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If you run a business, you’ve probably considered accepting credit card payments. Allowing customers to pay by credit card can have benefits and drawbacks. You can compare some of the biggest pros and cons below to help you decide whether accepting credit card payments is the right decision for you.
Pro: Attract more customers
Being able to pay for your product/service using credit could help you attract more customers. This is particularly the case for businesses that sell big ticket items or receive large orders – many consumers may not have the cash to pay outright for these expenses and could find the option to pay by credit card to be very useful. Of course, even being able to pay for small purchases using a credit card can be useful for consumers in the lead up to payday. All in all, you could lose out on customers by not offering credit card payments.
Con: Pay more fees
Every time a customer pays via credit card, you will be charged a credit card processing fee. This fee can vary depending on the type of card and purchase, but is typically between 2 and 4% of each purchase. This may only work out as a few cents on many small purchases, but could cost you a lot more when it comes to big purchases. These fees can affect profit margins and are something to consider when selling products with very slim profit margins. On top of these fees, you should also consider the initial cost of setting up a credit card reader or payment gateway.
Pro: Speed up service
Accepting credit card payments can speed up the rate at which you get paid. When it comes to big ticket items, eager customers may take a few days to arrange funds when buying in cash. Accepting credit card payments could allow them to pay there and then. This could reduce the time spent dealing with individual customers.
Con: Increase risk of refunds
Unfortunately, accepting credit cards can increase the amount of refunds you’re likely to pay. Customers that are not happy with their product/service can demand a direct refund from you, or they can file a chargeback directly via their card provider. Chargebacks are the most expensive type of refund – the customer’s card provider will not only charge you the cost of the product or service, but will also demand a chargeback fee on top of this. If you are in an industry that is renowned for frequent chargebacks, you may find it hard to get approved to accept credit cards. You’ll usually have to get a high risk merchant account, which will charge additional fees. Overall, this can put off some high risk companies from accepting credit card payments.
Pro: Reduce need for instalment plans
Instalment plans can be another way of allowing customers to make purchases without having to pay the total amount upfront. However, instalment plans have many drawbacks for the company offering them. Not only do you have to wait longer to receive the total payment, but you need to be prepared to chase up customers that miss payments. There could be times when customers stop paying and you may have to pay to take them to court to get the rest of your money. All in all, instalment plans can be a hassle. Allowing credit card payments can eliminate this hassle – the customer still gets to pay in instalments, however you receive the full amount upfront from their card provider. There is no chasing up required and you are not affected if they cannot keep on top of their credit card bills.
Con: Increase risk of fraud
Unfortunately, many fraudsters use credit cards to commit ‘friendly fraud’ (which isn’t friendly at all). This is when a customer files a chargeback on a credit card purchase, falsely claiming that they did not receive the product or that the product was damaged or that their card was stolen/hacked. It is possible to dispute a chargeback by submitting a rebuttal letter with evidence that there was nothing wrong with the purchase (such as photographic evidence of a product being delivered or CCTV footage of a customer using their credit card to make the purchase). However, such cases can be time-consuming. In industries that are common targets for friendly fraud, some businesses may prefer to not accept credit cards to prevent having to deal with fraud. Fraud protection systems can also help to protect you if you decide to still accept credit card payments.
