Mar 05 2012

How Credit Cards Can Hurt Small Businesses

Published by at 11:27 pm under Business And Services

One of the biggest hidden expenses dealt with my small businesses is the cost of being able to accept credit cards. Few consumers realize that businesses such as restaurants, supermarkets and clothing stores need to open a merchant account with a service provider in order to take credit cards. They have to pay a small fee to their merchant bank for each transaction – no matter how large or how small it is.

If you’ve ever gone into a restaurant only to be disappointed with the fact that they are “cash only,” this is the likely reason why they have this policy. They don’t want to go through the time and expense of setting up a merchant account or have to lose part of their profits each time a customer decides to charge it instead of paying in cash. Gas stations also use this strategy when setting different rates for cash purchases versus credit card purchases. The higher price for getting gas on your credit card makes up for what the gas station is losing in transaction fees.

For larger businesses, the cost of setting up a merchant banking account is relatively minimal compared to the overall profits that they can make. A business like McDonald’s can spread the cost of merchant banking around thousands of franchises. In addition, many merchant banks will have better deals for larger businesses since they can potentially make a lot of money due to the high volume of transactions these places do. Unfortunately, small businesses don’t get these benefits and often have to pay higher rates and upfront fees in order to set up their merchant banking account.

If you own a small business and are thinking about setting up a merchant account, make sure that you look for a service provider that specializes in working with smaller businesses. Instead of having a “one-size-fits-all” approach, these companies have offering tailored to your specific needs. You’ll often find that you’ll save more money than you think and get more personalized attention than if you go with a larger provider.

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