How To Choose the Best Credit Card Processing Company

The best credit card processing company for your business strikes the right balance of cost, functionality and support. Processing fees and monthly costs are the obvious starting points when comparing providers. However, considerations such as ease of use, support, integrated sales features and free software can help you spot the best value for your specific needs.

Here are a few questions to keep in mind when you shop for card processing services;

What is your average sales volume per month? Higher transaction volumes equal lower processing fees. A good rule of thumb is once you reach $5,000 in monthly transactions, you can benefit from an interchange-plus or tiered processing service. Before then, a flat-rate service such as Clover can be economical.

Do you sell in-person, online, mobile or combined channels? Where you sell determines your processing hardware and system needs. If you sell in-store, you need checkout registers. If you sell on the go, you need mobile card readers and a mobile processing app or mobile POS. If you sell online, you need a secure payment gateway. If you combine sales methods, you need a payment processing service that seamlessly connects all of your sales within an integrated system.

Do you need free equipment and POS systems? Free equipment and POS software add value to a service, even when paired with higher processing fees. When comparing services, consider what any free perks would cost if you went with a lower-fee processor that doesn’t provide them.

Do you already have registers, terminals and POS software? A processing service that integrates with registers, terminals, POS systems or accounting software that you already use can save in upfront costs and minimize business interruptions.

Is your business high-risk? High-risk merchants generally find the lowest fees with traditional merchant accounts with tiered pricing.

Are you selling restricted items? Many popular card processing services limit what you can sell. If your business falls outside their approved list, you’ll need a traditional merchant account provider.

How fast do you need your funds? Virtually all card processing companies deposit funds within one to two business days, but charge an added fee for same-day deposits. If you need quick access to funds, look for a provider that offers this for free.

Do you need 24/7 support? Most providers offer 24/7 service for network outages and other business-critical events, however, a few limit support at lower plan levels.

Do you sell globally? You need a processing service that supports international cards and exchange rates.

Do you use QR codes, payment links and online invoicing? You need a card processing service with an online portal feature that supports these cutting-edge payment methods.

Do you want to accept e-checks and bank transfers? Look for card processing services that support ACH payments. Source

Credit Card Processing Fees and Costs

Whatever pricing structure they use, processing companies base their pricing on four primary fees. These include interchange fees, assessment fees, processor markup fees and monthly account or statement fees. Knowing what goes into credit card processing fees can help you understand your options and spot the best payment processing service for your business.

Interchange Fees

Interchange fees are set by Visa, Mastercard, Discover and other card brands. These are the unavoidable, base-level costs of processing credit cards. Often called wholesale or base fees, interchange fees generally range from 1% to 2% of the transaction amount. Payment processing companies collect interchange fees during the transaction process. They then transfer these funds to issuing banks as payment for the credit service. Interchange rates vary greatly and depend on the merchant’s industry, the transaction type and the brand and type of card used. 

Here are a few examples of factors that impact interchange rates merchants pay to process credit cards.

• Transaction type: Card-not-present transactions, such as online sales, have higher interchange rates than in-store sales, where cards are physically swiped.
• Debit vs. credit card: Debit cards have lower interchange rates than credit cards because they are considered a lower credit risk.
• Card brand: Discover and American Express have higher interchange rates than Visa and Mastercard.
• Card type: Rewards, corporate and governmental purchasing cards have higher interchange rates than non-rewards cards since these programs cost the issuing banks more to administer.

Assessment Fees

Assessment fees, often called per-transaction fees, are also set by the card brands. These are flat per-transaction fees attached to interchange fees and typically range from 1 to 5 cents, based on the type of card and transaction.

As with interchange fees, assessment fees are collected by card processing companies during the transaction process. However, these fees are paid to the card associations, such as Visa, Mastercard, Discover and American Express, not to the issuing banks.

Processor Markup Fees

Markup fees are what credit card processing companies charge for their processing services. Markup fees vary based on the card company’s processing fee structure, such as a straightforward markup percentage called interchange-plus, complex tiered rates or simple flat-rate fees.

Each fee structure has benefits and drawbacks, which we explore in more detail below. Bottom line, markup costs vary greatly from processor to processor, so it’s essential to shop around for the best deal.

Monthly Fees

In addition to markup fees, many credit card processing companies charge monthly fees for specific services, such as statements, online gateways, PCI compliance and card terminals and other processing hardware. Some roll all of these services under a monthly account or subscription fee.

A few charge no monthly fees for credit card processing services. However, these providers typically have higher flat-rate processing fees that can cost more compared to providers that combine monthly fees with lower processing rates.

Other Costs To Consider

Some credit card processing companies have add-on and conditional fees that can affect your overall processing costs. To avoid surprises on your monthly statement, always check the fine print for add-on fees when comparing credit card processing companies.

• Chargeback fees: Unfortunately, chargebacks are an inevitable part of accepting credit cards and the cost of processing a chargeback varies greatly among processing services.
• Batch processing fees: Some tiered and traditional merchant services providers charge per-batch fees.
• Setup or termination fees: Card processing services with negotiated or tiered rate plans often require contracts with setup costs and hefty early termination fees.
• Monthly minimum fees: Some negotiated and tiered rate plan providers charge a monthly fee if contracted transaction volume minimums aren’t met.
• Same-day funding fees: Most card processing services deposit funds within one to two business days with no added fees but charge a fee for instant or same-day access to processed funds.

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How Does Payment Processing Work?

The process involves several steps and multiple parties. Here’s an explanation of how payment processing works:

1. Transaction initiation

The customer initiates the payment by providing their payment information (e.g., a credit card, debit card, or another payment method) at the point of sale in a physical store, or through an online platform like an e-commerce website or mobile app.

2. Payment gateway

Once the customer submits their payment information, it’s securely transmitted to the payment gateway, which acts as a bridge between the customer, the business, and the payment processor. The payment gateway is responsible for encrypting the transaction data and ensuring the data is transmitted securely to the payment processor or the acquiring bank.

3. Transaction authorization

The payment processor receives the transaction data from the payment gateway and validates the information. It then forwards the transaction details to the acquiring bank, which sends the information to the card network for validation and authorization.

4. Issuing-bank verification

The card network forwards the transaction details to the issuing bank. The issuing bank verifies the customer’s account status, checks the available balance or credit limit, and assesses any potential risks. Based on these factors, the issuing bank either approves or declines the transaction.

5. Authorization response

The issuing bank sends back the authorization response—approval or decline—through the card network to the acquiring bank, which then forwards the response to the payment processor. The payment processor then sends the response to the payment gateway, which communicates the result to the business’s POS system or online platform.

6. Transaction completion

If the transaction is approved, the business completes the sale by providing the customer with the goods or services. If the transaction is declined, the business may request an alternative payment method from the customer.

7. Transaction settlement

At the end of each day, the business sends a batch of approved transactions to the payment processor or the acquiring bank for settlement. The acquiring bank requests the funds from the issuing bank through the card network. The issuing bank transfers the funds to the acquiring bank, which then deposits the money into the business’s account, usually within a few business days.

8. Reconciliation and reporting

The business reconciles the settled transactions with its sales records and any transaction fees charged by the payment processor, acquiring bank, or other parties involved. Both the business and the customer receive transaction records, such as invoices, receipts, or account statements.

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3 Ways To Optimize Your In-Store Credit Card Processing

If you’re accepting cards in store, or in-person, you’ll want to ensure the process is quick and easy. Long queues are a big turn off for shoppers and, in a world of social distancing, unnecessary interaction should be kept to a minimum. 

Here’s how to optimize your card processing in person:

1. Contactless

Tap-to-pay is standard these days, and, since everyone wants to keep their distance, you can take contactless one step further and let customers pay via self-service kiosks.

2. Digital wallets

Digital wallets are easy to use and secure. Apple Pay and Google Pay™️ have the added benefit of helping to blur the lines between online and point of sale transactions so your customer can move seamlessly between the two. Amazon Pay lets customers pay using information already stored in their Amazon account. In all cases, they remove the need for customers to go digging around in their purse.

3. Mobile point of sale (mPOS)

There’s a lot to be said for bringing the payment to the customer and not sending them off to join the back of a queue. Mobile point of sale (mPOS) terminals provide greater flexibility by letting you take payment from anywhere. Now, there’s a new generation of smartphone-style terminals that let you manage several POS functionalities from one device. Source

What Is An Invoice And How To Write One

Most consumers have experience with invoices and don’t give much thought to their creation or components. However, now that you are on the other side of the process as a business owner, you may need an introduction to this vital part of running a successful company. 

Once you know exactly what it is and how to create an invoice, you will find that your operations run more efficiently and your customers are happier.

What is an invoice?

Simply put, an invoice is a business document provided by you, the seller, to the buyer. Its purpose is to request payment for the products or services you have provided. 

In addition to specifying details about goods or services, the invoice also defines the time frame, total due, invoice due date, and any important terms. 

Beyond furnishing this information to the buyer, the invoice also stands as a permanent record of the transaction that can be referred to for accounting, tracking and taxation purposes.

Elements of an invoice.

• Invoices can range from being a bare-bones chronicle of charges to an extensively customized bill complete with logos and branding details unique to your company. 
• Regardless of how simple or fancy you make it, however, the document should contain several important basic components.

Company details.

• Start by showcasing your company details. These should include your name, address, and contact information. 
• Next, indicate similar specifics for the person or business you are billing, including contact or company name, and address.

Invoice details and payment terms.

• Then, be sure to clearly set forth the invoice details. This section is where you will give the invoice number, the invoice issue date, due date, and any payment terms to which the customer must adhere. 
• Be sure to write out an itemized list of the goods provided or services rendered that also specifies the quantity of each one, the unit price, the total amount that is owed for each item, and a brief description if necessary.

Costs and payment methods.

• Finally, don’t forget to talk about payment specifics. Specify the total amount due, including any taxes to be paid. 
• The finishing touch should be to let the customer know what methods they can use to pay, including by mail, via ACH transfer, via your website, recurring invoices, or over the phone. 

Tips for how to write an invoice.

Invoices are more than just bills. When done in a polished, customized way, they can function as ambassadors for your company, enhancing your relationship with buyers, and boosting the reach and scope of your brand. 

Dedicating time to implementing some simple invoice preparation tips will help to expand your business’s reach;

Design.

First, begin by coming up with a design that is in keeping with your mission and brand voice. Be sure that colors and logos are consistent across all channels to create a uniform experience, minimize confusion, and enhance awareness of your unique brand.

Tone.

Second, focus on the transparency and professionalism of your invoice. This can be accomplished by clearly displaying information about your company as well as the buyer you are billing.

Essential elements.

Third, it’s time to get into the meat of the invoice. This is where you carefully define exactly what amount is due and when you expect the payment. 

Essential elements that should appear prominently in this part of the document are the unique invoice number assigned to this transaction, the invoice date when the bill was sent to the client, the date by which you expect the payment, and the agreed-upon payment terms. 

This final detail refers to information about how long the client has to pay the bill. The most common options include net 30 (amount is due within 30 days of the invoice issue date), due upon receipt (client is expected to pay the invoice amount immediately), and net 60 (payment is due within 60 days of the issue date).

Description of products or services.

Fourth, be fully transparent about all charges. Carefully set forth in line items format all of the goods and services for which you expect payment. 

Thoroughly describe each piece of merchandise or service that you provided, the quantity, cost per unit, and the total amount charged for each. 

If applicable, be sure to also specify the amount of tax that is to be charged. In order to make it easy and clear for your customer, include sections for subtotal, tax amount, and total due.

Payment options.

Fifth, now that you have indicated the amounts owed, it’s time to let the customer know about their various payment options. 

These can include by mail, credit or debit card, ACH or wire transfer, online payment through a digital wallet, and by automatic payments. Offering several options increases your chances of receiving the funds you are owed quickly and in full.

Delivering your invoice.

In today’s fast-paced digital world, most invoices are sent electronically via email or text. Electronic invoicing is not only convenient for your customers allowing them to pay using whichever digital payment method they prefer, but it also generally helps you to get paid faster. Sending paper invoices via mail is still necessary for some businesses. 

In these cases, it’s helpful to your customers to give them the options for making their payment online, sending a check, or making a payment via phone.  

Invoices can be as simple or complex as you like as long as they contain all of the essential details elucidated above. 

Even in their most scaled-down form, they serve as effective customer-facing devices that can boost your credibility, make your branding memorable, and inspire your customer to resolve their bill quickly and fully.  Source

The Importance Of Business Credit

Establish a solid credit history for your business to improve your financing options.

It takes money to run a business. But financing isn’t always easy to get: According to a 2023 Federal Reserve Bank report, of the firms surveyed about seeking credit, 58% of white-owned firms, 38% of Hispanic-owned firms, 33% of Asian-owned firms, and 20% of Black-owned firms responded that they were fully approved for the credit they sought.1  There are many reasons firms may be denied credit. Learning about the application process and building a solid business credit history can improve your odds of receiving financing. 

Here are five key elements to address as you build your business credit:

1.) A formal business entity

It’s important to establish a separate business entity that can establish its own credit history. Having a separate legal entity for your business helps to create a credit profile with business credit reporting agencies. Incorporate your business by registering it to establish a separate legal entity such as an LLC, S-corporation, or LLP.

It’s usually a good idea to apply for an employer identification number (EIN) from the IRS to establish additional separation between your business and personal finances, even if one isn’t required. You should consult a tax or legal professional to help ensure you choose the right form of incorporation for your business.

2.) A business banking relationship

Loans are by far the most common form of financing, sought by 53% of businesses. Like establishing a corporation, opening a business bank account helps establish your business as an independent entity.

While lenders may not specifically require you to have a business bank account, it could ease the process of applying for — and paying down — a business loan, line of credit or business credit card.

Having an existing financial relationship with a bank could make the process more efficient.

3.) Trade credit

Opening trade lines with your vendors can help build your business credit. 

Here are three steps you can take to get started;

• Talk to your vendors about opening a line of credit.
• Check with vendors to be sure they report their credit arrangements to the major credit bureaus.
• Submit trade references to Dun & Bradstreet, which tracks business credit, to help ensure that your trade relationships are captured properly.

4.) On-time payments

Just as with personal credit, an established history of on-time payments creates a track record for your business that can make lenders more willing to extend business credit. 93% of companies experience late payments from customers.

• Late or missed payments can harm your business credit score.
• Make all of your business payments on time or early, if possible.
• If you know you’ll need more time to make a payment, speak with the affected vendor or lender right away to work out a payment plan.

5.) Monitoring your business credit score

To ensure your efforts to improve your business credit are working, monitor your score regularly. 20% of small business loans are denied due to poor business credit. By building and maintaining solid business credit, you can stabilize your cash flow and increase the chances your business will get the funding it needs to grow and thrive.

Track your score across the major business credit bureaus:

• Dun & Bradstreet
• Experian
• Equifax

Correct any errors immediately by contacting the credit bureau and filing a formal dispute. Source

5 Steps To Consider Before Applying For Credit

Whether your business is just starting up or preparing for expansion, credit can help support your short- and long-term financial goals. You’ll find that there are a number of benefits to establishing and building small business credit. However, before you apply, it’s important to determine whether your business is ready for credit.

Follow these steps to ensure your business is fully prepared to obtain financing:

Review your credit history

When assessing creditworthiness, both your personal and business finances matter. On the business side, a bank will determine if your business is generating a positive cash flow. On the personal side, a bank will want to know if you are earning enough income to support not only your current debt, but also the debt that you’re requesting.

Before you approach a lender, request a copy of your personal credit report from the three consumer credit reporting agencies (Experian, Equifax, and TransUnion) and your small business credit report from Dunn & Bradstreet. Review your reports carefully for accuracy. If you spot an error, file an online dispute with the applicable agency as soon as possible (within 30 days of receiving your report).

Gather financial documents

Before filling out your application, locate this information and double-check it for accuracy:

• Business revenue reports
• Personal income reports
• Tax returns for the past three years
• Asset and bank account information
• Proof of ownership
• The full legal name of your business

Providing comprehensive and accurate information can help your application move through the process as quickly as possible.

Determine how much capital you need

Be prepared to tell the lender how you plan to use the money. For example, you may explain that you will use the capital to pay for additional office space and furniture or for a website redesign.

Also be sure you are asking for a realistic amount to fulfill those particular goals. The cost of materials has gone up quickly in recent years, so a remodeling project this year may be considerably costlier than the quote you got two years ago. If you’re not sure how much capital to request, consider seeking bids from several companies before filling out your loan application. This information may help avoid funding shortfalls that can sidetrack your business plans and will give a prospective lender a clear, accurate picture of your borrowing needs.

Understand all your lending options

It’s important to identify all the lending options available to you and determine which one is the best choice for your business. You will also want to consider the process and the timing. For example, loan decisions below $100,000 may be based on your credit profile and basic information, while larger amounts may require a detailed review of your finances. Some things to keep in mind:

• Credit cards may be used for everyday business purchases, including office supplies, meals, and travel.
• Lines of credit can help with working capital needs (such as paying for inventory) and maintaining cash flow.
• Term loans are designed for making specific purchases, such as equipment, vehicles, real estate, or renovations.
• If you’re unsure which credit product is right for your business, make an appointment to discuss your credit needs in detail with a banker before you apply.

Consider terms and interest rates

You also have to decide how long you will need to repay your credit. There are short-, medium-, and long-term loans, and they all have positives and negatives. For example, if you expect to be able to pay back the money quickly, a short-term loan may be the best choice. Interest rates can also have a big impact on your decision. For example, loans with fixed interest rates may make it easier for you to budget, as you’ll likely have fixed monthly payments.

Bottom line: Just as planning and preparation can help you set business goals that will help you succeed, planning and preparation can help you apply for and secure the funds needed to reach them. Your banker, accountant, or financial advisor can explain the various trade-offs of loans and credit products — and how their rates and terms can impact you now and in the future. Source

5 Ways to Avoid Relying on Credit for Everyday Purchases

By now, the higher cost of goods and services may have prompted you to consider using buy now, pay later plans, credit cards or other options to cover everyday expenses. These options can be easy to turn to in a time of need, but doing so frequently could indicate trouble ahead. 

If that’s your circumstance, you'll want to have a plan long before your well of credit runs dry. By exploring community resources or seeking the help of experts, you may come up with a better solution that won't derail your finances. 

Here are some actions that can lessen reliance on credit for essential purchases. 

1. Refresh your budget 

Review debit and credit card statements to take note of all expenses, including debts. Look for opportunities to eliminate unnecessary purchases or switch to less costly alternatives, and explore options to lower interest rates on those debts. Contributing to an emergency fund — even just a little at a time, if you can spare it — can further prevent reliance on credit. 

If these steps seem overwhelming or you need assistance, a credit counselor at an accredited nonprofit credit counseling agency can help. 

“They can make recommendations on a line-item-by-line-item basis that can help consumers close their budget gaps,” says Barry Coleman, vice president of program management and education at the National Foundation for Credit Counseling, a nonprofit that provides assistance. 

A credit counselor can also evaluate whether you qualify for a debt management plan that can consolidate eligible debts into a single payment with a lower interest rate, for a fee. With good enough credit, another option might be to use a balance transfer credit card, which lets you move high-interest debt onto a card with a 0% introductory APR for a certain period of time. Look for one that has no annual fee and a balance transfer fee of 3% or lower. Such fees are worth paying if they can save you money on interest over time. 

2. Seek savings on food 

If your income means you're ineligible for assistance through federal or state-funded programs, you may still qualify for help through food banks or pantries. Some may have requirements, but they are typically for people who need help accessing food or a savings option that can offset the costs of other bills. 

“We’ve heard from people facing hunger that increased prices for food, utility bills, child care and housing costs have exceeded their paychecks,” said Linda Nageotte, president and chief operating officer at Feeding America, a nonprofit hunger relief organization, in an email. “This causes households to make impossible choices about which expenses they can cover, and which they cannot.”

You can find a food bank or pantry through an online search or Feeding America’s online directory, or by contacting 211 to get free assistance from United Way’s trained staff. United Way is a global nonprofit that addresses needs in communities by connecting people to resources. The organization's staff can offer details about hours of operation for food banks or pantries, any requirements, available bus stops nearby or possible delivery options to your door in certain regions if you lack transportation. A credit counselor — if you’re using one for your finances — may also be able to alert you about local resources.  

Some food pantries provide boxes with food, and some allow you to come in and grocery shop, says Heather Black, vice president of 211 system strategy at United Way Worldwide. Resources may not always be available or they may be limited, but it’s worth exploring what’s possible in your area. 

Other ways to find food resources are through an online search for grocery store outlets, salvage stores or food rescue apps from supermarkets or restaurants. An app like Too Good To Go, for instance, offers food from restaurants at discounted prices in some cities if you’re willing to be flexible on the items. 

3. Explore ways to lower the cost of bills

Comparison-shop for better prices, negotiate on the cost of bills when possible or seek assistance to bring down your costs. If they are available, United Way’s 211 may also direct you to resources that lower the cost of some bills.

Other actions that can make a difference include switching internet, cable, streaming or cell phone providers. And when it comes to saving on utilities, using LED light bulbs and programmable thermostats can help, as can fixing water leaks and simply turning off lights when leaving the room, according to Coleman. 

4. Reduce transportation costs 

If you drive a car, consider these tactics to lower costs: 

• Compare the cost of using public transportation to the cost of owning or leasing a car. 
• Shop around for better rates on auto insurance, ask about potential discounts, consider bundling insurance for added savings, or reduce unnecessary coverage on an older vehicle if it makes financial sense. 
• Carpool with others to save on gas. 

5. Make a lifestyle change 

If you’ve exhausted other options and money is still lacking, making a larger change to supplement your income can put you in a better position to avoid relying on credit. Potential changes may include seeking a raise, getting a new job or side job, taking on a roommate or a different option that works for you. Source

Void Transaction vs Refund: What’s the Difference?

Whether your customers pay with a physical card or pay online, it is important to be able to cancel or reverse a transaction – for example, when an error has been made or if you suspect payment fraud.

Canceling a transaction is called “voiding” the transaction, while reversing a transaction is known as a refund. They both achieve the same end goal – the customer gets their money back – but as a small business owner it’s important to understand the differences and when to use which method.

Issuing a refund when you could have voided a transaction will cost you in unnecessary payment processing fees!

What is a Void Transaction and How Does it Work?

A void transaction invalidates a card payment before it’s settled and finalized by your payment processor, and is initiated by the merchant.

Because credit card payments are typically settled in batches at the end of each day, a transaction can only be voided for a certain amount of time.

The time you have to void a transaction also depends on the payment gateway. If you use the Gravity Direct gateway, for example, you can void within 25 minutes of the transaction.

To ensure success, it’s best to void a transaction as soon as possible after the payment was made.

Here’s how a void transaction works:

• A customer makes a purchase using a credit card or debit card.
• The merchant processes the transaction.
• The customer’s bank places a hold (authorization) on the funds, but they aren’t yet transferred to the merchant – the payment hasn’t been settled yet.
• The merchant and/or the customer realizes a mistake has been made, and they decide to cancel the transaction.
• The merchant locates the transaction on the point-of-sale (POS) system or in their payment processing dashboard, and presses “Void”, “Cancel”, or something similar.
• The customer’s bank removes the hold from the customer’s funds, and the funds are released back to the customer.
• And then it’s like the payment never happened – it won’t appear on the merchant’s or customer’s financial statements, and you won’t be charged payment processing fees for the transaction.
• Voiding a transaction is a good way to avoid chargebacks and the associated costs and headaches.

Common Reasons for Voiding Transactions

Some of the most common reasons for voiding a transaction are:

• A customer is accidentally  charged twice. This can be due to a mistake by the employee operating the credit card terminal, or the result of a technical issue.
• The customer accidentally  paid the wrong amount. This can happen if the employee entered the wrong amount into the terminal and the customer didn’t pay attention when tapping their phone to pay.
• The customer mistakenly paid someone else’s bill. For example, items got mixed up at the checkout line. 
• The item the customer ordered and paid for is out of stock, and can’t be delivered. This can be due to an inventory management issue.
• The customer changed their mind about a purchase, shortly after paying and before the payment settled. The merchant can decide whether or not to honor the customer’s request.
• The payment processor or the credit card company flagged a transaction as potentially fraudulent, and the merchant received a notification to void the transaction.

What is a Refund and How Does it Work?

A refund is when funds are returned to a customer after the transaction has been settled, processing fees have been paid, and the funds are already in the merchant’s account.

Refunds are typically requested by the customer. The merchant has to agree to the refund and transfer the funds back to the customer.

Here’s how a refund works:

• A customer makes a purchase using a credit card or debit card.
• The merchant processes the transaction.
• Enough time passes for the transaction to settle, and the funds are transferred from the customer’s bank account to the merchant account.
• The customer requests a refund – for whatever reason.
• If the merchant agrees, they locate the transaction on the POS system or in their payment processing dashboard, and follow the steps to issue a refund.
• The funds are returned back from the merchant’s account to the customer’s account.

With refunds, both the original transaction and the refund appear separately on the merchant’s and customer’s financial statements. Source

What Is A POS System And How Does It Work?

Point-of-sale (POS) systems help businesses accept and process payments as well as manage most aspects of operations, such as orders, inventory, employees, customer engagement, scheduling, and reporting. This guide will walk you through what you need to know about POS systems and how to choose the right one for your business.

What is a point-of-sale system?

While the earliest cash registers trace back to shortly after the Civil War, the last few decades have seen a rapid evolution in financial services and business management technologies. POS systems can do more today than could have been imagined just 20 years ago.

What does a POS system do? The primary function of a POS system is to process credit and debit card payments, as well as record cash and check payments. These systems also track sales and can generate reports to help you better understand trends and peak sales periods. In addition, nearly every POS uses your transaction data to help manage your inventory, letting you know when you’re running low.

Depending on which system you select, you may have access to a number of additional tools. For example, your POS system can help you with staff scheduling, online order management, customer engagement including loyalty programs and targeted promotions, and even games. While your POS might not be able to control room temperature or play your favorite music (at least, not yet), it can help you be more efficient in nearly every aspect of managing your business.

How does a POS system work?

Although POS systems come in many shapes and sizes, one of their primary functions is the ability to complete sales transactions and accept payments.

The process typically looks like this:

1. Checking out: The shopper brings the items to the designated checkout counter or area within the store. The cashier can either look up the item in the POS system by category, item name, or SKU number and enter the applicable quantities, or scan the goods using a compatible barcode scanner.

2. Collecting payment: The POS system calculates the total cost of items sold, including sales tax, and the customer presents payment which can include:

• Swiping, dipping, or tapping a credit or debit card
• Waving a contactless mobile wallet or wearable device
• Using a gift card
• Writing a check
• Handing over cash

If a credit, debit, or check is used, the POS device captures a customer’s payment details and sends this information electronically to the merchant’s payment processor to route through the appropriate networks for authorization. Thereafter, confirmation of the transaction is sent back to the POS device.

The authorization process takes just mere seconds, with multiple layers of security built in at various stages to help prevent sensitive payment data from falling into the wrong hands.

3. Completing the sale: Once electronic payment has been authorized or change has been given to the customer, the sale becomes complete, and a receipt is either printed, emailed, or both. The items are deducted from the inventory, and points or rewards are added to a customer’s profile if a loyalty program exists.

What to consider when choosing a POS system

The world of POS systems has gotten a lot more crowded in recent years, so your choices are now much more plentiful. To determine which POS is right for you, we recommend starting with your business type and structure, goals and expectations, and budget considerations.

Your business

The first and most immediate question to ask when choosing a POS system has to do with the nature, size, and structure of your business. Namely:

• Are you in the food, retail, or service sectors?
• Do you sell products, services, or a mix of both?
• How do you want to accept payments?
• What are the challenges in running your business?
• What is the size of your business?
• Do you operate strictly online, have a brick & mortar, pop-up, or mobile store?
• What is your staffing setup? E.g., are you employee-owned, fully staffed, or work primarily with contractors?

Your goals and expectations

What is a POS system supposed to do for your business? In its most basic function, it will provide payment processing. Depending on your needs, you may also want to use POS technology for the following:

• Order management
• Inventory management
• Cost tracking and management
• Payroll & other staffing needs
• Reporting
• Making payments to vendors and other suppliers
• Customer management
• Customer engagement

Those last two points merit special consideration, as POS systems can collect, store, and sort valuable information about your customers so you know who is the most loyal to your business, what do they like to buy, who are the ones most likely to respond to a discount or coupon offer, and so on.

Let’s also think down the road a bit. Do you have a strategic plan mapping out your next 1, 5, 10 years? Are you interested in growing the business or opening new locations? Or do you plan to keep steady with your initial launch?

Your finances: present and future

Having a good grasp on your budget is important when choosing a POS system for your business. In your income and expense projections, account for credit and debit card processing fees. Think about your item costs, and estimate your average sale. That data will be useful since credit card fees often include percentage of the sale as well as a flat transaction fee. Your plans for growth over time, if any, will also have an impact here.

Do you use an independent accountant, have a bookkeeper on staff, and/or do you rely on software like QuickBooks? Some POS systems will work and share data with your accounting software. Source