Implementing Payment Processing in SMBs

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10 Payment Processing Tips

Greg Hammermaster, president of Sage Payment Solutions, offers 10 things SMBs should know about this field.

Imagine a scenario in which every business had to roll up its sleeves to build its own payment network. Or in the words of Greg Hammermaster, a situation in which SMBs have to "convince customers to fill out an application, underwrite customers, bill, and then collect on customers." It is obvious that this can only have the effect of driving up the cost of doing business to unacceptable levels for small and mid-sized companies.


The president of Sage Payment Solutions, Hammermaster pointed out that cash and checks just don't cut it in many situations. For one, consumers don't like to carry wads of cash, and checks can take days to clear into the SMB's bank account. In addition, the use of checks also comes with the associated risks -- and cost -- related to check fraud.


Hammermaster previously worked in a bank and has significant experience with online businesses in the areas of online merchant services, debit and credit payment solutions. I posed some questions pertinent to SMBs on the topic of implementing a payment-processing solution to him.


Mah: Is a good (commission) rate the only gauge of a good payment processor?

Hammermaster: A good commission, or discount rate, is one of many pricing elements payment processors can charge an SMB. Downgrade fees, which are fees associated with transactions that don't qualify against the standard discount rate table, are hand-in-hand with the discount rate. For example, in a retail environment, a card number that is key-entered instead of swiped can be downgraded. Often, reward-based cards and business cards are downgraded.


Payment processors also assess "per-transaction" fees, statement fees and, potentially, help desk fees; and there can be a few other exception-based processing fees. In other words, it pays to understand your business environment (retail, Web store, telephone orders) and to understand your clientele (consumers or businesses), and then evaluate the payment processor's price sheet based on those factors.


Generally, in a retail environment, a standard, credit-worthy retail establishment will pay just over 2 percent, which is one of the best values for any SMB. There are more than 1 trillion credit and debit cards in circulation, and in 24 to 48 hours after the card is accepted, funds are deposited into the SMB's bank account.


Mah: Are there any kinds of payment processors that SMBs should avoid/watch for?

Hammermaster: Payment security should be a No. 1 consideration when an SMB evaluates a payment processor. If the payment processor is uneducated to Payment Card Industry (PCI) regulations, or dismisses payment security as a factor, then watch out


The penalties, fines and fraud costs associated with security breaches can close down a business. Also, watch out for hefty cancellation fees. Avoid payment processors that offer artificially low fees that can be raised, and then assess a significant cancellation fee after the fee increases go into effect.


Mah: What are some common mistakes made by SMBs in this area?

Hammermaster: One of the most common mistakes is treating your payment-processing solution as a commodity service and focusing only on the standard price sheet. SMBs should understand three things when partnering with a payment processor:


1. Understand your business environment: Where do you accept payments (retail, phone, Web, mobile)? What is the mix of your clientele (consumers, businesses)? What forms of payment do you want to accept (credit card, PIN debit, checks, ACH, loyalty cards)? Look at payment processors that have the products to meet your needs and evaluate the "effective cost" given your business mix.


2. Don't forget your back-office: A best practice is integrating your payments data into your accounting system. Not only will this eliminate the inaccuracy of manual data entry, but it will reduce your days sales outstanding (DSO) and enhance your audit and compliance positions.


3. Have a check payments strategy: As credit/debit cards replace more and more checks, don't lose sight of the potential increased exposure with fraudulent checks. Converting paper checks electronically to ACH (remote deposit), checks-by-phone, checks-by-Web, and check guarantee can increase cash flow and mitigate losses.


Mah: How long does it typically take to implement payment processing?

Hammermaster: In a disconnected environment (meaning, a basic credit card terminal), a SMB can be up and running in less than 24 hours. Credit approvals and unique credit card terminals can push that out to seven to 10 days.


Do you have any other questions or comments relating to payment processing? Feel free to pose them in the comments section below. In addition, Hammermaster also gave some pointers in "10 Payment Processing Tips for SMBs, so be sure to check it out, too.