Choosing the right payment processing service is among the biggest decisions a small business owner can make. A bad processor may literally drive you out of business with predatory fees that destroy your profit margins. Adding insult to injury, breaking a contract to switch to another payment processor may cost you thousands of dollars in penalties.
When it’s time to find the right payment processor for your small business, where do you turn? Here are some tips on how to choose a payment processor for your small business.
What is a payment processor?
A payment processor is a company that will handle all the technical aspects of accepting your customers’ or clients’ credit and debit cards. That’s why payment processing is sometimes referred to as “credit card processing” as well.
Your processor will oversee the transmission of information from customer cards to both your bank and the customer’s bank. Your processor will also determine whether a customer has enough money on their card to make the payment. This way, you’re not stuck without your money after a transaction.
While this all may sound complicated, payment processing typically takes just seconds. It also generally happens alongside fraud checks and accountability measures. The latter may come into play if a customer claims you overcharged them or if they return something you sold them. In that case, you’ll pay transaction fees to transfer this money back to the payment processor (and then the customer’s bank account or credit card).
5 steps to choosing a payment processor
Wondering how to choose a payment processor? It generally starts with the below steps.
1. Ask Yourself Questions
Before you start your search, nail down exactly what features you’ll require to process a payment smoothly. Also take a hard look at your cash flow. Expensive fees may add up and hurt the bottom line. Here are a few questions to address:
- Are you an on-site swipe merchant or an e-commerce merchant?
- Do you process phone payments?
- Are you more mobile-based?
- What will be the approximate volume of payments processed?
Once you’ve answered these questions, it’s time to start researching.
2. Seek Out Recommendations
One of the best ways to find a processor that works for you is to simply ask around. Ask other small businesses: Are you happy with your processor? Are there features missing that could be useful? Are there bugs or clunky steps that slow them down? Take some time to Google® as well. Look for independent sites that review processors.
3. Investigate Equipment
Some small businesses require a credit card terminal to process cards. Make sure you know how this is going to work. Some companies offer the equipment as a rental, adding onto fees you’ll be responsible for. Determine if purchasing the equipment instead is a better financial option.
4. Read Before You Sign
Once you've found a processor that has the fees and service that your business needs, look at the agreement contract. The terms and early termination fee are important. Ideally you want a month-to-month agreement with no early termination fee.
5. Demand Security
In this day and age, you want to make sure your online payment services have top-notch security features. Banks have started rolling out consumer cards with security chips but not all payment processors have the capability to process those cards correctly. Security will always evolve. Make sure that your system has the most recent security features.
Key factors to consider when choosing a payment processor
As you choose a payment processor, here are some factors to consider:
- Available transaction types. Let’s say your small business accepts payments through methods beyond customers handing you a card in person. You’ll need a processor that can also handle these extra methods. For example, if you accept payments through mobile devices, you’ll need to choose a credit card processor that can process mobile transactions.
- Pricing information, structure, and fees. A payment processor that clearly displays its pricing information likely won’t saddle your business with excessive fees. Keep an eye out for costs such as PCI compliance fees, chargeback fees, and monthly fees on top of the advertised interchange-plus or flat-rate fees. Interchange-plus (a percentage plus a flat fee per transaction) pricing models are often more affordable than flat-rate options. However, interchange-plus processors may set minimum monthly transaction volumes.
- Processing fees and impacts on credit score. Marco Carbajo is a business credit expert and guest blogger for the SBA. He says to consider low processing fees and building your company’s creditworthiness when choosing a payment processor. He writes, “These two ideas are basic, yet incredibly effective for a small business owner. Don’t let “quick and easy” replace being cost effective and efficient.”
- Card readers, apps, and point of sale hardware. If you’re taking in-person credit card payments, your processor should offer a card reader with EMV, contactless, and magnetic stripe capabilities. You should also check that this reader is compatible with both iOS® and Android® for contactless mobile payments. And if you’re looking for point of sale (POS) hardware, some payment processors may offer it. If you already have a POS system, confirm that the payment processor is compatible with it.
- Accounting software integrations. Your payment processor holds all your transaction data, which is important to include in your accounting. Instead of manually adding it to your accounting software, you should check for a seamless integration that does so for you.
- Next-day deposit. Funds from a transaction don’t always hit your accounts the moment the transaction is complete. You should look for a payment processor that minimizes this transition time. Next-day deposit is generally your best bet, as many processors include it with your costs. Other processors may offer same-day deposit for a fee.
- Contracts and cancelation fees. Let’s say you sign up for a merchant account with a processor and you’re just not happy with it. You may be stuck with that processor for a while if you’ve signed a year-long contract. But if you’re on a month-to-month contract, you can switch to a more fitting processor more quickly. That said, a month-to-month contract isn’t a guarantee that you won’t pay cancelation fees, so ask about that as you compare processors.
- Customer support. Your payment processor should be available for support during your company’s hours of operation. This way, you don’t lose sales to credit card payment issues that arise as you’re selling to customers. The good news is that some processors offer 24/7 support, instantly solving this problem. This around-the-clock service is especially important if you accept online payments since those may theoretically happen whenever. It’s also important if you operate on weekends or across time zones.
How else to get money for your business
Do you need extra funds for your small business? An SBA loan is the best bet for small businesses with low rates, long terms and low monthly payments. Visit SmartBiz® today and discover in about five minutes if you’re qualified for an SBA loan.
