, it's a good idea to extend this spring-cleaning policy beyond the waiting room and sales floor into your employee workspaces and common areas, even though it's less visible to clients or customers. That dirty, unwashed coffee pot, now in its fourth month without a good cleaning, is no doubt starting to rub some employees the wrong way and make them wonder if anyone at your office cares about the little things anymore. And that office fridge, with its freezer section now sealed over with so much ice that no one can use it, is probably another good candidate overdue for some TLC. You might even consider bringing in a cleaning service to mop the floors and thoroughly disinfect your business from front door to back office to get rid of any unsightly leftover winter muck as well as cut down on possible employee absences due to sickness.

Desk Files/Documents

With the arrival of spring, the 2009 tax season finally comes to a close, so now is the perfect time to declutter your desk by organizing and then archiving all those receipts and tax forms from last year. If you haven't already, you can also start new 2010 tax folders and calendars. For self-employed entrepreneurs, this step is especially important, as it will help to ensure you don't miss any quarterly tax payments going forward through the rest of the year.

While you're at it, take an aggressive stance toward saving, filing, or ditching the rest of the paper accumulating on your desktop, walls, and bookshelves. New business cards and contact information should be saved electronically and then either filed or thrown away. Likewise, if your bookshelves are slowly turning into a repository of old office supply catalogs and vendor pricing lists, those old versions should be purged to prevent outdated prices or obsolete product codes from accidentally throwing your cash flow or inventory suddenly out of whack. All those 2009 wall calendars, out-of-date inter-office memos, and Post-It note reminders for conference calls that long ago took place should come down. And while you're scrubbing your office for relevance, now is a good time to make sure you have posted the most up-to-date state and federal workplace notifications regarding disability, worker's compensation and the like.

If you're the type of small business owner who can't seem to throw anything away or doesn't know how to start to tackle the mess that is your desk, you might check out this website for some tips: http://www.squidoo.com/organizeanddeclutteryouroffice

Computer

The same approach that you use toward cleaning up and clearing out your small business's physical spaces should also be applied to its virtual ones. Start with your email inbox, which is all too often bulging at the seams with old, unnecessary correspondence or, worse, spam, all of which makes finding the really important emails that much harder. Once that's taken care of, fix your attention on your computer's hard drive. To identify the critical areas that need immediate attention, you might try a free online audit of your computer or network's performance to assess its current processing performance and check for holes in your digital security. (Try websites like http://www.auditmypc.com/, http://www.speedtest.net/, and http://security.symantec.com/)

If your hard drive doesn't pass these tests with flying colors, you might consider trying some internal maintenance options to rejuvenate it before you run out and purchase a new computer. Uninstalling extraneous or unused programs and purging the cache files for your Internet browser can often help to unlock a balky hard drive's performance, as can reordering all the data on your computer's hard drive through a process called defragging. (You can find free online programs for these three tasks at http://www.revouninstaller.com/, http://www.ccleaner.com/, and http://www.piriform.com/defraggler) This level of computer maintenance might seem tedious, but it's actually quite simple-even for non-tech geeks-and is well worth the time investment as it can prevent an unexpected catastrophe later. Consider it akin to the semi-annual changing of the batteries in your business's smoke and carbon monoxide detectors.

Website

Even if your small business is more bricks rather than clicks and mortar, you musn't forget to bring a digital broom to your company website. A good place to start your spring cleaning is on your home page. First, ensure you've updated your copyright dates and contact information. From there, you should navigate to your "About" page and double-check the accuracy of the information listed. This is especially important if you post a company organizational chart or staff directory online, as personnel changes are bound to happen over the course of a normal year, let alone one as chaotic as the past 12 months have been.

Once you have the basics up to date, it's time to declutter the rest of your website. To do this, it's a good idea to click through and look out at every single page-and every part of every page-on your website. Be on the lookout for things like old product photos or service offerings, expired discounts, obsolete prices, or seasonal shipping policies that may still be hiding out in the corner of your website, confusing consumers and clients. It's imperative you rid your website of these pronto as nothing frustrates a potential online customer-and leads them to abandon a sale mid-purchase-like an inconsistent or incomplete buying experience.

Then, after you feel you've fully spruced your own website, look outward. Do all the external links listed on your website still work? Do you need to drop some current links and add new ones to accommodate the changes and/or growth of your small business in the past year? And finally, if you haven't yet, now might be a good time to upgrade your website's functionality and social media stickiness by weaving in -either your own or others-Twitter feeds, Facebook pages, and LinkedIn profiles.

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