Small business owners’ goals vary. When most people first launch a small business venture, they do so with a set of goals in mind. Some want to grow their startups into massive corporate giants; others look to earn a steady income and establish a healthy work-life balance, while others focus on providing good-paying jobs to the people in their communities.

No matter the reason for starting your small business, there is one common requirement all small business owners have to attain their goals: a dependence on steady cash flow.

Accepting credit card payments represents a large portion of cash flow for many businesses. Canadian consumers are increasingly shifting away from paying for goods and services in cash, and the pandemic has accelerated that shift. One report notes that 43% of Canadians say the pandemic changed their payment preferences to digital and contactless for the long term.

A customer making a digital payment

As a company grows, its credit card processing needs evolve. Many new businesses start by opening processing accounts with payment aggregators, such as Stripe, Square, and PayPal. These service providers allow startup businesses to accept credit cards from their customers without setting up a merchant account and making money by charging transaction fees and taking a percentage of their card sales. They’re easy to open, have no contracts, and importantly, charge no minimum monthly fees. However, their most significant drawback is high processing rates. That may not be painful initially, but that processing rate becomes a more important factor once a business begins to grow.

Many businesses outgrow payment aggregators and eventually transition to one of Canada’s six major processors. After setting up a merchant account with a payment processor of your choosing, you can choose between a regular flat-rate plan or a variable rate plan. Of course, your merchant account provider will charge fees associated with the type of account you have. Here are five ways you can reduce your small business’s credit card processing fees:

1. Encourage your customers to pay by cash or debit

Attempt to woo your customers to pay by cash or debit for their purchases by providing them with a modest discount. This approach works if the purchase isn’t expensive. For instance, if you run a corner convenience store and your customers purchase a few low-cost products.

2. Add a credit card surcharge to each customer’s purchase

If a customer wishes to pay you by credit card, add a surcharge to their purchase to cover the cost of your card processing fee and inform them of that surcharge. They may think twice about using their credit card and opt to pay with a debit card or cash.

3. Negotiate better merchant account terms

When you enter negotiations with a payment processor as you set up a merchant account with them, you can argue for lower processing fees. If you choose to set up that merchant account with your bank, it may provide you with a bit of leverage. Nevertheless, the contact you agree to cannot be changed until it expires, so be sure you understand the fees and negotiate to get the lowest ones you can.

4. Have a minimum charge for credit card payments

It’s not uncommon for small businesses to insist on a minimum charge for any customer that wishes to pay by credit card. For example, you could inform your customers they have to pay at least $10 to use a credit card. Anything less than a $5 charge is likely not worth it for you since the card processing fees will wipe out whatever profit you may make.

5. Use address verification

Using an address verification system (AVS) verifies a customer’s billing address with their credit card provider. It is a smart way to reduce the risk of fraud, but it can also reduce your card processing costs. Furthermore, many payment processor firms will provide incentives to merchants that use AVS for each transaction.

Typically, once your business sees more than $10,000 per month in credit card transactions, you could stand to save from a variable rate plan. However, even if you have not reached that milestone yet, you may be able to get a lower flat-rate plan.

Regardless of which option you choose, don’t forget to ensure you have the right business insurance policy to protect yourself. 

Disclaimer: This guest post was contributed by Castle Builder Financial for educational purposes only.

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