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Small Business Pros and Cons of Accepting Credit Cards

July 16, 2014
Small Business
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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

U.S. small businesses are a marvel. Yet, American entrepreneurs face so many challenges involved in running a small business that one would hope credit card acceptance would be an obvious benefit. But that isn’t necessarily true. It can prove to be a gigantic hassle.

Here are the pros and cons of accepting credit cards, if you run a small business.

Pros of accepting credits cards for small businesses

Capture more customers: You have a much greater chance of capturing consumers if you accept plastic. The math is simple: Only 23% of people use cash for point-of-sale transactions. You are limiting yourself to a given demographic if you don’t accept credit.

Higher revenue: A number of behavioral economics studies have concluded that consumers are likely to spend more at a given location if they pay with credit instead of cash. The reason is rooted in the nature of the currencies involved. Cash is real, tangible, and your wallet has less of it after you spend it. Credit is just a plastic card that doesn’t reveal the damage until the statement arrives in the mail. 

Convenience: This is true for both consumer and business owner. The consumer likes the convenience of credit over cash. For the business owner, there’s a lot of software that ties directly into your merchant account that makes things like accounting, inventory management and other metrics much easier to follow. With cash, you have to enter every transaction by hand into whatever analysis software you are using.

Safety: Consumers feel safer carrying credit than cash, because they are not held liable for unauthorized credit charges. It’s also safer for small businesses to not have cash in a store, which might attract thieves.

Cons of accepting credit cards for small businesses

Expense: This is the biggest drawback of accepting credit card payments. You will have to pay for merchant services, monthly statements and interchange and other processing fees. You may need to pay monthly charge minimums. You will have PCI Compliance charges passed on to you.

Chargebacks: Consumers have the right to dispute credit card charges. You may get hit with a chargeback if your customer is dissatisfied with your product. The issuer may hit your account with a debit without warning. If enough chargebacks occur, your ability to do business using cards may be frozen.

Fraud Liability: Some banks and issuers are holding merchants responsible for various types of fraud that may occur on their systems. If fraudsters charge up a storm on stolen card data with a given merchant, and that merchant delivers his product, he’s out the product – and that’s just the start.

The banks may then look to him for reimbursement for permitting the fraudulent transactions. In addition, the payment processor will learn of the fraud and terminate his processing account. Once that happens, no other processing firm is likely to take his business. He’ll be put on a blacklist. So in this case, the merchant can get destroyed.

The big decision …

So should small businesses accept credit cards? For merchants doing lots of business with lots of transactions, credit card acceptance in a no-brainer. It’s the low-volume merchant, or the business owner whose transactions are small-dollar purchases, that must carefully weigh the costs against the benefits. If accepting credit cards seems right for your business, this NerdWallet article will help you get started.

The SBA also offers some thoughts on this topic.

Small business image via Shutterstock