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The debate over credit card processing fees intensifies every day. Newcomers are looking for information about which is the “best” processor, when what they really mean is “cheapest”. The person who has something to sell always responds with “check my page” or “DM me and I’ll help”. Then my favorite answer always appears: “Charge them what I do.” “Square” and “Clover” would also flood in the comments, followed by complaints from the detractor with each company.
Everyone, and I mean EVERY, company has a complaint about how it operates. Customer service, late/slow deposits, hidden fees, frozen accounts, middlemen, differential rates, equipment fees, ongoing fees, etc. Square has it, Clover has it, as do all other companies . Asking my opinion or anything else in a public forum like Facebook groups will only get a limited answer based on very limited experience. I have worked in this business since 1977 and have taken credit cards since 1990. I started with Square in 2010 and in all that time I’ve used a total of 5 different processors in food service. Each with their own problems and benefits.
You should also understand that there are two different types of processing companies out there. Square (PayPal Here, Intuit ToGo, etc.) are flat fee aggregators. meaning the fee is exactly the same regardless of which card is used and no merchant account Is necessary. This greatly simplifies the threshold for the average food vendor to get started. Clover (and a ton of other services) are merchant account processors, Meaning they require a merchant account (which some people won’t qualify for) as well as possibly charging variable fees depending on the type and brand of card. It is unfair to compare the two types of accounts as they have completely different benefits and application requirements.
To get a complete understanding and unbiased review of each processor type, visit the Merchant Maverick website and view their reviews. Choose the processor that best meets your financial needs with rates and fees your business can afford. Also understand what you need from the hardware they provide. Do you need a simple POS or 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 accepting credit and debit cards. Keeping it simple for street vending.
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Card acceptance is essential for street vending. Over 80% of all payroll is deposited directly. Mobile food vendors should be convenient not only in location but also in payment option options.
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80% of consumers prefer to use debit/credit cards while making purchases. On the other hand only 14% prefer cash. Non-acceptance of cards destroys business.
- Processing fees are a part of doing business Such as purchasing inventory, paying employees, purchasing gasoline, obtaining permits and licenses, and all other expenses in your business.
You have 4 options as a business owner:
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Don’t take the card (risk of driving away business)
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Charge your guests a “convenience fee”. (appear in cheap and short time)
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Offer a “cash rebate program”. (look like a gas station)
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Do the math when setting menu pricing. (look like a professional business man)
Let’s look at each option in detail.
Don’t take the card I hope you understand from the statistics in numbers 1 and 2 above that taking cards in street and event vending is a necessary evil. In my 40 years of experience (through observation and real time study) credit card transactions are much faster than counting change. Yes, from time to time there may be internet issues, connect issues etc. Cash has its own problems like breaking hundred dollar bills back in the day, using counterfeit pens to verify bills, opening new rolls of coins, getting highs or fives, lots of cash on hand makes your business easier target for robbery. Convinced to pick up the card yet? Since card carrying is a must for a food vendor, let’s figure out the best way to handle those pesky fees.
Charge your guests a “convenience fee”. Sounds smart doesn’t it? Not necessary. Charging a guest perception point seems petty and cheap and is illegal in 10 states. Where fees are legal, they have a 4% cap as the merchant cannot profit from charging the fee. The “convenience fee” becomes overly complicated when a debit card is presented instead of a credit card. Convenience fees are also disallowed by credit card issuers and each has specific policies against these fees in most circumstances. Setting a minimum purchase also complicates things. Debit cards are subject to different rules than credit cards. It is also against credit card issuer rules to set minimum charges for debit cards. OK, OK, no extra charge, what should the seller consider?
Offer a Cash Discount Program (CDP). This type of program is permitted and is actually explained in the card issuer’s policies. The cash discount policy means that a seller has to list two separate prices for each product. Just like a petrol station does which offers cash discount. The pump will list a price marked “credit” and a price marked “cash”. Of course, the credit value is higher to account for the processing fee. There are a number of companies that offer CDP processing, all of which use some promise of “free” (to you) processing. The most important thing for a legal CDP is to have a menu that clearly states both cash and credit prices as well as other notifications that explain the two-tier pricing system to your guests and/or Let’s alert. The problem with this system is guest confusion and an overly complex pricing structure. Street or event vending is heavily timed. The faster you take and fill orders, the more money you’ll make. But the process of taking orders has been slow due to lengthy explanations for the two-tier pricing system with CDP. Also complaints of overpayment due to non-availability of cash with the guest. Not every obstacle you encounter in the smooth ordering process at food service becomes a repeat guest when a negative review, bad word of mouth or another service or food related issue pops up.
The simplest thing is:
Do the math when setting menu prices. wow what a concept! Just like pricing your menu by the cost of food and propane, just price your menu assuming everyone is going to use the card. What?! Can it really be that simple? Yes yes it can.
Let’s look at a product on which Square raised fees to 10¢ + 2.6%. Soda.
Canned sodas are available from Sam’s Club for 32.05¢ each. Most people sell it for a dollar. When Square raised its price, people panicked, complaining about the increase a percentage basis For the least expensive product they sell, a soda. When a card is used it costs the vendor 44.65¢ to sell a soda. I can’t tell how many posts there was an uproar about 13% fee, blah blah blah. Yet if the soda company raised the price to 45¢, the seller would either absorb the increase or raise his price.
When I price a menu, I accept all card will be used. When Square added that 10¢ transaction fee, I just added 25¢ to some of my high-cost food items to compensate. So that one dollar soda becomes a $1.25 soda. Still cheaper than a convenience store and much cheaper than a vending machine.
Gross profit (which is sales less cost of goods sold) would look like this:
Before: $1.00 – $0.3205 – $0.0275 = $0.6520 gross profit
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 sense to use a cash rebate program? Is there any point in adding a surcharge (which is legally limited to 4% and you can’t show profit from that fee)? Does it make financial sense to simply refuse to accept cards?
If you’re stumped the answers are “no”, “no” and “no”.
I can hear someone saying, “I don’t deal with change, it slows me down.” Food service is a nickel and dime business. With the turn of the century, charging dollars ended as well. The only people charging even dollars are amateurs or the mathematically inept. Maybe it’s time to get out the addition and subtraction flash cards from elementary school and learn how to deal with our nickel and dime business. Practice makes perfect and the more you practice the faster you will get.
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