By Pat Moran

More than 8 million small businesses in the United States accept electronic payments using credit, prepaid and debit cards. In an age of ever-evolving technology, you would think most businesses fit into this category. However, according to U.S. Small Business Administration data, there are an additional 20 million small businesses that have yet to embrace the technology, often believing they don’t need to move beyond cash and checks.

As consumers become less reliant on traditional forms of payment, it’s becoming more difficult for small businesses to remain viable when not accepting electronic payments. The right electronic payment system allows business owners to make more money while providing additional infrastructure that allows for easier bookkeeping and better security. In the last year alone, small businesses not accepting cards lost out on more than $4 trillion in consumer spending, according to the Nilson Report, the leading source of statistics and analysis on the electronic payment industry.

Small businesses seeking long-term success can no longer afford to avoid this revenue source. And those already using it need to ensure they’re getting the most out of it. In setting up or re-evaluating an electronic payment system, the most daunting aspect is often navigating complex fee structures to find the right plan and processor. Working as an intermediary between the small business’s bank and the cardholder’s bank, processors direct the money spent on goods and services.

With so many important considerations to weigh during this process, owners and managers must be prepared to ask questions and make sure their system matches the needs or projected needs of the business.

  • Evaluate merchant account processors. Make sure they are established and can meet your needs, handle the processing themselves, have a good reputation with clients and similarly sized businesses, and provide a regular contact person who can answer questions and help solve problems.
  • Make sure the contract fits your needs and won’t negatively impact the bottom line. Read the small print to understand what is expected of all parties, what can trigger unexpected price increases and what penalties may exist as well as what the interchange rate will be. Be cautious of bundled rates, which wrap the interchange rate and other fees together and are often nonnegotiable. Make sure you understand everything you’re charged for and make sure it is reasonable, negotiate pricing when possible, and make sure the final cost and system is appropriate for your business.
  • Get the right technology for your business. Determine whether you need a terminal, a cell phone card reader or an online system. Consider purchasing equipment instead of leasing to save money in the long run and see if you can purchase less expensive equipment from outside vendors. Ask if you need to install software or other equipment to reap the maximum benefit.
  • Ensure support services are included. Request a relationship manager to help support your account and guide staff through the intricacies of electronic payment systems. Make sure there is a back-up plan in case the system goes down, know the system for mitigating protested charges and make sure there is after-hours web support.
  • Make sure the plan is adaptable if the business grows. Understand the early-cancellation or switching-plan policies and if there are associated fines or fees, and make sure you can renegotiate fees as your business grows. For instance, some plans work well for very small businesses, but may penalize them as they grow. Make sure you understand policies and fees for replacing outdated or damaged technology.

To help make this complicated process easier, some industry leaders are stepping up to simplify fee systems and to ensure small businesses have upfront pricing to better negotiate. MasterCard has announced new standards designed to protect small business owners from the types of fees that can unduly erode their profit margins and their ability to survive.

The new rules require merchant account processors to provide business owners with clear and detailed information about fees and how they are calculated, and forbid them from raising rates on small businesses without providing a minimum of 30 days’ notice. For small businesses, especially those just starting out or looking to expand, making smart choices concerning payment methods can determine failure or success.

Pat Moran is a payments executive and advisor with specific areas of expertise in payments economics, interchange management, merchant contracting, as well as product development and deployment. Mr. Moran is currently working with several private VC backed firms to help them develop their payments related business strategies including MineralTree a SMB payables solution provider.