Incentives to collect payments

Being a CPA I always push people to assess their cash-flow situation.  Sometimes generating cash-flows means you need to give up a little to get something.  For some it is the incentive to provide payment terms on invoices such as 2/10, net 30.  Meaning, take 2% off the total if invoice is paid in 10 days, or pay the net amount in 30 days.  

This is a beneficial payment structure as it generates cash for both the business and their customer. The business receives a quick injection of cash sooner than normal, allowing for payroll, loan, or taxes to be paid out in a timely manner.  The customer receives the service or product at a 2% discount and benefits from significant savings/investment.  I say investment because the customer receives a discount rate investment which yields a high effective annual percentage rate.  

Let's do a little math.  For example if the terms are 2% / 10 days or net 30 days, the effective annual rate is [ 360 days / Net Days - Discount Days ] * [Discount rate / ( 1 - Discount Rate) ].  Therefore the effective rate is  [ 360 days / 30 - 10 ] * [.02 / ( .98) ] = 14.69%.   As you can see you incentivize your customers to pay earlier because they receive an effective annual percentage rate of 14.69%.  If you can find a no risk investment that yields 14.69% in an active market let me know.  

Another option to increase cash flows is to accept credit card payments.  By offering customers the ability to pay with a credit card, you incentivize the customer to pay.  The incentive comes in various forms depending on what type of card the customer uses.  By using a rewards type card, a customer may earn points towards an airline ticket, cash back, or other rewards offered through the issuing bank.  In additon to rewards, the customer also draws on their line of credit with the issuer, potentially extending their payment date, or even allowing the customer to make a payment in a time when their cash flow is low. 

Accepting credit cards is not absent of cost to the business.  See my interchange fee post for a discussion of applicable processing costs.  These costs vary from 1.69% to 3.8% of the sale.  These rates are similar to offering discount payment terms.  

If you consider the cost of going through collections on a customer that hasn't paid, giving up a little, through discount payments terms and/or credit processing fees, is better than giving up everything by not receiving any payment.   

If you are looking to offer credit card processing as an option take a look at Connected Pay's cost saving virtual terminal and merchant account program.

Connected Pay's online payment service requires no software installation, no website is required, and no programmer is needed. You don't need anything special to accept credit cards by using Connected Pay's service. If you are ready to make it easier for your customers to pay you and save you time, please contact Connected Pay today to begin focusing more on your business. Contact Us at Connected Pay or Info@connectedpay.com.

What are Interchange rates?

Interchange rates pay for the electronic payments system, a powerful, global network, which enables financial institutions to connect merchants and cardholders.  For any network model to succeed, participants must be encouraged to maintain usage of the network and invest in network improvements. Some brand networks, such as Visa, charge predetermined and centrally set default interchange fee.  


Interchange is recognized globally as an appropriate and essential element in managing the electronic payment network.   The rates are publicly posted, and can be difficult to find by a basic search, but is a necessary part to become an educated merchant account owner.  A merchant understands and accepts the responsibility for the costs associated with the convenience of accepting electronic payments.   These costs can be passed onto the consumer by marking up a product before the sale, or by applying a surcharge fee, which is controversial and illegal in ten states.  


As a CPA, I discourage my merchants from charging a surcharge as it is illegal in some states and is an issue when dealing with electronic commerce as the payment can be from a state where the surcharge is illegal.  Additionally and more qualitatively, I would discourage any business from charging a surcharge as it appears to mislead the consumer.  The price advertised should be the price charged at the checkout or close of the sale.     The merchant should consider the interchange rates as a Cost of Sales (Goods or Services) expense which will directly impact the gross profit (Sales Revenue less Cost of Sales).   It is critical to identify all costs associated with the sales process to ensure the gross margin (Gross Profit / Sales Revenue) actually received is the gross margin budgeted.  


Connected Pay's Operations Consulting division can help you compute a price point which meets your gross margin goals.  Additionally, Connected Pay offers processing rates for Merchants that are typically 20 to 50 basis points (.20% to .50%) over the interchange rate.  To get more information on setting up a merchant account through Connected Pay, please use our Sign Up Your Business page follow this Merchant Account Link, or for general information inquiries please use our Contact Us page.   Feel free to e-mail us with any questions, info@connectedpay.com.


For Visa's view on interchange see Interchange Viewpoint.  For Visa's view on Surcharges see Surcharging Viewpoint.


For Mastercard's view on interchange see Understanding Interchange.  

What is a merchant account?

We turn to the source of all truth on the internet, Wikipedia, which has a good definition.  A merchant account is  is a type of bank account that allows businesses to accept payments by debit or credit cards. A merchant account also serves as an agreement between a retailer, a merchant bank (Acquirer) and payment processor for the settlement of credit card and/or debit card transactions.  To process a transaction through the merchant bank some base costs will always apply.  These amounts are called the interchange rates and they vary based on how the card is processed (swiped vs. keyed entry), what type of card is being used (Visa, Mastercard, Rewards, Corporate), what type of business is accepting the card (supermarket, retail, service).  See my interchange rate post for more info. 

Virtual Terminals

Q: What is a virtual terminal?

Think of a virtual terminal as a credit card terminal (aka a card swipe machine) that is on the internet. Virtual terminals are typically hosted by a gateway companies and are typically used only by the Merchant account owner or their staff. A virtual terminal runs on a computer through a website and as long as you have internet access you are able to process credit cards.

PROS: Having a virtual terminal is a great way to eliminate extra equipment sitting on desks, the virtual terminal is often less expensive than a tradition the hard wired terminal, and it can be accessed anywhere there is a computer. You are able to process Visa, Mastercard, Discover, and American Express cards.

CONS:

You have to manually take down credit card information and re-enter information which leads to errors. Card holders know that if someone else has their credit card data, then that person can fraudulently use their card. If you want instant approval/denial of a card you need to have a dedicated staff or staff team taking information over the phone or in person and instantly processing the card.

My question is: Why take the risk. Why invest the time? Why pay for extra staff?

Connected Pay sought out to solve this problem. As a CPA, I tell my clients that this is a market about doing more with the people you have and need. It is about leveraging your current staff (even if you are the only staff) by investing in time saving tools. Your customers should be responsible to ensure their card holder data is entered properly, after all they know themselves best. You can provide your customers a secure, professional, service-based website where payments are made. By accepting credit cards you can incentive you customers to pay because they may receive rewards points, or it simply provides your customers the ability to pay your bill by using their personal credit.

Connected Pay's virtual terminal is the only terminal that allows your customers to use your virtual terminal to make payments. Our secure Make a Payment site allows customers to enter a few pieces of data provided by you to access your Branded Login Page to pay you. You to elimate the time and costs associated with having to use a virtual terminal. Connected Pay's virtual terminal is built around helping your business grow and giving consumers confidence you are moving with the future.

Please contact Contact Us and let the Connected Pay staff provide you with the time saving, secure, easy solution that you have been looking for. If you are ready to start accepting payments online, complete our no obligation Application Form.

Do I need to install software, have a website, or hire a programmer?

The basic answer is it depends on what kind of business you are. Retail businesses with high transaction volume are generally able to leverage their Merchant account and obtain more favorable processing rates than going through a third party like PayPal. It can be difficult for a retail business to obtain a merchant account if they have a business which the Authorizing bank deems risky, or the Merchant has poor credit/minimal business history. A website is helpful, but with websites such as e-Bay, an online store tends to be easier to set-up than in the past. PayPal and e-Bay tend to be a package deal that favor retail businesses.

Service providers are another story. e-Bay stores do not fit a Service business's needs. A Service businesses tend be be smaller shops with the Owner closely involved in the day to day operations. Obtaining a Merchant account, hiring a programmer, and learning new processing software can be a costly endevor, both in dollar value and more importantly TIME!

The staff at Connected Pay focuses on the service business industry because they understand TIME is the most valuable commodity. If your Service business already has an established website, Connected Pay's service eliminates the difficulty and cost associated with getting your website secure, legally certified, and properly coded by a website developer. If you don't have a website, Connected Pay can be your cost effective virtual terminal. Eliminating website development costs, finding a secure host, high hourly developer rates, on-going maintenance costs and not to mention the need to obtain a merchant account and gateway.

Connected Pay's online payment service requires no software installation, no website is required, and no programmer is needed. You don't need anything special to accept credit cards by using Connected Pay's service. If you are ready to make it easier for your customers to pay you and save you time, please contact Connected Pay today to begin focusing more on your business. Contact Us at Connected Pay.

Start-up

ConnectedPay is a website established by two CPAs, a guy and a gal who wanted to provide businesses the opportunity to accept credit, debit, and e-check payments over the web. Frustration came to the guy when he was unable to pay his eye doctor bill using his credit card. The guy desired to pay the bill using his credit card because he receives points/cash back when he uses it. The bill he received had a spot to manually transcribe credit card information, however he definitely was not going to write down his credit card information on a paper bill and mail it back to the practice as it is extremely unsecure and someone has the chance to reuse that information without his permission. The guy figured the practice would accept credit cards over the phone, however, the practices business hours were during Joe's business hours. When he called, the office message system would tell him the practice was closed. Try as he may, the guy could not remember to call the office during his busy season (January to April). It wasn't until after busy season (3 months after receiving the bill) that he guy final settled his outstanding bill. The guy wanted to pay his bill but payment kept getting delayed.

At the same time, the gal opened a bill from a medical practice asking for payment for recent services. The gal, being cash and investment oriented, always kept her excess funds in a higher yielding account. As a practice, the gal always pays bills with her credit card on the date they are due. The bill she received also had a spot to record credit information, however, in dealing with clients who have had credit fraud problems related to manual credit slips, the gal was not going to give her credit card information manually. Time went past and the bill did not get paid until it was overdue as a result of the inflexibility in payment options offer by the medical practice. The gal had an idea....

It was over lunch that the the guy and the gal were discussing the difficulties they encountered in paying their bills that the idea was born. Both the Companies desiring payment lacked the ability to receive payments online and at off-peak hours.

ConnectedPay.com offers a virtual terminal which does not require software installation, equipment purchases, or integration modules for window's based accounting software. Sign up is easy and you are able to accept web based payments on your own personal mini-web page. Accept and receive payments 24/7 and the cash is deposited in you bank account of choice.

For more information contact us at:

info@connectedpay.com or http://www.connectedpay.com/contact.html

Thanks,

The Guy