Saturday, March 23, 2013

The Business Chat - do I need a POS?

“Do I have to have a POS system? What about debit? Should I take cheques? How do I do this?”, asked Jan. Jan is doing her first One of a Kind spring show next week and there are so many things to think about.

A POS system is the place where a retail transaction is completed. It is the point at which a customer makes a payment to a merchant in exchange for goods or services. When people talk about a POS system they usually mean credit cards. A store will have a POS system that incorporates inventory control, online sales and payment systems. This is overkill for small craft businesses. The question really should be, “Do I have to take credit cards or debit cards?”

When I began shows 10 years ago the credit card question was much simpler. There were only 2 companies and both required that you had a business bank account. It was very expensive, time consuming and cumbersome. Thanks to recent advances in technology a beginning crafter has so many choices now. Although sometimes wading through the choices gets very confusing.

First, take a look at what you make and your average price point. If you are making work that retails for under $20 then it is not critical for you to take credit cards. If you are selling higher end work that sells for $100 or more, then yes, you should accept credit cards. People don’t carry that much cash with them.

Next, take a look at where you will be selling. If you are in a building with ATM machines then no, it is not critical for you to take credit cards or debit. If you are in a park in a small town that is several blocks from the nearest ATM then you should take some form of plastic. Keep in mind, every time someone has to go to a machine outside of your booth is a chance for them to not come back.

Third, consider how often you will be using this. Are you doing one show a year, or 10? Perhaps you sell out of your home or studio and would like to offer credit cards service.

Last, consider your long term plans. Many of the options require you to sign up for a contract. What works for you now in your business may not be the best option in two years’ time. It is really hard to predict what you will be doing in two years’ time but you should have an idea of where you would like to be or where you intend to head. If you really don’t know, or if it will be something totally different, then do not sign up for a long term contract. They are always expensive to get out of.

The traditional solution is to sign up with one of the large merchant credit card companies such as Moneris or Chase Paymentech. You must have a business bank account (which means that your business has to be officially registered). You pay a setup fee, an equipment rental fee monthly, a percentage of every transaction with a minimum monthly payment. These systems can range from an old knuckle buster manual machine (you phone in every card), or a wireless terminal that takes both credit cards and debit cards.

In the past two years a second type of system has sprung up, the smart phone readers. These systems use a small credit card reader that you plug into the audio jack on your smartphone. You set up an account with the provider and pay a percentage of each transaction. Some of these companies charge a setup fee, some do not. Some charge a monthly fee, some do not. The smart phone readers accept credit cards, not debit. These systems usually do not require you to have a business bank account.

The advantage to accepting debit cards is that you do not pay a percentage on each transaction, just a small flat fee, usually around 25c per.

So which is better? Well that all depends. If you are doing just a few shows a year you do not want to be paying rent on a machine for 12 months. Even if you are doing one show a month, you would have to think about whether it is worth paying up to $100/month for the machine (plus the fees for a business bank account). If your average sale is less than $20 then people will be more likely to pay with debit not credit.

Always remember, it is your business, you must make the final decision. Do your research.

After 9 years of paying a lot of money for a wireless terminal I switched to a credit card reader a year ago. Even though I am full-time, I have 5 months a year that I don’t do shows. It irritated me to pay for the machine during those months. I was worried about not accepting debit however it is proven to be a non-issue. After weighing my options I went with a system where I pay a very small monthly fee in exchange for a lower percentage paid on the cards. I ran everything through spreadsheets before I made this decision. After a year of using this, I ran my spreadsheets again to check if I saved money on my monthly rentals, and paying the transaction fee on credit cards not debit cards. I saved $450.

In my opinion, with the ease of use of these smart phone readers, I think every crafter selling in person whether it’s at a craft show or in their home should offer the option of using a credit card. 

ps. I wrote about the credit card readers here. 

1 comment:

Anonymous said...

Just wondering if you are still using Payfirma or if you changed to Square once you started to use it.

I love the fact that Square doesn't have a monthly fee unless you use it. I gave up my account with ChasePayment Tech and I think I will save a lot of money using Square.

Love your blog. I look forward to it every week!