One of the most challenging parts of running a business is getting paid. Collecting your money can cause headaches, including finding the right payment processor to accept credit and debit cards.
Not only is there an array of choices (Moneris, TD Merchant Services, Square, PayPal and Payfirma, to name just a few), but the technology is constantly changing. Just as businesses were getting comfortable with chip cards, they've been forced to adopt tap payments and now Apple Pay has hit the market in Canada.
The industry has also been fraught with complaints from business owners related to a perceived lack of transparency in payment-processor contracts, as well as unexpected fees and charges. That led to the release in 2010 of a code of conduct for the credit and debit card industry, which was updated in 2015. The new version gives merchants greater flexibility to get out of their contracts without penalty, includes more plain-language disclosure and other protections.
The code has helped to clean up the industry, but small-business advocacy groups say merchants still need to be careful and diligent in choosing a payment processor.
"This is not an area where they are all the same, or where you should skip the fine print," says Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). "I have talked to dozens if not hundreds of small-business owners who have been in tears or on the brink of tears after being caught in predatory business practices."
Below are some recommendations for small businesses when choosing a payment processor:
Read the fine print: Unlike the Apple iTunes terms of service document or cell phone contract most people skip through, small-business owners are encouraged to carefully read Ottawa's code of conduct for the credit- and debit-card industry. "Know the code. Learn the code," says Karl Littler, vice president of public affairs at the Retail Council of Canada. Even though it's voluntary, he says, "it's a pretty important document." He also recommends business owners read it before finding a payment processor. Then, once they picked a processor, go through that contract with a fine-tooth comb.
Get to know the players: There are many payment-processing companies to choose from, each with its own services and conditions, as well as niche players that cater to certain types of companies. Mr. Kelly recommends small-business owners do their homework before starting the conversation with one. He personally recommends businesses stick with the larger, well-known players. His disclosure: The CFIB has an affiliation with one of the largest, Chase Paymentech, which offers a discount for its members. Mr. Kelly recommends business owners check with associations they belong to see if they can also get lower rates. "The other advantage is that if something goes wrong, you have another party to go to bat for you, so you're not entirely alone," he says.
Rent the equipment (instead of buying or leasing): Payment-processing technology changes quickly. If you buy the equipment, expect to be replacing it in a few years. Mr. Kelly says the equipment can break down regularly, and business owners may get faster service if they rent instead of own. The problem with leases, Mr. Kelly says, if they often lock small businesses into long-term contracts: "You have less flexibility to get out if you're unhappy."
Follow the technology: You might not be ready to switch to Apple Pay or the latest payment technology, but if your customers want it, you should make the investment. "You have to understand the needs of your customer. That has to drive your urgency level," says Salim Teja, executive vice-president of ventures with MaRS. "It's all about customers' preferences." While the adoption rate of new processing technology will differ between industries and merchants, Mr. Teja recommends finding a company you can grow with in the future. "If you are going to invest in someone's hardware and network, you want them to be progressively getting better and offering you more choices for your customers so you don't have to keep changing things."
Know the exit penalties: If you're unhappy with your payment processor, the cost of getting out of the contract can be astronomical. Mr. Kelly has heard of cases where small businesses have been asked to pay thousands of dollars to get out of a contract for a piece of equipment valued at about $750. "Look carefully at the renewal period and what it will take to get out of it," he says.
Know the different credit-card rates: Business owners will pay different rates for the different types of credit cards they accept from customers. Fees usually range from about 1.5 per cent to 2.5 per cent per transaction, depending on whether it's a regular or premium card. Small-business owners should also accept debit cards, not just because it's another payment choice for customers, but also because the transaction fees are often lower.
Prepare to be hounded by processing companies: After you've contacted a few processing companies to learn about their services and rates, prepare to get follow up calls – even if you've chosen another firm. It's a competitive industry that includes a number of independent, sometimes aggressive sales people. "I always recommend to merchants to just hang up the phone," says Mr. Kelly. Sometimes, it's the only way to get them to stop calling. "I had one member who bought an air horn and kept it by their phone, because they were called so frequently by credit-card processors. They blasted them," he says. "I feel bad for the person on the other end of the phone."
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