Small businesses have dealt with a never-ending wave of economic challenges over the past few years. From COVID to inflation to supply chain issues, achieving and maintaining profitability continues to be a challenge for even the busiest of small businesses around the country. While it remains to be seen whether a recession will occur in the coming months, small business owners should act proactively to ensure they do everything they can to improve their bottom lines.
Fortunately, there are solutions for small businesses to save money without having to pull many strings. One such opportunity exists within credit card processing and payment operations. Between evaluating their tech stacks and working to reduce costly credit card processing fees, business owners can feel more confident about sustaining profitability and success in any type of economic environment. Let’s dive into some of the specific solutions below:
Evaluating the ROI of your Tech Stack
Everything in our lives has become a subscription, whether it is personal or business. Think about our personal lives: an average credit card bill would include monthly charges ranging from children’s video games to gym memberships to cell phone and cable bills. In our lives outside of work, we all have subscriptions going unused or priced way too high for our nominal usage—that’s why it’s such a profitable business model.
The same can be said for business-focused subscriptions. The subscription model was born many years ago, but over the last decade, it has exploded alongside the growth of the SaaS market and due to businesses craving a reliable revenue structure with little sales effort turned to it. The B2B world is no exception; sign an agreement that gives something away (software, hardware) upfront, but charges a monthly fee forever. In many cases, buying a service upfront would have been cheaper in the long run and now a business is locked in—especially if the software runs their business.
Some of these subscriptions may be worth it, like point-of-sale (POS) technologies that help streamline the payment process and improve customer satisfaction. Small business owners should look at how much they’re paying for these types of services and evaluate their ROI. If their costs outweigh the benefits, then the sensible decision might be to cut them or move off a subscription model to save money in the long run.
This is especially true during times of economic uncertainty, and many small business owners are starting to more diligently evaluate their software stack with the goal of long-term savings. A close examination of the technologies being leveraged will be a vital step in making a small business successful moving forward.
Understand the Credit Card Processing Space
Observing and understanding what’s happening in the credit card processing industry is another step that small business owners should take to create further savings. Credit card processing is a largely complex industry, and a lack of understanding can directly impact a business’s bottom line.
Let’s first look at surcharging programs, which were originally designed to help businesses recoup the costs associated with accepting credit card payments. While in most states, these are perfectly legal if implemented correctly, improper setup and use can have lasting consequences. For example, it is illegal to surcharge a debit card, so small business owners need to establish processes that ensure each worker (and their POS system) is distinguishing the types of cards.
Additionally, many states are implementing laws that cap the surcharge amount a business can pass on to consumers. New York, for example, requires specific disclosure of the higher price that someone would be charged for a credit card payment, or signage that indicates the difference between credit card and cash transactions, while other states like Massachusetts and Connecticut have banned surcharging altogether.
Another piece of legislation, the impending Credit Card Competition Act, is being debated and hopes to help merchants save on processing fees, but it’s hard to definitively say what impacts the bill will have until it’s implemented. Questions remain about who the bill will ultimately benefit, so small businesses shouldn’t wait on federal or state legislation to cure the ills that they may be experiencing.
What can be immediately helpful, however, is to understand the types of fees that can be negotiated or removed. Whether it’s through personal education, or working with an expert who understands the space, small business owners can learn how to identify rate increases and different fees that may be negotiable. A better understanding of merchant statements can also help address other avoidable fees, such as non-compliance fines if payment card industry (PCI) requirements aren’t being adhered to.
Evaluating the ROI of their technology investments and learning more about the intricacies of credit card processing will help small business owners navigate what’s become a challenging economic environment. Taking these two steps should pay major dividends and help drive focus on what matters most: providing a great customer experience and driving profitability.
Eric Cohen is the Chief Executive Officer at Merchant Advocate. A veteran of the finance industry, Eric Cohen founded Merchant Advocate in 2006. After his extensive experience in the merchant services industry, he was determined to create a fair value proposition and transparency for merchants with their credit card processors. He established Merchant Advocate to act as a trusted advisor on behalf of all size and categories of businesses.
Economic stress stock image by Billion Photos/Shutterstock
