Posted: Jan. 3, 2012, 2:15 p.m. EST
By Mark E. Battersby
There is no question that cards—credit, debit, gift and “prepaid” cards—are an invaluable asset in many pet-related businesses. When retailers don’t provide customers with the ease of using cards for transactions, no doubt sales are being lost, often to competitors that do accept cards.
While credit and debit card sales mean almost instant money in the retailer’s bank account, those cards do “cost” the business. Understanding the cost of accepting credit cards can be difficult.
All credit card processors have their own way of presenting fees and transaction charges, so it is often difficult to make apples-to-apples comparisons among companies competing for the an operation’s business.
Generally, every time a payment made by a credit card is processed, the merchant is charged a transaction fee. This fee can vary between providers, but is charged on each and every purchase processed through the retailer’s merchant account provider, and typically costs from $0.25 to $0.50 per transaction.
Each card issuer also charges a percentage rate on each transaction. Visa and Mastercard usually charge the smallest amount, while Discover and American Express typically charge a higher amount. Some merchant account providers may add their own percentage to this fee, which is why the base rate is not always consistent. All of these fees must be considered, not only when setting prices, but also when deciding which cards to accept.
There is some good news and some bad news for every business accepting payment by card. After Oct. 1, 2011, U.S. federal law limits the maximum fee on a debit card transaction to $0.27. This is one reason several banks attempted to impose—and have subsequently rescinded—monthly debit card fees on their customers.
The bad news, especially for anyone thinking about “fudging” their income, is that, beginning in 2011, U.S. tax laws require credit card processors to provide merchants, as well as the Internal Revenue Service, with an annual report of all transactions. The entity responsible for reporting merchant card and third-party transactions must use a new Form 1099-K, Merchant Card and Third-Party Payments, either electronically or by hardcopy, to report by Jan. 31 of the year following the calendar year for which the return was made. The first payee statements must be furnished by Jan. 31, 2012.
Accepting payment by card obviously drives up costs for retailing businesses. Many pass this cost along by charging higher prices on everything, or by earning less in profits. However while, merchant interchange rates on credit cards still hover around 2 or 3 percent, thanks to today’s low interest rates, the cost of money for many businesses has never been cheaper.
Does this mean that a business should accept only cash, or offer a customer 30-day terms instead of immediately accepting a credit card and paying all those fees? Managing, or at least being aware of, the cost of accepting cards and their alternatives is the first step towards increased profits.
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