The debate continues every day about credit card processing fees. Newbies want information on who is the “best” processor, when what they really mean is “cheapest.” Someone with something to sell always replies “check my page” or “DM me and I’ll help you”. Then my favorite answer always comes up: “charge them a fee, that’s what I do.” The comments will also be flooded with “Square” and “Clover” followed by naysayers’ complaints with each company.
ALL, and I mean ALL, companies have complaints about how it operates. Customer service, late/slow deposits, hidden fees, frozen accounts, middlemen, different rates, equipment fees, ongoing fees, etc, etc. Square has them, Clover has them, just like every other company. Asking my opinion or anything else in a public forum like Facebook groups will only get a limited response based on extremely limited experience. I have been in this business since 1977 and have taken credit cards since 1990. I started with Square in 2010 and in all that time in food service I have only used a total of 5 different processors. Each with their own problems and benefits.
You should also understand that there are two different types of processing companies. Square (PayPal Here, Intuit ToGo, etc.) are flat rate aggregators. Which means the fee is exactly the same no matter which card is used and no merchant account it is required. This makes the threshold to get started much simpler for the average food vendor. Clover (and a bunch of other services) are merchant account processors. Which means they require a merchant account (which some people won’t qualify for) and possibly charge varying fees depending on card type and brand. Comparing the two types of accounts is unfair as they have completely different benefits and application requirements.
For a full understanding of each processor type and unbiased reviews, visit the Merchant Maverick website and check out their reviews. Choose the processor that meets your financial needs and has rates and fees your business can afford. Also understand what you need from the hardware they offer. Do you need a simple POS or one with a lot of inventory control, payroll functions, loyalty programs, etc. Or do you only need to process credit cards?
Here’s what you need to know about credit and debit card acceptance. Keeping it simple for street vending.
Accepting cards is ESSENTIAL for street vending. Over 80% of ALL payroll is direct deposited. Mobile food vendors need to be convenient not only in location but also in payment options.
80% of consumers prefer to use debit/credit cards when making purchases. On the other hand, only 14% prefer cash. Not accepting cards drives away business.
- Processing fees are part of doing business as well as buying inventory, paying staff, buying gasoline, obtaining permits and licenses, and any other expenses in your business.
As a business owner, you have 4 options:
Do not accept cards. (Risk driving away business)
Pass the fees on to your guests as a “convenience fee.” (Looks cheap and small time)
Offer a “cash discount program.” (Looks like a gas station)
Do the math when setting the menu price. (Looks like a professional business person)
Let’s look at each of the options in detail.
Do not accept cards. I hope from the stats in numbers 1 and 2 above that you understand that taking cards is a necessary evil in street vending and at events. In my 40 years of experience (through real-time observation and studies), credit card transactions are significantly faster than counting change. Yes, there may be internet problems, connection problems, etc. that appears from time to time. Cash has its own set of problems like ripping a hundred dollar bill early in the day, using a fake pen to check bills, opening new rolls of coins, having to get more ones or fives, too much cash on hand makes your business easy. robbery target. Are you already convinced to take cards? Since accepting cards is a MUST for a food vendor, let’s think about the best way to handle those pesky fees.
Pass the fees on to your guests as a “convenience fee.” Sounds smart right? Not really. Charging a fee seems petty and cheap from a guest’s point of view and is illegal in 10 states. Where fees are legal, they are capped at 4% as the merchant CANNOT PROFIT from charging a fee. “Convenience fees” become too complicated when a debit card is presented instead of a credit card. Convenience fees are also frowned upon by credit card issuers and each has specific policies AGAINST these fees in most circumstances. Setting a minimum purchase also complicates things. Debit cards have different rules than credit cards. It is also against credit card issuer rules to set a minimum fee for debit cards. OK, OK, without charging additional fees, what should a supplier consider?
Offer a cash discount program (CDP). This type of program is permitted and is, in fact, detailed in the card issuer’s policies. A cash discount policy means that a supplier must list TWO different prices for each product. Just like a gas station that offers a cash discount. The pump will display a price marked “Credit” and a price marked “Cash”. Of course, the price of the credit is higher considering the processing fees. There are a number of companies that offer CDP processing, all of which use some promise of “free” (for you) processing. The bottom line for a legal CDP is to have a menu that clearly explains both the cash and credit pricing, as well as other notices that explain and/or alert your guests to the two-tier pricing system. The problem with this system is guest confusion and overly complicated pricing structures. Street sales or events are very limited in time. The faster you take and complete orders, the more money you earn. But with CDP, the order taking process is slowed down due to the lengthy explanations of a two-tier pricing system. As well as the complaints of having to pay more because the guest does not have cash available. In food service, every obstacle you put up for a smooth order-taking process is magnified into a negative review, bad word of mouth, or non-return customers when another service or food issue arises.
The simplest is:
Do the math when setting menu prices. What a concept! Just like pricing your menu to account for the price of food and propane, simply price your menu assuming EVERYONE is going to use a card. Than?! Can it really be that easy? Yes, yes you can.
Let’s look at a product that scared everyone when Square raised fees to 10¢ + 2.6%. Soda.
Canned soft drinks are available at Sam’s Club for 32.05¢ each. Most people sell it for a dollar. When Square increased its price, people panicked and complained about the increase in a percentage basis for the least expensive product they sell, a soft drink. That makes selling a soda only cost the vendor 44.65¢ when using a card. I can’t say how many posts complained 13% charges, bla bla bla. However, if the soft drink company were to raise the price by 45 cents, the seller would either absorb the increase or raise its own prices.
When I put a price on a menu, take on the whole world will use a card. When Square added that 10¢ transaction fee, I only added 25¢ to some of my higher cost food items to compensate. So the one dollar soda became a $1.25 soda. Still cheaper than a convenience store and much cheaper than a vending machine.
Gross profit (which is sales minus cost of goods) would look like this:
Before: $1.00 – $0.3205 – $0.0275 = $0.6520 big win
After: $1.25 – $0.3205 – $0.10 – $0.0260 = $0.8035 profit
See what happens when someone pays in cash.
Cash: $1.25 – $0.3205 = $0.9295
Does it make any sense to use a cash discount program? Does it make any sense to add a surcharge (which is legally limited to 4% and you can’t show a profit from that charge)? Does it make financial sense to simply refuse to accept cards?
If you are stumped, the answers are “NO”, “NO” and “NO”.
I can hear someone say, “I don’t deal with change, it slows me down.” Food service is a nickel and dime business. Charging even dollars ended at the turn of the century. The only people who charge even dollar are amateurs or mathematically challenged. Maybe it’s time to bust out the addition and subtraction cards from grade school and learn how to run our nickel and dime business. Practice makes perfect and the more you practice, the faster you’ll get.