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    1. wholesaleinsight's Avatar
      wholesaleinsight is offline

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      The Pros and Cons of Cash vs. Checks vs. PayPal vs. Credit Cards

      Here is a simple guide to various forms of payment.

      Plenty of small business owners realize that bringing in enough sales to survive can be a burden in its own right, so thoughts about the way your customers pay for your products or services usually get overlooked. You have to understand all the options for payment–and the pros and cons of each–for you to be successful in the long run. And believe me, there are plenty of ways for customers to pay. So, if people are choosing one payment method over the other, so should you, if you want to accommodate them.

      Cash Money
      Pros: Cash has been the preferred type of payment for ages when it comes to purchases, and it still outperforms the rest of the pack when it comes to retail transactions. When customers pay with cash, it already completes the buy–a simple checkout for the customer and the business can use that money for other things. For the cash-strapped business, the liquidity of cash transactions can mean survival. It lets the business shift today’s sales into monthly expenses, payroll, or reinvestment. Furthermore, with the straight-to-the-point process, cash makes it easier for cash-based businesses to focus less on bookkeeping because the accounting is pretty simple. And even though counterfeit currency exists, it’s extremely rare when compared to the growing risk of credit card fraud.

      Cons: I know the idea of cash being an inconvenience or a disadvantage for small businesses seems pretty crazy. But, cash does have its problems, some directly related to its simplicity. Its extreme liquidity makes it a prime target for the criminally minded individual, so any cash business must pay close attention to security, chain of custody, and bank deposits. Also, cash is self-limiting. According to the latest research, Americans carry about $80 in their pockets. Therefore, customers tend to pay with cash at, let’s say, a gas station or convenience store, but if your business demands prices beyond the $100 mark, you will lose business if you demand cash payments.

      Checks
      Pros: Although the use of checks have dropped in recent years thanks to the power of plastic, checking accounts are still fairly popular with a wide variety of American households and are still the preferred way to pay for bills. Actually, right after cash, checking accounts are the ideal way to make a payment, with a majority of Americans adopting the process. So, even if checks don’t give your business the elasticity of cash, you should think about the backlash before you decide to enforce a no-check policy. This is a critical decision if you’re a business-to-business organization because most business customers pay via invoice and company check–just like plastic–which will limit their purchasing power by how much cash they have. And, with the latest Check 21 regulations, the wait for funds is now a quick process. As a result, most checks are paid in two days max and, from time to time, the very same day.

      Cons: Even with the digital upgrades that have shortened wait times, businesses still have to wait before they see a penny from the transaction. With that amount of time, the payee puts their necks on the line when it comes to bad checks and fraud, circumstances that can overwhelm a small business with a tight budget. To alleviate these risks, a slew of check-processing companies have popped up. In the event a bounced check occurs, they accepting all the risk. But, check-processing does come with a price, of course. Fees usually average a 1.25% on all transactions plus any special per-transaction fees. For most small businesses with fine profit margins, like a corner store, these fees will make impossible to make a profit.
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      #2
      PayPal
      Pros: PayPal is a quick and easy way to receive money or set up a merchant account. With the ability to protect the buyer’s bank account information, PayPal has become the norm online, and any start-up can make it a part of their payment processing, significantly expanding their customer base. Thanks to PayPal’s merchant account button–which is easy to set up and doesn’t have any fees–any business with a verified bank account can accept payments from people around the world. Most importantly, PayPal’s reputation for protecting its financial data means customers will be more comfortable handing over their credit card numbers, freeing you from buying expensive payment processors and security software.

      Cons: PayPal is fee crazy when you use its services, averaging about 3% of your transaction total when you stick with the standard account, close to what other guys charge. For the small business owner who wants the simplicity of PayPal and credit card processing functionality added to your site, you have the option of upgrading to a better package, but it costs $30 a month on top of the transaction fees. Unfortunately, there are some logistical issues when using PayPal. First, customers have to leave your site if they want to check out, which irritates some people when they want to go back and add more stuff to their shopping carts. Plus, it’s pretty important to know that the money is deposited into the PayPal account instead of heading right into your business bank account. The reason for this is to protect the buyer from fraud, but at times, disputes will occur, which leaves a small business unable to withdraw funds that came from an online sale.

      Credit Cards
      Pros: I know using credit cards has become the prominent lifestyle choice of consumers over cash. Sure, in a time when vending machines accept credit cards, it’s pretty obvious that the marketplace is giving the consumers what they want. Paying by credit card is probably the most favored among consumers for its simplicity–more than cash and debit cards–and security. Remember that, per capita, people own more than one credit card and they use it more than money. That should make you think twice about accepting credit card payments. Sure, for the small business based entirely online, accepting credit cards is still a necessity. Even if you run a physical store and deal with your fair share of cash transactions, you should still accept credit cards–maybe with a minimum dollar amount–to help bring in more sales while giving an aura of legitimacy.

      Cons: People love credit cards because they want to have things now and to pay for them later. Sadly, it works the same way for businesses: They delight in a completed transaction right now, but they don’t get the funds until the processing company, or whatever, authenticates everything, which doesn’t happen until a couple of days later. Besides that, another problem with credit cards is the fees that come with the use of processing services–yearly contracts–and merchant fees, averaging around 3.5% for each transaction. Plus, the majority of processors tack on a flat fee for each swipe. On top of that, the price for the credit card processing machines can cost hundreds of dollars each if they’re not included with your contract. You also have to watch out for chargebacks–refunds from the credit card company due to errors, fraud, disputes, etc., can be devastating to small business owners. And finally, when you take credit cards, you have the responsibility to protect the consumer’s financial information. There’s no way around it, and it will ruin your company’s reputation if you are known to carelessly handle credit card data.
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