How to Choose the Best Accounts Receivable Software for Your Business

Accounts receivable (AR) software is a cornerstone tool in your financial operations in any business. Without a good solution place, your business could face delayed payments, increased errors, and inefficient cash flow management. That’s why choosing the right software is a must.

But in a crowded market with numerous options, finding a solution that perfectly fits your needs can be challenging. 

The ideal AR software should streamline your workflows, improve cash flow, and enhance overall productivity. 

In this guide, we’ll walk you through essential criteria to consider when evaluating AR software, ensuring you make an informed decision that supports your business’s growth and operational efficiency. From user interface to customer support, we’ve got you covered.

TL;DR

  • Accounts receivable software is a tool designed to automate and streamline the accounts receivable processes within a business. 
  • It’s best to choose an AR software that integrates seamlessly with your accounting software enabling a smooth flow of data between systems.
  • Some of the key features to look for include automatic invoice generation, automated payment reminders, online payment processing, and AR reporting.
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What is Accounts Receivable Software?

Accounts receivable software is a tool designed to automate and streamline the accounts receivable processes within a business. This includes tasks such as invoicing, payment collection, processing transactions, and maintaining accurate records.

Businesses use AR software to improve the efficiency and accuracy of their financial operations, reduce manual errors, and enhance cash flow management

While specific capabilities can vary from one solution to another, most accounts receivable apps offer features like automatic invoice generation, payment reminders, multiple payment options, and integration with other financial systems, making them a valuable asset for managing receivables effectively.

How to Find the Best AR Softwarre: Criteria for Selecting the Best Accounts Receivable Solution

With so many AR software solutions in the market, choosing a suitable one for your needs could get overwhelming. Yet, your choice could make the difference between chaotic bookkeeping and seamless cash flow.

Here are some factors for you to consider when selecting AR software for your business:

User interface and ease of use

Usability is one of the most crucial factors of good AR software. An intuitive user interface will make it easier for both your employees and clients to use the software whether on the web or mobile app.

A complex user interface makes the learning curve steep. You don’t want to suffer slow user adoption, usability issues, and loss of value just because your clients can’t find the navigation easily. 

Investing in user-friendly software that’s easy to use will maximize user efficiency and boost productivity for your team. 

You can ask for a demo before investing in the software to gauge its usability and ease of use. Test different aspects of the solution, such as invoice creation, report customization, payment reminders, and payment verification.

Features and functionality

The software solution you choose should offer features and functionalities that suit your specific business needs. On top of automating your AR processes, the software should also provide various customization opinions.

Here are some key features to look for in AR software:

  • Automatic generation of invoices and auto payment reminders via email and SMS
  • Multiple payment options, such as debit cards, ACH, checks, credit cards, and more
  • 24/7 accessibility
  • Bank reconciliation
  • Custom reports and analytics
  • Third-party app integration
  • Invoice dispute management
  • Security and compliance

Software with a comprehensive list of features will contribute to a more efficient AR workflow.

Integration capabilities

An AR software that integrates seamlessly with your accounting software enables a smooth flow of data between systems. This removes the risk of errors and time consumption that come with manual processes or switching through multiple systems.

Some key systems to ensure that your AR software integrates with include banking systems, ERP and CRM software, and business intelligence tools. 

If the integration isn’t smooth, the benefits of AR software will be watered down by the complexity and inefficiency of incompatible systems.

Pricing and scalability

While looking for an ideal AR software to bridge the gaps in your accounts receivable processes, you also want one that you can afford. Transparency when it comes to pricing should be a non-negotiable.

Compare the pricing against the features and offerings to determine the return on investment (ROI). Don’t forget to ask about any extra charges, such as setup fees, transaction costs, fees for upgrades and support, and fees for extra users.

Add up all the short-term and long-term costs to ensure you get a full picture of what you’re getting into.

Also, since you want to invest in software that will serve you in the long term, understand the scalability of the software as your business needs grow.

For example, can the software accommodate a 10% increase in the number of customers or invoices? What about a 50% increase in the average rate of return? If so, will you have to move to a higher-priced plan?

Customer support and training

Your relationship with the software company or vendor shouldn’t end after purchase. They should have measures to ensure you succeed in the short and long term. 

An AR software company with a robust customer support and training team helps you resolve any issues that may arise during software implementation and usage.

Evaluate the channels the company uses for customer support. At the bare minimum, they should offer live chat, email, and phone support. Consider how long their customer support team takes to respond, whether they’re available 24/7, and the level of expertise they demonstrate.

Go through online reviews to evaluate the company’s reputation when it comes to customer support and response times.

Bringing It All Together

Deciding on what AR software to use is not something to take likely. Be sure to weigh factors like user interface, features, integration capabilities, pricing, scalability, and customer support. In doing so, you can find a solution that meets your needs and helps your business grow. 

Take your time choosing a solution and invest in a tool that enhances efficiency, reduces errors, and supports seamless cash flow management for long-term success.

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FAQs About Accounts Receivable Software

Q: What is accounts receivable software?

Accounts receivable software is a tool that streamlines the accounts receivable workflows by automating time-consuming processes such as invoicing, payment collection, processing, and balancing records.

Q: How does accounts receivable software help businesses?

Businesses that use AR software enjoy streamlined operations, enhanced accuracy, increased efficiency, and time savings. The software also removes any bottlenecks in the AR process, such as consistently high Days Sales Outstanding (DSO).

Q: What features should I look for in accounts receivable software?

You should look for AR software with automatic invoice generation, automated payment reminders, online payment processing, multiple payment options, bank syncing, reports & analytics, and security and compliance.

Q: How much does accounts receivable software typically cost?

Entry-level AR software solutions start from as low as $3.75 to $45 per month. Enterprise-level software with advanced features can cost up to $500 per month. Pricing typically depends on features, the number of users and customers, and the number of transactions.

Q: How do I choose the right accounts receivable software for my business?

You can choose the right AR software by considering the user interface, features, functionality, integration capabilities, pricing, scalability, and customer support. 

Q: What are the common challenges in implementing accounts receivable software?

Common challenges experienced companies face when implementing AR software include slow adoption, usability issues, lack of customer support, inefficient data management, invoicing and billing errors, and inadequate analytics.

Q: How can I ensure a smooth transition to accounts receivable software?

The best way to ensure a smooth transition to AR software is by asking for a demo or trial period to get a first-hand experience of the software’s features, functionalities, and capabilities. Receiving adequate customer support and training from the provider or vendor also provides a seamless transition.

Q: What are the security considerations when using accounts receivable software?

Ensure that the AR software complies with security standards like the International Organization for Standardization (ISO), General Data Protection Regulation (GDPR), System and Organization Controls (SOC) reporting, and Payment Card Industry Data Security Standard (PCI DSS). 

Also look for encryption protocols, user account access, and multi-tenant security measures.

Q: Can accounts receivable software integrate with other business systems?

Yes. Integrating your AR software with other business systems, such as CRM and ERP software, helps you automate all your business processes, share data across systems, and get all the functionalities you need in one place.

 

How to Choose the Right Payment Processing Software

Selecting the right payment processing software is crucial for any business aiming to streamline transactions and enhance customer experience. This decision impacts everything from compatibility with existing systems to security features and customer support. 

You should consider factors like integration capabilities, user experience, scalability, and pricing structures, to ensure a seamless and cost-effective payment process.

It can be an overwhelming process, especially with so many options in the market.

Dive into our comprehensive guide to learn how to choose the best payment processing platform tailored to your business needs, and discover best practices for a smooth migration to your new provider.

TL;DR

  • A payment processor is one of the most important components of your tech stack. 
  • When comparing the payment service providers, you must consider factors like compatibility, security, payment methods, cost of equipment, processing fees, and room to scale to ensure you are making the right choice. 
  • Migrating from one payment service provider to another is not always a seamless event, and our 9-step process will help you avoid missteps along the way.

Factors to Consider When Choosing Payment Processing Software

Below are factors you must consider before choosing a payment processing software platform for your business.

Compatibility and integration

Your new payment provider must integrate seamlessly with the hardware and business management software tools you currently use to run your business.

This is important because some providers restrict users to their branded hardware, and if you have your hardware already, making the switch will impose unnecessary costs. 

You may be better off with a platform-agnostic payment processing software like Stax Payments, which works with a number of leading solutions. 

Also, Stax integrates seamlessly with thousands of third-party apps, including all the popular CRM, marketing, and financial apps used by most businesses.

User experience and interface

The platform should be easy to set up and you shouldn’t need technical skills to get it up and running.

It should also have a user-friendly interface, so you won’t have to invest extra financial resources and time on expensive training programs learning how to navigate the platform. 

For example, Stax’s user-friendly interface makes it easy to manage and track your payments. You can also use the analytics and reporting features to easily identify areas that need improvement in your financial operations.

Scalability and flexibility

You should look for a provider that offers scalable pricing plans and platform features that can support the evolving needs of your business as it expands over time.

For example, Stax offers lower transaction fees for high transaction volumes. This means more cost savings as your business grows. 

It also gives you the flexibility to terminate your contract anytime (not that you would want to) without any additional fees or contractual limitations. 

Supported payment methods and currencies

We are in an age where businesses must offer a wide range of payment options to keep their customers satisfied and reduce cart abandonment.

You should avoid payment providers that are overly focused on card-present transactions if your target market is increasingly demanding more convenient payment methods like e-wallets, mobile payments, and cryptocurrency. 

In fact, data from Statista shows that by 2026, 56% of eCommerce payment methods will be digital wallets, and only 26% will be credit and debit cards. 

Also, if you sell globally, you are better off using a payment processor that supports local payment methods in your target international markets. 

Transaction fees and pricing structure

The cost of your payment processing fees can have a notable impact on your monthly revenues. You want to avoid hidden fees and a pricing structure that is not cost-effective for the current stage of your business.

For hidden fees, read the fine print to see if there is a maintenance fee, inactivity fee, cancellation fee, early termination fee, and most importantly, a bogus chargeback fee. 

The right pricing structure will depend on the stage of your business. Smaller businesses making occasional monthly sales will do fine with a provider offering a flat-rate pricing structure, while high-volume businesses are better off with a company like Stax that doesn’t charge any markup on interchange fees and helps you save money the more revenues you earn.

Security features

Your payment services provider must be PCI-DSS compliant as a bare minimum requirement, and it should have other robust security features that are standard practice in your industry niche.

Also, given the scope of fraudulent customer disputes business owners are facing today, you will want your provider to offer extensive fraud detection and chargeback protection features. 

Customer support and service

Excellent and prompt customer support ensures issues can be resolved quickly. It will help prevent prolonged problems that can negatively impact your sales and reputation with customers.

You want to look for a processor like Stax that offers 24/7 phone, email, and live chat support. It also provides extensive online documentation that you can use to find answers to your questions and resolve basic problems on your own.  

Best Practices for Migrating to a New Payment Processing System

Below is a nine-step process that will help you switch to a better payment-processing software platform without any major disruptions to your business. 

Step 1: Review your current setup

Examine what works and what doesn’t in your current payment process to identify the hardware and software features you will require from your new payment processor.

For example, if your developer has created custom features for your platform using the API of your current provider, you must ensure similar features can be easily implemented on your new software.

Step 2: Go through your existing contract

Your current provider may have included restrictive termination clauses in the contract like a notice period or early termination fee. A seamless switch won’t be possible without the cooperation of your current payment processor, so, you must first resolve any relevant contract issues.

Step 3: Backup your existing payment data

We all hope for a hitch-free data transfer, but that’s not always the case. And the risk of losing your customer data and transaction history is too great to ignore.

Make sure your data is backed up accurately and securely to a third-party data vault service before closing your current merchant account and migrating your data to a new provider.

Step 4: Create a contingency plan

You will ideally work with both your current and new provider to ensure a seamless migration, but it may also be prudent to keep your current platform online in parallel with your new system for a while, until you are sure there is no data loss or corruption in the data transfer process.

Step 5: Reach out to your bank

Be sure to contact the financial services provider holding your merchant bank account to give them a heads-up about your upcoming switch. A timely notification will help them quickly make the necessary adaptions to changes caused by your new payment processing routine.

Step 6: Initiate the change process

You can go ahead and ask your current provider to transfer your payment data in its entirety to your new platform once you have taken all the five preceding steps. 

Try to cause as little disruption as possible to your business by making the switch at the time you know it will have the least impact on sales and customer experience.

Step 7: Run extensive tests

Before going live, run multiple tests to ensure all your payment processes function as well as expected. You may also need some time to train your staff on the new platform before introducing it to customers.

Step 8: Go live and monitor customer feedback in real-time

You can now introduce your new payment processing platform to your customers, while keeping a close eye on any issues that may be raised by your customer base once you start accepting payments.

Step 9: Analyze performance data and continuously improve your processes

Constantly monitor analytics data on the dashboard of your new platform and keep an eye on metrics like transaction success rates, error messages, and processing speeds to quickly spot areas where things aren’t going as planned.

Also, your work doesn’t stop with a successful migration. You must continue to keep track of new developments in the payments industry so you can always adapt in time to the ever-changing tastes of your customers. 

Emerging Technologies and Trends in Payment Processing

  • AI-powered fraud detection tools: merchants and payment providers are accumulating vast amounts of data from each transaction. With the growing use of machine learning models in the industry, that data will make it easier for AI to help identify and counter fraudulent activities.
  • Ever-growing adoption of contactless payments: tap-to-pay online payment processing technology like Apple Pay and Google Pay is increasingly preferred by younger buyers over physical credit and debit cards. This trend will only continue to grow.
  • The quiet emergence of micropayments: this payment method is an alternative to the traditional recurring subscription model, and it involves small, incremental payments—usually less than a dollar—made online for a digital product or service. It’s one to watch out for since it comes with advantages like lower transaction fees and more sales from impulse purchases. 

Choosing the Right Payment Processing Software for Your Business

You have learned a lot about the feature sets, payment models, and core strengths of the 10 providers explored in this article. 

Not all of them will offer the right package for the specific needs of your business, so, you should compare them using the factors outlined in the second section of the article till you identify your favorite platform. 

Once you make your choice, follow the nine-step process to switch seamlessly to your new provider.

FAQs About Payment Processing Software

Q: What is the most cost-effective payment processing software for small businesses?

The most affordable platform for your business will depend on your budget, transaction volumes, and the features you need. An occasional seller will be fine with a provider offering flat rates that are only imposed when you earn, while a high-volume seller will save more money by opting for a subscription-based provider that works to offer the lowest possible rates with zero mark up. That way, the cost savings will subsume the cost of the subscription and become even more beneficial with higher earnings.

Q: How do I determine if a payment processor is secure?

The payment services provider must be PCI-DSS compliant as a bare minimum requirement to ensure protection from cyber threats. 

It should also have clear-cut policies and fraud detection features designed to protect your business and customers from fraudulent activities. 

Q: What are the signs that I might need to switch my payment processing provider? 

When you start to notice issues like poor customer support, long restrictive contracts, unspecified hidden fees, poor compatibility with your most important third-party tools, and most importantly, a per-transaction fee structure that is simply too expensive, then you need to start looking for another payment provider.

Q: Can payment processing software help with mobile payments?

Any quality payment service provider will provide a virtual terminal or mobile app and a card reader to help you process mobile payments. You will also be able to process payments from digital wallets like Apple Pay and Google Pay.   

Q: What support should I expect from a payment processing software vendor?

From the get-go, your credit card processing company should assist you with the process of migrating from your current platform and guide you through the onboarding process.

Once you are up and running, the vendor should ideally provide 24/7 customer support, including email, live chat, social media, and phone support.

Merchant Credit Card Fee Guide 2024: How Much Does It Cost to Process Credit Cards?

You’ve heard that cash is king. Not so much anymore! 

Cashless transactions have dethroned the age-old cash payments. When was the last time you withdrew cash from an ATM? Or paid for your groceries using hard cash? If you’re like most people, then it’s probably been a while. 

With credit card transaction volume hitting over $9.5 trillion in the US in 2022, accepting card payments is no longer a question of whether to, but how to. The same year, merchants in the US paid $16.70 billion in processing fees, which was a 16.7% increase from the previous year.

If this solidifies your resolve to embrace digital and cashless payment methods, the first step should be to understand what credit card processing fees are, how they work, and how you can lower them.

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Understanding Credit Card Processing Fees

Credit card processing refers to the transactional processes involved in securing a credit card transfer between a buyer and a seller. The transactional procedures are the authorization, clearing, and settlement processes of the funds being transferred.

To complete payment processing, credit card companies have to charge processing fees. Also referred to as swipe fees, these are simply fees that the merchant pays to the credit card company or credit card service providers to accept the payment.

Credit card merchant fees are split between multiple key players- merchants, credit card networks, banks, and processors. 

Processing fees vary depending on the service provider, the agreement between the merchant and the processor, the type of credit card used (debit, credit, corporate, rewards, etc), and the type of transaction (online, dipped, swiped, or keyed in). 

Generally, here’s a breakdown of the types of payment processing fees you can expect:

Interchange fees

These are fees a merchant pays directly to the credit card provider. Also known as the discount rate, interchange fees vary depending on the amount being transacted and the industry in which the business is. 

For example, the interchange fees for online transactions may be higher due to the higher risk of credit card fraud.

They are a combination of a percentage of the transaction amount and a fixed fee charged per transaction.

Interchange fees are set by credit card issuers, such as Bank of America, Citi, or Chase, and are adjusted every year in April and October.

Assessment fees

Assessment or network fees are directed to the credit card network- Mastercard, Visa, American Express, and Discover, to help settle costs associated with maintenance and operation. 

Assessment fees usually make up a small percentage of the transaction amount. These fees also vary depending on the card network.

Processor markup

These are fees charged by the payment processor, which is the company that manages and facilitates credit card transactions. This company accepts credit card payments and sends them to the payment network, either through an online payment gateway or a physical card reader.

Processor markup fees are also known as merchant service fees.

They also vary depending on the credit card processor and include monthly service fees, per-transaction fees, transaction processing equipment lease fees, and statement fees.

Other credit card processing associated costs

Other associated fees charged on credit card transactions vary based on the payment processor, transaction type, and the merchant’s agreement with the processor.

Here are some other fees apart from interchange, assessment, and processor markup fees:

  • Transaction fees– These are the fees charged for every transaction processed. Transaction fees may be made up of a percentage of the transaction amount and a fixed fee for each transaction. The rates also vary based on card type, transaction type, and industry or business type.
  • Payment gateway fees– Businesses need a payment gateway to process online card transactions. Digital transactions come with their own set of fees, including batch, monthly, setup, and transaction fees. These fees can also vary based on transaction type.
  • Terminal or equipment fees– Small businesses often lease or purchase payment processing equipment, such as point-of-sale (POS) systems or credit card terminals. These equipment often have setup fees, ranging between $0 and $2,000, and sometimes monthly fees from the payment processor.
  • Chargeback fees– Sometimes, a customer opens a transaction dispute and seeks a refund of their payment. The payment processor is likely to charge a fee to cover the cost of conducting an investigation and processing the refund. This amount can average between $20 and $100 or higher depending on the number of chargebacks the merchant gets.
  • PCI-compliance fees– Businesses running credit card transactions must be compliant with the Payment Card Industry Data Security Standard (PCI DSS). This regulation is managed by the Payment Card Industry Security Standards Council (PCI SSC) and is meant to protect the cardholder’s data. The average PCI compliance fees vary depending on various factors, such as business specifications. Small businesses can pay about $300 per year while large enterprises can expect to pay up to $70,000.
  • Early termination fees– If a merchant decides to terminate their contract with the payment processor before the period agreed upon, the processor can charge early termination or cancellation fees. 
  • Miscellaneous fees– These are fees charged for additional services, such as statement fees, account set-up fees, and batch fees.

Payment Processing Pricing Structures

Payment processing companies often structure their pricing plans under four models:

Interchange plus pricing

Interchange-plus pricing is one of the most transparent models since it allows merchants to see how much exactly they’re paying for the interchange and fixed service fees.

This pricing model charges based on the rates of the interchange fees at that specific moment, plus a markup fee that goes to settle the processor’s processing costs.

For example, 2.1% + $0.10 per transaction is based on the interchange-plus pricing model.

Another benefit of this model is that you pay lower rates when your interchange fee is in the lower categories. The same happens for higher categories. This is why it’s important to consider whether your transactions mostly fall under the lower or higher rates.

Some popular processors offering interchange plus pricing structures include Payment Depot, Stripe, and Helcim.

Flat-rate pricing

With this model, the payment processor charges a fixed percentage or flat fee on all transactions. They’re usually charged as a percentage plus a per-transaction rate, such as 3% + $0.10.

This is a great model for merchants who want a straightforward structure with no surprises. The fees are the same for all types of card transactions.

However, it’s not the most cost-effective option, especially for merchants that have a high volume of credit card transactions or those with bulk transactions of small amounts.

Payment processors who’ve popularized this model include PayPal and Square.

Tiered pricing

This pricing structure has three tiers for different transactions- qualified, mid-qualified, and non-qualified. Transactions are tiered based on various criteria, such as digital transaction or point-of-sale.

Each of the tiers has its own pricing rate. The qualified tier has the lowest (1.5% to 2.9%) while the non-qualified is the highest. While it’s simple, it’s not the most straightforward when it comes to criteria that make a transaction fall into a particular tier.

Generally, qualified rates are for debit cards and non-reward credit card transactions. On the other hand, the non-qualified tier is for “lavish” cards, like reward and business card transactions. Standards cards fall into the mid-qualified tier.

Additional factors that make up the tiering criteria include:

  • Swiped cards or card-present transactions (qualified)
  • Keyed-in transactions (mid or non-qualified)
  • Card-not-present transactions (non-qualified)

Membership-based pricing

Unlike other pricing models, this structure doesn’t take a cut from every transaction. Instead, it’s based on a subscription structure where merchants pay an annual or monthly fee plus the specific interchange rates at the time of the transaction.

The benefit of this pricing model is transparency and predictability. This makes it a popular choice for small businesses looking to set up credit card payments.

Stax is one card payment processor that uses this pricing model.

Average Credit Card Processing Fees for 2024

Here’s a breakdown of what you can expect from major credit card companies:

Credit Card Company Average Interchange Fees Average Assessment Fees
Mastercard 1.15% plus 5 cents to 2.50% plus 10 cents 0.1375% for transactions under $1,000

0.01% for transactions over $1,000

Visa 1.15% plus 5 cents to 2.40% plus 10 cents 0.14%
American Express 1.43% plus 10 cents to 3.30% plus 10 cents 0.15%
Discover 1.35% plus 5 cents to 2.40% plus 10 cents 0.13%

Factors Affecting Credit Card Processing Fees

Merchant credit card fees aren’t uniform for all businesses and transactions. There are multiple factors that processors use to determine how much you pay. 

Let’s look at a few:

Business type and industry

Card card brands have a “Merchant Category Code” which they use to classify businesses based on the goods and services they provide. All industries and business types are also put under these categories.

Every category is subject to different rates that are also calculated based on business size and risk. The four-digit Merchant Category Code (MCC) influences the interchange fee, benefits offered to customers who shop in various categories, and general card transaction rules.

For example, a baby clothing shop is assigned an MCC of 5641 under “Children’s and Infant’s Wear Stores”

The risk associated with each industry also affects the processing fee. Some risks include the level of credit card fraud and the number of chargebacks. Examples of businesses considered high-risk include pharmaceuticals, adult entertainment, and casinos. Such businesses are likely to pay a higher payment processor fee.

Sales volume

Sales volume is another factor affecting credit card processing fees. Large and small businesses aren’t treated the same when it comes to credit card transactions. Businesses with a higher sales volume or bulk purchase orders can negotiate for lower processing fees.

For example, large businesses, such as retail stores and supermarket chains can pay lower rates since they have the “leverage”. On the other hand, a small or medium-sized beauty and cosmetics shop might not be afforded the same benefit.

Average transaction size

As we’ve seen, the processing fees charged by card-issuing banks and brands are a combination of a percentage and a fixed fee for every transaction. Generally, a business with a lower average transaction size will pay higher processing rates. The opposite is also true.

For example, a healthcare consultant specializing in emergency care and complex surgeries is likely to have a higher average transaction size. That means their processing rate is lower.

Type of transactions

In-person credit card transactions result in lower processing fees than online, mobile, key-in, and card-not-present transactions. This can simply be attributed to the fact that the processing company has to verify that the card belongs to the user. Different verification methods, such as PIN or signature have different rates.

Online and mobile transactions involved in mail orders, eCommerce, and telephone orders have a higher risk of fraud, so they have a higher processing rate.

Merchant’s creditworthiness and history

In some instances, a business owner with a bad credit history will be classified in the high-risk merchant category. Remember, this comes with higher processing fees than the low-risk merchant category.

How to Lower Credit Card Processing Fees

Most small businesses prioritize finding credit card solutions that won’t dent their accounts. The best thing is that processing fees aren’t always fixed. There are some strategies you can use to help you lower your processing fees.

Negotiating with processors

While you can’t negotiate the interchange and assessment fees, the markup fee set by most credit card processing companies is negotiable. The higher the sales volume and transaction size, the more valuable the processor will view you and want to remain in business with you.

You can negotiate with your card processor by presenting yourself as a valuable merchant with a high volume of sales and purchase orders. Also, having a good track record with minimal chargebacks can work to your advantage.

When you approach your processor to negotiate, ensure you’re well prepared. Thorough preparation involves having all accurate details and communicating your needs clearly by focusing on the fees and services you want to negotiate.

For example, you can talk to them about your expected sales in the coming years and have graphs or charts showing your annual growth. If your sales volume is large enough, they might offer you a discount.

Choosing the right payment processing partner

Before settling for a payment processor, talk to multiple service providers, get their rates, and conduct a comparative analysis. This can help you choose a processor with the right pricing model for your business or switch to one with considerable savings.

For example, interchange-plus pricing is more cost-effective and straightforward than tiered pricing. On the other hand, flat-rate pricing is more beneficial for businesses with smaller sales volumes.

Generally, the payment processor that uses the membership-based pricing model, like Stax Payments, is ideal for small businesses that want to pay monthly or annual fees without having to worry about the payment processor eating into profits.

Implementing Surcharging

You can pass the credit card fees to the customers by implementing surcharging. A credit card surcharge is a fee that the merchant adds to the purchase price when the customer uses card payments instead of cash. The surcharge is usually a percentage of the purchase price, ranging from 1% to 4%.

When implementing a surcharge, check your state’s laws and regulations to avoid legal issues. For example, merchants in Massachusetts, Connecticut, and Puerto Rico aren’t allowed to implement credit card surcharge programs. 

On top of that, surcharge programs and additional fees may put off some customers.

If you’ve decided to implement surcharging, partner with a reliable surcharging partner, like CardX by Stax. Our integrated online checkout solution, Lightbox, has helped numerous companies succeed through seamless surcharging and payment acceptance.

Encouraging other payment methods 

If you want to continue accepting digital payments minus the heavy credit card processing fees, encourage your customers to make payments through debit cards, digital wallets, or automated clearing house (ACH).

Debit cards have a different payment processing fee model that’s generally cheaper than credit card fees. For example, you’ll notice credit cards have a convenience fee, but debit cards don’t. They also have fewer risks than credit cards, hence why they’re cheaper to process.

Automated clearing house (ACH) transactions are electronic bank-to-bank transfers with lower fees ranging from 0% to 1.99%.

Conclusion

Credit card transactions build your business by providing your customers with a range of options to pay for your goods and services. However, they also have associated merchant credit card fees that can impact your business’s bottom line.

Before committing to any credit card processor, conduct in-depth research on the most efficient and cost-effective options available. Also, understand how the payment processor fees work and how you can lower them to improve business profitability.

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FAQs

What is the difference between interchange fees and processing fees?

Interchange fees are paid by the merchant to the credit card issuer, while processing fees are paid by both the merchant and the issuer to the payment processor.

Can merchants pass credit card processing fees to customers?

Yes, merchants can pass credit card processing fees to customers in the form of surcharges or cash discount programs.

How do chargebacks affect processing fees?

Credit card processors charge a chargeback fee to investigate the customer dispute and make a refund. On top of that, the payment processing fee isn’t refunded with the payment amount, so merchants have to settle that cost.

Is it worth it for small businesses to accept credit cards, considering the fees?

While it costs money for businesses to accept credit card payments, you’d miss out on many potential sales since more and more customers are adopting cashless payments. If you find the costs a bit high, it might be worth considering alternative options, such as debit cards and automated clearing house (ACH).

How often do credit card processing fees change?

Credit card processors change their processing fees every year in April and October.

 

ISVs vs SaaS: What’s the Difference?

Independent Software Vendors (ISVs) and Software-as-a-Service Providers (SaaS) operate within the same market, thus creating a push-and-pull revenue dynamic. In this article, you’ll learn the differences between these providers and gain valuable insights for positioning your offerings successfully.

TL;DR

  • ISVs develop and distribute software products independently and often collaborate with hardware manufacturers and platform providers. SaaS companies deliver software applications over the internet on a subscription basis, simplifying access and management for users.
  • While they operate under different business models, ISVs and SaaS share similarities in software development, cross-platform accessibility, and industry reach.
  • ISVs and SaaS providers differ in software distribution, licensing models, hosting responsibilities, support options, upgrade and maintenance procedures, and scalability.
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What are ISVs?

ISVs, or Independent Software Vendors, are businesses that develop and distribute software products to end-users. They operate independently of hardware manufacturers or platform providers, but collaborations with these entities are feasible. 

ISV software products are tailored to meet the specific needs of industries and users. Some well-known examples are Adobe, a design and creator platform, Autodesk, a leading construction management system; and Meditech, a healthcare information systems solution.

What are SaaS companies?

SaaS, or Software as a Service, companies host and deliver software applications over the internet on a subscription basis. Users can log in to the platform using their preferred web browser without purchasing and installing any application. 

Examples of popular SaaS apps include Shopify, an eCommerce platform, Dropbox, a cloud storage service, and Stax Bill, an automated payment processing system.

ISVs vs SaaS: An Overview

Technically speaking SaaS companies are also ISVs because they develop software. As such, all SaaS companies are ISVs (since they create software), BUT not all ISVs are SaaS companies, due to the differences in how they offer their software to end users.

This distinction highlights the different business models in the software industry. How companies price and distribute their solutions affects everything from revenue streams and customer interaction to product development and delivery methods. 

So whether you’re a software provider or a user (or both) understanding these differences is crucial because it helps you decide on which solution best fits your needs.

ISVs (Independent Software Vendors) SaaS (Software as a Service) Companies
Definition Businesses that develop and distribute software products to end-users. They operate independently but can collaborate with hardware manufacturers or platform providers. Companies that host and deliver software applications over the internet on a subscription basis, allowing users to log in and use the platform via a web browser without installing any application.
Software Distribution Through direct selling, hardware bundling, third-party resellers/distributors, and OEM partnerships. Primarily through direct-to-user subscriptions and third-party distributors.
Deployment & Hosting Deploy software on-premises requiring compatibility with different operating systems. Some may use cloud platforms for online solutions. SaaS solutions handle software deployment and management on the user’s behalf, utilizing cloud computing infrastructure for easier deployment.
Customer Support In-house support teams maintain direct relationships with end-users for assistance. Support through an in-house or outsourced central system, often leveraging robust support infrastructures like self-service portals, chatbots, and knowledge bases.
Business Model Generates revenue through various licensing models, catering to a wide range of industries and sectors with software that often requires on-premises deployment or specific platform compatibility. Relies on a subscription model with easy web access, making software available across any internet-connected device. Emphasizes user-friendliness and ease of access and management.

 

A Closer Look at ISVs

The ISV business model revolves around designing, coding, testing, and refining applications. This iterative process enables them to meet the constant demand for new and improved software solutions across industries and sectors. 

ISVs generate revenue through software licensing via subscription or one-time purchase. As an example, Intuit software operates on a subscription-based model, which users pay for on a monthly or annual basis. While Autodesk allows subscriptions and one-time purchases for permanent software access. 

To simplify the procurement process, ISVs target enterprises looking for ISV partners. These could include platform providers, hardware manufacturers, technology partners, channel partners, and system integrators. 

Consider Stax’s partner program. ISVs that integrate their solutions with Stax Connect gain access to the platform’s global reach, co-selling opportunities, and support. Furthermore, this ecosystem of partners allows Stax to expand into software solutions, cloud services, and artificial intelligence.

ISV solutions are more cost-effective than developing custom software in-house or purchasing off-the-shelf solutions. Yet, challenges arise when integrating them with existing systems due to compatibility, data migration, and interoperability issues.

Understanding SaaS Companies and How They Operate

SaaS solutions offer online accessibility without requiring users to install or manage software on their devices. It reduces the time and resources for setup and maintenance, improving users’ efficiency, productivity, and data management capabilities.

SaaS providers use Application Programming Interfaces (APIs) to establish connections between their software and other applications. For example, Stax APIs and mobile development kits enable secure in-person, online, ACH, and mobile payments on any platform.

Such integrations enhance the overall customer experience. Users can access a wide range of tools within the familiar SaaS settings. This unsurprisingly has driven the SaaS industry to a 232 billion US dollar growth. 

However, SaaS companies need to optimize their products and adapt to evolving technologies to survive. This entails maintaining smooth integration with existing systems, which can be challenging due to differences in architectures and data formats. They must also implement robust encryption and address vendor lock-in to uphold their solution’s flexibility and security. 

4 Similarities Between ISVs and SaaS

While they operate under different business models, ISVs and SaaS share similarities in software development, cross-platform accessibility, and industry reach.

Software development

ISVs and SaaS providers focus on creating scalable and user-friendly applications. They often adopt a modular architecture to segment their applications into smaller, independent components. Components can be added, modified, or replaced without affecting the entire system.

Additionally, many SaaS providers and ISVs take advantage of open-source tools (such as Red Hat) frameworks, and libraries. Doing so accelerates development cycles while reducing software licensing and development costs. 

Cross-platform accessibility

Both models offer flexible solutions for multiple platforms to ensure a consistent user experience. In this way, users can transition between devices without disruptions in functionality or interface familiarity.

For ISVs, this means developing applications that can run on various platforms such as Windows, macOS, Apple, or Android. Some use cloud-based solutions to deliver online solutions (e.g., Microsoft Azure, Amazon Web Services (AWS), or Salesforce AppExchange).

For SaaS companies, it means developing platform-agnostic, web-based applications. Users can access these platforms with any desktop computer, laptop, tablet, or smartphone browser, resulting in uninterrupted productivity.

Use cases and industry reach

ISVs and SaaS providers develop solutions for multi-industry use cases, including but not limited to:

  • Customer relationship management (CRM)
  • Enterprise resource planning (ERP)
  • Accounting and financial management
  • Industry-specific solutions (e.g., healthcare, retail, and manufacturing)
  • Collaboration and productivity tools
  • Data analytics and business intelligence
  • Cybersecurity solutions
  • eCommerce platforms.

Both may also incorporate compliance standards in their products. The more tailored the software to the unique needs and workflows of particular industries, the better the organizational efficiency.

Compliance standards

ISV and SaaS companies must adhere to compliance standards and regulations to operate ethically and responsibly. They can work with compliance experts or third-party consultants to achieve this.

Compliance standards include GDPR for data protection, HIPAA for healthcare data privacy, PCI DSS for payment card security, and ISO 27001 for information security management. By following these, they can build trust with customers and mitigate legal and financial risks.

Now that we’ve covered the common ground between ISVs and SaaS providers, let’s analyze what sets them apart.

Key Differences Between ISVs and SaaS

Gain insights into the differences between ISVs and SaaS providers to elevate your software’s market position.

Software distribution

ISVs reach their target audience and make their software accessible to end-users through:

  • Direct selling through the company’s website and other online marketplaces
  • Hardware bundling with platform providers
  • Third-party resellers or distributors
  • OEM partnerships with hardware manufacturers

SaaS companies, on the other hand, rely mostly on direct-to-user subscriptions and third-party distributors. 

ISVs can strengthen these partnerships by optimizing their online presence and adding value to end users. For SaaS, finding underserved or emerging niche markets and customizing offerings is key to expanding their customer base.

Licensing and revenue models

ISVs generate revenue through upfront payments or recurring maintenance contracts. SaaS licensing, on the other hand, follows a subscription-based pricing model. Customers only pay based on the number of users, the volume of data processed, or other usage metrics each period.

ISVs can offer flexible licensing options, such as subscription-based models or pay-per-use pricing, to position themselves better. For SaaS, offering tiered pricing with varying features and functionalities to cater to different segments can help differentiate their subscription plans.

Deployment and hosting responsibilities

ISVs deploy software on-premises and require compatibility with different operating systems, such as Windows and Linux. Some ISVs may leverage cloud platforms to host online solutions. Meanwhile, SaaS solutions handle software deployment and management on the user’s behalf. 

SaaS solution’s cloud computing infrastructure offers easier deployment. Providers can further enhance it with user-friendly onboarding experiences, including webinars, templates, or pre-built configurations. In response, ISVs may consider offering hybrid solutions that combine on-premises deployment with cloud-based hosting. 

Customer relationship and support models

In the ISV model, in-house support teams maintain direct relationships with end-users for assistance. SaaS providers deliver support through an in-house or outsourced central system.

Customer-centric support allows ISVs to gather firsthand feedback that can help improve their products and services. SaaS companies can invest in robust support infrastructure (e.g., self-service portals, chatbots, and knowledge bases) to resolve issues efficiently.

Upgrades and maintenance

ISV customers are responsible for upgrading and maintaining the software, including installing patches, updates, and new versions. In contrast, SaaS providers handle upgrades and maintenance for all users.

Hands-off maintenance is a strong selling point for SaaS to showcase their commitment to providing a hassle-free experience. ISVs can outperform this by offering value-added services like free training and consulting to help users manage upgrades. 

Scalability and integration capabilities

ISV solutions may require additional infrastructure investments to support scalability. They’re deployed on-premises or in private data centers, so the capacity and resources are fixed. They require manual upgrades to handle increased demand.

SaaS platforms can accommodate changes in user demand without requiring significant adjustments, making them ideal for startups. These cloud providers also operate across multiple data centers and regions. Thus, they can fail over to alternate locations in the event of hardware failures or disruptions in one data center.

Elevate Your Software Company with Integrated Payments

Understanding the similarities and distinctions between ISVs and SaaS can help you make informed decisions about strategy.

As the software ecosystem continues to evolve, users demand all-in-one solutions. Innovate and provide tailored solutions that meet these needs, including flexible SaaS payment processing. Here’s how Stax Connect can help.

FAQs about ISVs

Q: What are ISVs?

ISVs, or Independent Software Vendors, are companies that specialize in making and selling software, which is designed to run on one or more computer hardware or operating system platforms. ISVs are a crucial part of the software industry, providing a wide range of software solutions and applications to customers across various industries. These solutions can range from specialized software for specific business operations to consumer applications for broader markets.

Q: What’s the difference between ISVs and SaaS companies?

The main difference between ISVs and SaaS (Software as a Service) companies lies in the way they deliver their software products to customers. For ISVs, software can be distributed in various forms, such as physical media, on-premise solutions, or cloud-based, depending on the product and customer preference.  On the other hand, SaaS companies deliver their software over the internet as a service. This means that instead of purchasing software to install, or running it on their own hardware, customers access the software via the web or API, usually for a recurring subscription fee.

Q: What is an ISV example?

Some popular examples of ISVs are Adobe, Autodesk, and Meditech.

Q: Is a SaaS company an ISV?

Yes, a SaaS company can be considered an ISV because it develops and sells software. However, the defining characteristic of a SaaS company is its delivery model. While traditional ISVs might offer physical or downloadable software products, SaaS companies provide their software exclusively over the internet on a subscription basis.

In other words, while all SaaS companies are ISVs (since they develop software), not all ISVs are SaaS companies, due to the differences in how they offer their software to end users.

 

What is a Payment Management System?

SMB owners wear many hats, managing everything from staff to sales. Adding to the already tough job of managing a small or medium business is the complex task of understanding how payment processing works, including managing the fees, equipment, accounts payable and more. 

Here’s where a Payment Management System (PMS) can swoop in as your financial hero to understand your business better.

TL;DR

  • Payment Management Systems manage payment processing so you can accept payments, send invoices, track transactions, and view financial data.
  • Look for a PMS that can serve as an all-in-one platform for payment processing, integrates with other technologies, offers appropriate POS equipment, and prioritizes security compliance.
  • Government agencies have a payment management system to manage grant award payments, making the search for payment management system information more complicated.

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What is a Payment Management System?

Think of a PMS as your financial command center. It consolidates all your payment processing needs into one user-friendly platform. A PMS accepts payments, sends invoices, tracks transactions, and analyzes your financial data—all in one place. 

You may also hear the term Cash Management System (CMS) in your research. A cash management system focuses on the big-picture health of your cash flow, while a payment management system handles the processing of individual transactions. Imagine cash flow as a river—cash management oversees the whole flow, while payment management ensures water gets in and out smoothly. 

Your PMS is a central hub to manage payment requests and store banking information (like your routing and bank account number for ACH payments). A comprehensive PMS is especially useful for SMBs, where efficiency is key and understanding financial performance in your business shouldn’t be overcomplicated. 

Key Features of a Supercharged PMS

So, what exactly should a payment management system provide to your business? Key features of a well-built PMS include:

  • Efficient transaction processing: Speed and accuracy are key, and a good PMS should process payments quickly and with a user-friendly interface, keeping your cash flow smooth and customers happy.
  • Robust security measures: Any PMS worth its salt needs to have standard security features like encryption, fraud detection and compliance with industry standards, including the PCI DSS.
  • Helpful integration capabilities: You don’t want a PMS siloed from other technology. Integration with your accounting software, CRM, or inventory system saves you time and effort when analyzing financial performance.
  • User interface and experience: Your PMS should be intuitive and easy to navigate, allowing you to focus on running your business, not wrestling with technology.
  • Reporting and analytics: A good PMS provides you with reporting and analytics tools, giving you valuable insights into your cash flow, customer trends, and spending patterns.

The Diverse World of Payment Management Systems

If you’re seeking to understand what payment management systems are, a quick internet search will yield some information worth explaining before we get too far into the various PMS options for SMBs.

The U.S. Department of Health and Human Services (HHS) also has a Payment Management System, which is a centralized grant payment system managed by the federal government. The Program Support Center for Payment Management Services (pms.psc.gov) serves as “a fiscal intermediary between federal awarding agencies and award recipients.” Also available through the HHS is the Federal Financial Report (FFR), which provides information about grant award spending, grantee information, and various disclosures.

Essentially, these federal agencies have a specific PMS to track grant award payments and payee information, ensuring federal cash disbursements are securely managed, and grant recipients can receive their awards in an auditable way.

Now, let’s break down various other terminology related to payment management systems you’ll encounter in your small or medium business:

  • Merchant account providers act as a middleman between your business and the bank, allowing you to accept credit and debit cards.
  • Payment gateways securely process online payments, acting as a bridge between your website and the payment processor.
  • Payment processors handle the nitty-gritty of authorization, settlement, and transfer of funds between your business and your customer’s bank.
  • Point-of-sale (POS) systems are the all-in-one systems you see at retail stores, handling in-person transactions and often integrating with inventory management software.
  • Mobile payment systems let your customers use different payment methods like their digital wallets, contactless card payments and more, offering a convenient and secure way to accept payments on the go.

What Are the Benefits of a PMS?

A payment management system that handles incoming revenue and purchase expenditures effectively, is one of the many tools at your disposal to optimize your business operations. Not only should your PMS help simplify payments and reduce manual time spent, but it should also help you make more money. In fact, 72% of SMBs believe automating accounts payable tasks would improve their cash flow. Here are a few benefits at the top of our list:

  • Boost efficiency: Automate tasks like sending invoices and reconciling accounts, freeing up your time to focus on growing your business.
  • Enhance security: Gain peace of mind with secure transactions, trusted fraud protection, and industry-standard compliance features—all essential components of a good PMS.
  • Streamline checkout: Move beyond clunky POS systems and give your customers a better experience. Modern POS tools are user-friendly, simple, and speedy.
  • Empower decisions: You’ll gain valuable insights from financial data, helping you make informed business decisions with a well-built PMS.

Choosing the Right Payment Management System

With so many options, choosing the perfect PMS can feel overwhelming. Here’s what to consider:

  • Assessing your business needs: Look at factors like the volume of transactions in your business and the most common payment methods used by your customers to determine the best PMS capabilities for your business.
  • Cost and fees: Subscription fees, transaction costs, and miscellaneous charges vary depending on your payment processor. Use actual or projected data to price out the true cost of your payment provider before signing a contract to ensure you’re not overpaying.
  • Integration with other business tools: Does your PMS integrate seamlessly with existing software? Data silos are never good for business, especially when we’re talking about your finances, and integrations make your life easier.
  • Secure payment comes standard: Make sure your PMS meets Payment Card Industry compliance standards—this is a non-negotiable.
  • Customer service on your terms: When things don’t run smoothly, having customer support 24/7/365, means you can spend time on what matters most.

Conquering Implementation Challenges

Implementing new technology like a PMS is not without its challenges. To avoid long calls with the help desk, make sure your PMS integrates well with other systems and opt for a partner that can support you with implementation. 

You’ll also want to make sure to assign appropriate user access to your staff and work with any new user so they know how to use the technology, including both hardware and software training to help avoid errors and ensure a better user experience.

Ready to Tame Your Financial Chaos?

At Stax, we understand the juggling act all small and medium businesses contend with. That’s why all of our solutions are designed to simplify your life—from our subscription-based pricing to top-of-the-line POS equipment. 

With Stax, you get all the features mentioned above, plus exceptional customer service as your payment management system.

Ready to get started? Get in touch!

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FAQs about Payment Management Systems

Q: What is a payment management system?

A Payment Management System (PMS) is a software solution designed to handle all aspects of payments within an organization or between businesses and their customers. This type of system typically automates processes such as payment processing, invoicing, billing, and tracking of payments.

Q: What is the PMS system for federal grants?

The PMS system for federal grants refers to the Payment Management System operated by the U.S. Department of Health and Human Services (HHS). This system is designed to manage the disbursement of funds for federal grants and cooperative agreements. It provides a centralized platform for grant recipients to draw down funds, and for federal agencies to monitor and manage the distribution of these funds.

Q: What are the benefits of having a payment management system?

One of the key benefits of a PMS is efficiency. It automates payment processes and reduces manual effort and speeds up transactions. Beyond that, having a robust PMS could improve your cash flow. Real-time tracking of payments and receivables helps businesses manage your funds flow more effectively. PMS can also  ensure compliance with financial regulations and standards by providing accurate records and reports.

Q: How do you select the right payment management system?

Start by assessing your needs and specific payment processing needs, including types of payments, volume, and any industry-specific requirements. From there, look for systems that offer the features you need, such as multiple payment methods, integration capabilities, reporting tools, and compliance support. Be sure to compare  pricing, including setup fees, monthly fees, and transaction fees, to find a solution that offers good value.

Recurring Payments: Definition and Implementation Best Practices

The commerce landscape—whether it’s retail, services or software—is moving faster than ever. That’s why businesses are constantly seeking innovative ways to streamline operations and enhance customer experiences. 

We can see this trend in action in the realm of payment processing with the advent of recurring payments, also known as automatic payments. Industry data shows that subscription-based businesses are growing 3.7x faster than companies in the S&P 500.

So, let’s dive into the realm of recurring payments and how they can benefit your business.

TL;DR

  • Recurring payments refer to a financial arrangement where a customer authorizes a business to charge their account at regular intervals for products or services.
  • There are a few types of recurring payments to be aware of, which one your business uses will depend on the business model and need for recurring or automatic payments.
  • Recurring payments provide greater predictability for cash flow and allow businesses to plan for future revenue more accurately.

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What are Recurring Billing and Payments?

Recurring payments are a financial arrangement where a customer authorizes a business to charge their account at regular intervals for products or services. 

There are many benefits of recurring payments, such as providing a seamless and automated billing process and allowing customers to place orders easily on a recurring basis without having to update their payment information. Recurring billing and payments are commonly used for things like paying for a gym membership, utility bills, streaming services like Netflix and Hulu, subscription payments, magazine subscriptions, and many more.

Recurring payments play a major role in ensuring a steady and predictable recurring revenue stream for businesses. This method not only simplifies transactions but also fosters a sense of convenience for customers where they simply need to set up their accounts with the correct billing information and payment details.

How Do Recurring Payments Work?

The recurring payment process involves a series of well-coordinated steps, starting with customer authorization and agreement setup. Once authorized, payment service providers take the lead in automating payments within the payment gateway. For subscription businesses, the customer’s account should also include options for subscription management where they can adjust the frequency of deliveries, pause or cancel the subscription, update card information or bank account information, and more.

Role of payment gateways and processors

Payment gateways and processors act as the backbone of recurring payments. These platforms facilitate secure transactions, encrypt sensitive data, and ensure the seamless flow of funds between customers and businesses.

Customer authorization and agreement setup

Customers grant businesses the authority to charge their accounts by providing authorization through various means. This may involve explicit agreements during the initial purchase or opt-in options for ongoing services.

Scheduling and automating payments

Automation is a key feature of recurring payments. Once the customer agreement is in place, payments are scheduled to occur at predetermined intervals, reducing the burden on both parties to manually initiate transactions. With a subscription business model, recurring payments are timed at a pre-determined billing cycle in agreement with the customer. 

Handling payment failures and retries

Payment failures are an inevitable aspect of any payment system. Recurring payment systems are designed to handle such situations by employing automated retries, so you don’t have to spend as much time on the dunning process. 

Updating customer payment information

As customers may change their payment methods or card information over time, it’s crucial for businesses to have mechanisms in place to easily update this information to avoid disruptions in the payment process. When customers receive a new credit or debit card, knowing how to quickly update the payment information helps address the potential for failed payments.

Types of Recurring Payments

Fixed recurring payments

Fixed recurring payments involve a consistent amount charged at regular intervals. This model is common in subscription businesses where customers pay a fixed fee for access to products or services or when a payment plan is set up so the customer can pay for a large purchase over time with recurring payments.

Variable or usage-based recurring payments

In contrast, variable recurring payments fluctuate based on usage or consumption. This model is often seen with utility bills where customers are billed based on their actual usage.

Subscription-based models

Subscription businesses leverage recurring payments to provide ongoing value to customers. Subscription-based models range from ongoing deliveries to monthly or annual subscriptions from SaaS companies. 

Hybrid models

Hybrid models combine elements of fixed and variable recurring payments, offering businesses the flexibility to adapt their billing strategies based on the nature of their products or services.

Why Accept Recurring Payments?

Consistent revenue streams are crucial for financial stability in any business. Recurring payments offer predictability, allowing businesses to plan ahead and invest in growth initiatives confidently.

Relatedly, recurring payments provide businesses with a clearer picture of their financial health. This visibility aids in accurate forecasting and budgeting, empowering businesses to make informed decisions for future growth.

Plus, there’s the fact that customers appreciate the convenience of recurring payments. This business model often leads to increased loyalty and customer retention. By streamlining the payment process, businesses can focus on delivering exceptional products or services, thereby enhancing customer satisfaction and retention.

Challenges in Recurring Payments

One of the significant challenges in recurring payments is managing customer churn. Businesses need strategies in place to retain customers and prevent revenue loss due to subscription cancellations. 

Also, as payment regulations evolve, businesses must stay vigilant to comply with various payment standards and laws. Keeping track of various state and country laws can be tough, so choosing a payment processor that ensures compliance is key to addressing this challenge.

Implementing and maintaining a recurring payment system also involves technical complexities. Businesses need robust systems and processes to handle issues such as failed payments, security concerns, and data management. Even when stored card information is tokenized, businesses must prioritize cybersecurity best practices to encrypt and secure sensitive information—this means having proper infrastructure and investment in technology is key.

Best Practices for Implementing Recurring Payments

Choose the right payment gateway

Selecting a reliable payment gateway is critical. It should offer seamless integration, security features, and support for various payment methods. Your payment processor is your business partner and ensuring a secure checkout and offering convenient solutions should be their priority.

Ensuring security and compliance

Security is paramount in recurring payments. Implementing encryption, adhering to industry standards, like the Payment Card Industry Data Security Standards (PCI DSS), and staying compliant with regulations protect both businesses and their customers.

Providing flexible payment solutions

Offering customers flexibility in payment options enhances their experience. Businesses should consider accommodating debit and credit card payments, digital wallets, and other emerging payment methods. Most forms of payment, including mobile wallets, PayPal, ACH transfers, and many more can be set up as a recurring payment with your payment processor.

Automating payment reminders and notifications

Automated reminders and notifications help reduce late payments and make your life easier. By keeping customers informed, businesses improve transparency and build trust.

To prevent disruptions in service, businesses should have mechanisms in place to prompt customers to update their payment methods or details proactively. Gentle reminders to your customers to update their bank account or card information can make a huge difference in keeping subscriptions running smoothly.

Integration with Business Systems

CRM and customer data management

Integrating recurring payments with Customer Relationship Management (CRM) systems ensures a holistic view of customer interactions, allowing businesses to tailor their services based on individual preferences. For example, Stax has several useful API integrations to leading CRM tools, such as Hubspot, Xero, Wave and more.

Accounting and financial reporting

Seamless integration with accounting systems streamlines financial reporting, making it easier for businesses to track revenue, expenses, and overall financial health. Stax is an all-in-one payment platform and is able to integrate with leading accounting software, so business owners are able to have a holistic view of expenses and income.

Inventory management in subscription-based models

For businesses with subscription-based models, integrating recurring payments with inventory management systems ensures accurate tracking of product availability and timely fulfillment. For example, with eCommerce subscriptions, having an accurate view of inventory will ensure you’re alerted before a product is out of stock so your customers aren’t left disappointed.

What’s Next for Recurring Payments?

The future of recurring payments may witness the integration of emerging technologies like blockchain and artificial intelligence. These innovations can enhance security, automate processes, and provide even more tailored customer experiences.

As payment regulations evolve, businesses must stay agile to adapt to changes. Compliance with emerging and existing standards, such as the PCI compliance framework will remain a key focus for ensuring the sustainability of recurring payment models. Further, compliance with data privacy standards means your business must protect personal information and collected data in compliance with various laws. 

Ready to Learn More?

Understanding the intricacies of recurring payments and staying updated with emerging trends, helps you unlock the full potential of this payment model. Hopefully, the insights above helped you better understand recurring payments and how to properly implement them. 

Ready to learn how Stax can help your business accept all payments and grow with you as your needs evolve? Get in touch!

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FAQs about Recurring Payments

Q: What are recurring payments?

Recurring payments are automatic payments that a merchant sets up to charge a customer’s credit card or bank account for goods or services on a prearranged schedule. This could be on a monthly, quarterly, or annual basis, depending on the agreement.

Q: What is an example of a recurring transaction?

An example of a recurring transaction is a monthly subscription fee for a streaming service like Netflix or Spotify. These apps collect payments every month as long as users continue using the service. 

Q: What is an example of a non recurring payment?

A non-recurring payment is a one-time transaction that doesn’t repeat. For example, buying a piece of furniture online or paying for a hotel room. Once the transaction is processed, there’s no expectation of the payment happening again unless the customer initiates another purchase.

Q: What is the difference between AutoPay and recurring payment?

Recurring payment and AutoPay are similar concepts and often used interchangeably. Both involve automatic transactions from a customer’s account to pay for ongoing services or bills. However, AutoPay is more commonly associated with automatic bill payments for utilities, credit cards, or loans, where the amount might vary from one period to another, based on usage or outstanding balance.

What is the SaaS Magic Number and How Do You Calculate It?

“A man who stops advertising to save money is like a man who stops a clock to save time,” – Henry Ford

In 1913, Henry Ford brought the assembly line to the automobile industry, because he knew that prioritizing efficiency in his plants would make him more profitable. And it worked; the Model-T was the most-produced car in the world until 1975.

So, of course when it came to revenue-driving activities, Ford knew that success in marketing—and business—wasn’t about how much your marketing spend is, but how efficiently you spend it. 

One hundred-odd years later, the types of businesses driving the global economy may have changed, but the lesson stays the same: It’s about efficiency.

For modern Software as a Service (SaaS) companies, the automobile is replaced by primarily digital and cloud-based solutions and software. And because of the digital nature of SaaS businesses and their subscription-based business models, the ability to collect data on how the company is performing is easier and faster than ever. 

Enter the SaaS Magic Number, which measures the return on sales and marketing spend in generating new subscription revenue.

This article sheds light on what the SaaS Magic Number is and how to optimize it. 

TL;DR

  • The SaaS Magic Number is a metric, somewhat similar to ROI, but designed to assess the efficiency and effectiveness of a company’s sales and marketing strategies. 
  • By analyzing the SaaS Magic Number, SaaS companies can determine how well their revenue-driving investments (in sales, marketing, and customer retention) are translating into actual revenue growth.
  • A high Magic Number suggests that a company is efficiently converting its investments into revenue, while a low Magic Number may indicate the need for adjustments in sales and marketing approaches.

What is the SaaS Magic Number?

The SaaS Magic Number is a metric, related to ROI, but better designed to assess the efficiency and effectiveness of a company’s sales and marketing strategies. It’s an especially useful metric for SaaS startups, early-stage companies, or companies with shorter sales cycles that have a lot of data, but can adapt and change direction quickly.

It’s a ratio that compares the growth in recurring revenue to the sales and marketing expenses incurred during a specific period. By analyzing this ratio, SaaS companies can determine how well their revenue-driving investments (in sales, marketing, and customer retention) are translating into actual revenue growth.

According to Hubspot, 44% of marketers say that being able to better measure return on investment (ROI) of digital marketing is a priority in the coming year. This is where the SaaS Magic Number becomes particularly handy. 

Why is the SaaS Magic Number important?

The Magic Number is one of many SaaS metrics, such as customer lifetime value (LTV), churn rate, profit and gross margin, annual recurring revenue (ARR), and monthly recurring revenue (MRR), you should be using to evaluate sales and marketing performance. 

However, it stands out for its relationship between spend and growth over time. It’s not just a measure of total return on investment (ROI) or a simple method of monitoring of cash flow, but serves as a sales efficiency metric. It helps businesses understand the effectiveness of their customer acquisition and retention strategies. 

For example: a high Magic Number suggests that a company is efficiently converting its investments into revenue, while a low Magic Number may indicate the need for adjustments in sales and marketing, pricing, or other approaches.

How Do You Calculate the SaaS Magic Number?

The SaaS Magic Number is calculated using three numbers: 

  • Your current quarter’s ARR (annual recurring revenue, or your current quarter’s revenue, multiplied by four)
  • Your previous quarter’s ARR (your previous quarter’s revenue, multiplied by four)
  • Your previous quarter’s total sales and marketing spend (also known as your Customer Acquisition Cost, or CAC)

The SaaS Magic Number formula is as follows:

SaaS Magic Number = (Current Quarter Revenue ARR – Previous Quarter Revenue ARR) / Previous Quarter Sales and Marketing Spend

Or, if you’re unfamiliar with ARR (again, that’s Annual Recurring Revenue), you can calculate it using the following:

SaaS Magic Number = (Current Quarter Revenue 4) – (Previous Quarter Revenue 4) / Previous Quarter Sales and Marketing Spend

To calculate the SaaS Magic Number, simply gather the necessary data, plug the data into the formula, and analyze the result. 

Tips for Calculating the SaaS Magic Number

It’s important to note that while the SaaS Magic Number is commonly calculated quarterly, as in the example above, it can be calculated over any time period, so long as you’re consistent with your data and you properly annualize the result. 

You could, for example, calculate the SaaS Magic Number monthly. You would follow a similar template, but you would just need to make sure that you pull all of your data (the current revenue, the previous revenue, and the previous sales and marketing spend) monthly. It’s also important to note here that to annualize your recurring revenue from monthly data, you should multiply by twelve instead of four.

In other words, to calculate the SaaS Magic Number with monthly data, you’d use the following formula:

SaaS Magic Number  = (Current Month’s Revenue 12) – (Previous Month’s Revenue 12) / Previous Month Sales and Marketing Spend

SaaS Magic Number example calculation with hypothetical data

*Let’s try a hypothetical scenario to illustrate how to calculate the SaaS Magic Number:

  • New Revenue from the Current Quarter Revenue: $1,450,000
  • Last Quarter Revenue: $1,200,000
  • Previous Quarter Sales and Marketing Spend (or CAC): $800,000

Remember, our formula using quarterly numbers is:

SaaS Magic Number = (Current Quarter Revenue 4) – (Previous Quarter Revenue 4) / Previous Quarter Sales and Marketing Spend

So, plugging in our numbers, we see:

SaaS Magic Number = (1,450,000 4) – (1,200,000 4) / 800,000

Following through on our math, that becomes:

SaaS Magic Number = (5,800,000) – (4,800,000) / 800,000

That simplifies down to:

SaaS Magic Number = 1,000,000 / 800,000

SaaS Magic Number = 1.25

In this example, the SaaS Magic Number is 1.25.

What Different Values of the Magic Number Indicate

Magic Number What it Means
< 0 The business is not efficiently converting its investments into revenue, indicating potential issues in the sales and marketing strategies. Focus on lowering marketing costs and optimization before investing more.
0 The revenue growth is in line with the expenditures incurred, but there is no positive leverage. Sales and marketing spend is sustaining revenue, but not driving profit.
0-1 The business is achieving positive leverage, with revenue growth outpacing sales and marketing expenses. Consider investing more money in existing strategies or optimizing to improve marketing efficiency.
> 1 The business is generating significant revenue growth for every dollar invested in sales and marketing, indicating a high level of efficiency.

Now that we have our example SaaS Magic Number calculation, we need to know what that number means. Here’s a breakdown of different SaaS Magic Number benchmarks and what they may indicate:

  • Magic Number < 0: A negative Magic Number suggests that the business is not efficiently converting its investments into revenue, indicating potential issues in the sales and marketing strategies. You’ll want to focus on lowering your marketing costs and instead focusing on optimization here before investing any more sales and marketing dollars into these current strategies.
  • Magic Number = 0: A Magic Number of 0 signifies that the revenue growth is in line with the expenditures incurred, but there is no positive leverage. In this case, sales and marketing spend is sustaining revenue, but not driving profit.
  • Magic Number = 0-1: A Magic Number between 0 and 1 suggests that the business is achieving positive leverage, with revenue growth outpacing sales and marketing expenses. It is possible you would want to invest more money in existing strategies here, or optimize existing strategies to improve marketing efficiency. 
  • Magic Number > 1: A Magic Number greater than 1 indicates a high level of efficiency, where the business is generating significant revenue growth for every dollar invested in sales and marketing. 

In our example, where we have a SaaS Magic Number of 1.25, the metric indicates that our sales and marketing investment is very efficient. That should tell us that we’re on the right track with our strategies. And that we may want to invest more money to scale our current sales and marketing strategies.

Common Mistakes to Avoid for Accurate Calculation

While calculating the SaaS Magic Number, it’s crucial to avoid a few common mistakes that can skew the results:

  • Inconsistent time periods: Ensure that all the time periods for revenue and expenses align. They should all be quarterly if you’re calculating quarterly, monthly if you’re calculating monthly, etc. Mixing and matching time periods will lead to a very skewed result. 
  • Missing relevant expenses: Be sure to account for all sales and marketing expenses to provide a comprehensive view of the investments made.
  • Inaccurate revenue figures: Double-check revenue data to avoid miscalculations that could impact the Magic Number.
  • Failure to consider adjustments: In certain cases, adjustments may be necessary to account for anomalies or exceptional circumstances.

How to Use This Metric for Decision-Making

The SaaS Magic Number serves as a valuable tool for decision-making across various business units. Here are some ways companies can leverage this metric.

Optimizing resource allocation 

Businesses can use the Magic Number to identify areas where additional investments may yield higher returns or where adjustments are needed to enhance efficiency. For example, you could discover that money spent in paid advertisements driving new customers is not as efficient as money spent on content marketing or upselling your existing customer base. In that case, you’ll want to pull money from the former and invest it in the latter. 

Adding efficient revenue streams

This metric can also prod you to expand or diversify your revenue sources. 

Let’s say your SaaS Magic Number is hovering just above zero, and you want to optimize your revenue streams. One thing to consider is integrated payments. SaaS companies that offer payment processing services as part of their platforms open up sources of revenue through processing fees or additional subscription tiers.

Integrated payments also improves user retention in SaaS. When a platform offers seamless payment processing, it reduces friction for the user, making transactions easier and more efficient. The result? Users continue using the platform and companies benefit from a steady revenue stream. 

Pro tip: if you’re looking to offer integrated payments within your software, Stax Connect can help fuel your growth. 

By partnering with Stax Connect, you can combine the monetization power of payments with the control and security of your own infrastructure. Level up your SaaS platform by enabling payments for your users. 

And with custom revenue-share opportunities, you can maximize your profit margins while adding significant value to your customers.

Forecasting and budgeting

The Magic Number aids in creating more accurate revenue forecasts and budget plans by providing insights into the relationship between investments and growth. You’ll be able to use this efficiency metric to help determine where and when to expand your sales team or your marketing team

Strategic planning 

Companies can align their strategic decisions with the Magic Number, ensuring that growth plans are sustainable and in sync with sales and marketing efforts.

How Often Should You Calculate the Magic Number?

The frequency of calculating the Magic Number depends on the specific needs and dynamics of each business. A quarterly assessment is a common practice, and generally allows for timely adjustments and insights into short-term performance trends. That said, some businesses may choose to calculate it monthly or annually, depending on the pace of their operations and the granularity of data required.

Conclusion

In conclusion, the SaaS Magic Number can be a powerful tool for SaaS businesses seeking to optimize sales efficiency and make informed strategic decisions. By implementing the SaaS Magic Number, businesses can drive sustainable growth and navigate the competitive SaaS landscape with confidence. It’s an efficiency metric that even an efficiency legend like Henry Ford would use to assess success.

FAQs about the SaaS Magic Number

Q: What is the SaaS Magic Number?

The SaaS Magic Number is a metric similar to ROI, designed specifically to evaluate the efficiency and effectiveness of a company’s sales and marketing strategies in the SaaS industry. It compares the growth in recurring revenue to the sales and marketing expenses incurred during a specific period, so companies understand how well their investments are translating into actual revenue growth.

Q: Who is it for?

The SaaS Magic Number is a metric that’s particularly useful for SaaS startups, early-stage companies, or companies with shorter sales cycles that have a lot of data and can adapt and change direction quickly.

Q: How do you calculate the SaaS Magic Number?

You calculate the SaaS Magic Number by taking the growth in annual recurring revenue (ARR) from one period to the next, divided by the sales and marketing expenses of the previous period.

So, if you’re calculating your magic number over the last 12 months, the formula would be:

SaaS Magic Number  = (Current Month’s Revenue 12) – (Previous Month’s Revenue 12)/ Previous Month Sales and Marketing Spend

Q: How often should you measure the SaaS Magic Number?

A quarterly assessment is common practice, but some businesses may choose to calculate it monthly or annually, depending on their operational pace and the granularity of data required.

The 7 Best Mobile POS Systems for Small Businesses in 2024

Whether businesses are on the road or staff are simply moving about in-store, mobile point of sale systems (mPOS systems) are becoming an increasingly popular POS option for small businesses.

Around since the 2000s, mPOS systems have come a long way from their origin as a glitchy solution used primarily by micro-businesses to process payments. Today, they’re known for their robust services, enhanced security, user-friendly interfaces, and the integration of advanced data analytics. They’re no longer just for SMBs. They’re indispensable for businesses of all sizes.

In fact, mPOS systems are gradually gaining market share from the fixed cash-register-style POS market. Come 2030, mPOS is on track to share the market equally, and it’s clear to see why.

Imagine a restaurant using a mobile POS system to manage sales both at its permanent locations and through its food truck. At various locations where the food truck operates, staff use tablets equipped with a mobile app for transaction processing. When a customer orders food, the staff member enters the order into the app, processes the payment using a portable card reader, and sends a digital receipt directly to the customer’s email. The mPOS system then seamlessly synchronizes the transaction, updating sales and inventory records in real-time across the brick-and-mortar restaurants and the food truck.

mPOS systems enable business owners to transact anywhere on a mobile network or Wi-Fi. They offer customers flexibility. And they come with many powerful business solutions, from real-time data access to invaluable inventory management capabilities.

mPOS solutions are the superpower for small businesses in 2024.

TL;DR

  • mPOS systems enable business owners to conduct transactions anywhere there is a mobile network or Wi-Fi.
  • More than just a mobile terminal, mobile POS systems today are packed with inventory management features, CRM integration, and analytics tools that supercharge operations and customer satisfaction.
  • Businesses using mPOS solutions are better-positioned to adapt to future market changes.
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Key Features to Look for in an mPOS System

When selecting a mobile point of sale system, certain key features are essential to ensure that the system meets a business’s specific needs and enhances operational efficiency. Here’s a closer look at these features:

User-friendly interface

The interface of the mPOS system should be intuitive and easy to navigate. Extensive upskilling training is often out of the budget for small businesses, so the system should be straightforward to learn and use.

Payment processing options

An mPOS system should support various payment options to accommodate customer preferences. Traditional methods like cash and credit cards/debit cards are a must-have, as are digital wallets and contactless payments such as Apple Pay for iOS and Android’s Google Pay. Some may still want to allow magstripe card payments, but near-field communication (NFC) compatibility is non-negotiable for 2024 and beyond.

Inventory management capabilities

Effective inventory management is now standard for most mobile POS systems to help businesses avoid stock shortages or overstock situations. An mPOS system with robust inventory management capabilities can track stock levels in real time, send alerts for low stock, and even automate reordering processes.

Customer Relationship Management (CRM) features

CRM functionalities help businesses to better understand and engage with customers. Features like customer data collection (e.g., purchase history, preferences), loyalty programs, and targeted promotions can enhance customer retention, leading to customer loyalty and encouraging repeat business.

Security and compliance standards

Security is paramount in any POS system to protect sensitive customer information. An mPOS system should adhere to industry-standard security protocols, such as PCI DSS compliance, and include encryption and tokenization to safeguard data. Regular POS software updates and security patches are important to protect against new threats.

Integration with other business tools

Want to get the most out of your mPOS? Make sure it plays nice with your other solutions. Systems should be compatible with accounting software, eCommerce platforms, CRMs, and other operational tools that a small business or retail store might use, including loyalty solutions and other marketing tools. 

Top Mobile Point-of-Sale Systems of 2024

Square

Square is well-known in the mobile point-of-sale market, offering a particularly popular solution among small to medium-sized businesses.

Hardware costs

There are a few Square POS options for mobile, including its Mobile POS Kit for Square Reader ($599) and Restaurant Mobile POS Kit ($259).

Processing fees

Square’s in-person transaction fees are 2.6% of the sale + 10¢ per transaction.

Key features

  • Accepts various forms of payment
  • Users can track inventory, manage items, and receive stock alerts
  • Comprehensive reporting features
  • Restaurant-specific solutions
  • Digital receipts and invoice management
  • Employee management tools
  • Compatible with various third-party apps and software.

Clover

Clover is another prominent mPOS provider, offering a range of solutions that cater to different types of businesses.

Hardware costs

Clover Go ($49) is Clover’s main mobile POS hardware tool, pairing with any smart device (Apple iPhone, iPad, Windows, or Android) to take chip, dip, and contactless payments or mobile payments.

Processing fees

Clover’s in-person transaction fees are 2.3% of the sale + 10¢ per transaction.

Key features

  • Diverse payment options are accepted
  • Full suite of POS features
  • Customizable interface
  • Extensive app marketplace
  • Detailed reporting and analytics
  • Features for managing employees.

PayPal Zettle

PayPal Zettle is PayPal’s mobile POS solution, known for its simplicity and integration with PayPal’s wider range of payment services.

Hardware costs

PayPal Zettle can be used with just their software or a card reader for $29. They also offer add-on hardware like receipt printers, cash drawers, and barcode scanners.

Processing fees

PayPal Zettle charges 2.29% of the sale + 9c per transaction.

Key features

  • Seamless integration with PayPal accounts
  • Accepts a range of payment methods
  • Basic inventory management tools
  • Provides sales reports and analytics
  • The Zettle app is known for its simplicity and ease of use.

Toast

Toast is a cloud-based mobile POS provider designed exclusively for the restaurant and food service industries.

Hardware costs

Toast hardware solutions include tablets, handheld devices, kitchen display touchscreens, and other peripherals. Costs are rolling into monthly tiered plans depending on the restaurant’s needs.

Processing fees

Toast charges 2.99% of the sale + 15c per transaction.

Key features

  • Toast is specifically designed for the restaurant industry
  • The system integrates seamlessly with online ordering platforms
  • Toast offers a kitchen display system
  • Offers robust inventory tracking and management capabilities
  • Comprehensive reporting tools
  • Includes options for customer loyalty programs and gift card management.

TouchBistro

TouchBistro is another mobile POS system specifically tailored for the restaurant industry, offering a range of features unique to the operational needs of food service establishments.

Hardware costs

TouchBistro requires the purchase of iPads as the primary hardware, along with optional additional hardware such as printers, cash drawers, and kitchen display systems. Hardware is rolled into monthly plan fees, starting at $69/month.

Processing Fees

TouchBistro does not process the payments. Merchants can work with their preferred credit card processing provider, giving them flexibility to find the best rates based on their transaction volumes and needs.

Key Features

  • Servers can take orders directly at the table using iPads
  • Flexibility to customize and update menus used online and for QR codes, including item modifiers
  • Easy management of restaurant floor plans and table assignments
  • Provides detailed inventory tracking features
  • Includes tools for staff scheduling, time tracking, and managing staff roles and permissions
  • Captures customer data for personalized service and targeted marketing efforts
  • Offers comprehensive reporting and analytics tools
  • Supports integration with various payment processors and third-party applications.

Revel Systems

Revel Systems is an advanced mPOS solution for a diverse range of businesses, including retail, restaurants, and quick-service venues.

Hardware costs

Revel Systems’ hardware setup includes iPads as terminals, barcode scanners, receipt printers, and card readers. There is no pricing information available on their website.

Processing fees

Revel does not process payments themselves. Merchants are free to select their preferred payment processing partner, and both providers can integrate together.

Key features

  • Supports both in-store and online sales
  • Advanced inventory tracking and management features
  • Offers detailed insights into sales, customer behavior, and business performance
  • Includes tools for managing customer data, loyalty programs, and personalized marketing
  • Robust tools for staff scheduling, payroll, and performance tracking
  • User interface can be customized to meet specific operational needs and preferences.

Shopify

Shopify’s mPOS solution is an extension of their existing services, ideal for retail businesses, enabling sales management both online and in physical locations.

Hardware costs

Shopify’s Tap & Chip Card Reader ($49) connects to smart devices through Bluetooth and can be used with other peripheral hardware like iPad stands and receipt printers.

Processing fees

Shopify’s payment processing fees depend on the plan. Retailers that do more than casual sales will have to start at the Retail Plan for $89/month with processing rates of 2.7% + 0c for in-person transactions.

Key features

  • Seamless integration with Shopify’s online store platform
  • Supports various payment methods
  • Advanced inventory management capabilities across all sales channels
  • Detailed reporting and analytics tools
  • Options to tailor both the online store and physical storefront, including custom receipts, branding, and promotional tools
  • Access to the Shopify App Store.

Cost-Benefit Analysis for Small vs. Large Businesses

When conducting a cost-benefit analysis of mPOS systems, businesses should consider the following:

  1. Transaction volume and value
  2. Business growth trajectory
  3. Additional features and services
  4. Hardware costs
  5. Integration needs
  6. Payment processing options.
  7. Security and compliance
  8. Support and training

Small businesses will often want low upfront costs and simplicity, while large businesses may prioritize lower transaction fees at higher volumes, comprehensive features, and scalability. In either case, businesses should consider the long-term. What additional features and services might be necessary in the future? Transactions may be low now, but will that be the case in the future? Which mPOS provider gives the flexibility to get the best rates with the needed services?

Conclusion

Choosing the right mobile point-of-sale system is vital for businesses, impacting everything from customer satisfaction to operational efficiency. The ideal solution must align with a business’s specific needs, including transaction volume, industry type, and scalability, ensuring efficient checkouts, accurate data analytics, and seamless integration with other business tools. The right tool can significantly enhance customer experiences and streamline operations, regardless of the business sector.

mPOS systems are increasingly shaping the landscape of business transactions. They are evolving to include advanced technologies like AI for predictive analytics and personalized customer interactions. As contactless and digital payments continue gaining prominence, mPOS systems adapt to these trends. Businesses on board with this technological progression are positioned to adapt to future market changes, securing their relevance and success in a digitally driven marketplace.

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FAQs about mobile POS systems

Q: What is a mobile point system?

A mobile point system—aka mobile POS or mPOS—is a portable point of sale system that operates on a smartphone, tablet, or dedicated wireless device. It typically includes software for processing sales transactions, managing inventory, and conducting various types of payments (like credit cards, cash, or mobile payments). These systems are designed for flexibility and mobility, often used in retail, hospitality, and on-site services.

Q: What does a mobile POS do?

Specific functionalities will depend on your provider, but generally speaking mobile POS systems enable you to facilitate sales transactions, take payments, manage inventory, and more. 

Q: How much does a POS system cost for a small business?

Basic mobile POS systems can be relatively inexpensive, often with a monthly subscription fee ranging from $10 to $100. More advanced systems with additional hardware (like receipt printers, cash drawers, and barcode scanners) can cost more, potentially several hundred to a few thousand dollars, plus the subscription fees.

Q: Can you turn your phone into a POS?

Yes, you can turn a smartphone into a POS system using mobile POS apps. These apps can be downloaded onto the phone, and with the addition of a card reader (often plugged in or connected via Bluetooth), your phone can process payments and perform other POS functions.

Q: What is the difference between POS and mobile POS?

The key difference is mobility and hardware. Traditional POS systems are stationary, consisting of a computer, monitor, cash drawer, receipt printer, and barcode scanner. Mobile POS systems, on the other hand, are portable and run on mobile devices like smartphones or tablets, often with fewer hardware components, making them more flexible and suitable for on-the-go transactions or businesses without a fixed location.

Q: Can you run a mobile POS system without the internet?

Some mobile POS systems can operate offline, allowing basic functions like processing sales and recording transaction details. However, for processing credit card transactions and syncing data with cloud-based services (like inventory management), an internet connection is usually required. Once the device reconnects to the internet, the transactions made offline are often synced and updated.

5 Best Business Savings Accounts for 2024

Business savings accounts are crucial to a sound organizational strategy. Savings act as a financial buffer and can become a strategic asset. It can weather an organization through fluctuating market conditions and unforeseen expenses, providing a much-needed safety net and ensuring liquidity and financial stability.

While business savings stats are hard to come by, the average U.S. resident has only $1000 or less in their personal savings account. If this trend translates to businesses, $1000 would not go far in safeguarding against unplanned bills, let alone significant financial interruptions.

It’s not all for the bad times, either. A well-selected account can act as a growth catalyst, transforming idle capital into a source of passive income through accrued interest. Moreover, it can bolster a business’s creditworthiness and lay a foundation for future investment opportunities. In essence, the right business savings account is the cornerstone for smart financial management, blending security with the potential for fiscal growth.

In this article, we will explore the fundamental aspects businesses must consider when selecting a savings account and which business savings accounts should be up for assessment in 2024.

TL;DR

  • Savings can be a financial buffer and a strategic asset. It can get businesses through unforeseen expenses, ensuring liquidity and financial stability. It can also extend beyond the safekeeping of funds to be a growth catalyst.
  • Interest rates, fees, deposit requirements, liquidity needs, and accessibility are some of the key considerations when selecting the right business savings account. Accounts combining high-interest rates, no fees, and advanced online solutions are available.
  • Equipped with knowledge of the accounts and a thorough assessment of the internal requirements, getting set up is as simple as visiting a branch or going online.
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Factors to Consider When Choosing a Business Savings Account

Considering that a business savings account aims to work for the business, not just to store money but to maximize it, certain critical factors must be considered to ensure the selected account will meet this objective. Each factor contributes to the overall suitability and effectiveness of the savings account for the business.

1. Interest rates

The interest rate determines the earnings on the account’s balance. Higher interest rates translate to greater returns on the saved funds.

Businesses should compare rates from various institutions, noting any tiered interest rates based on account balances. It’s also essential to distinguish between introductory rates and the standard rate that applies after the introductory period.

Introductory rates are higher savings interest rates offered by financial institutions as an incentive for new customers. This rate is typically significantly higher than the standard rate.

Standard rates are the regular interest rate that applies to a savings account after the introductory period ends.

Tiered interest rates. Some high-interest accounts offer tiered interest rates based on the account balance. Higher balances might earn higher rates, and vice versa. To assess the feasibility of these tiered savings rates, businesses need to identify the optimal average daily balance level that maximizes returns without stretching financial resources too thin.

2. Rate fluctuations and conditions

Rates are not always static. They can change according to expired offers or variable contracts. Different fluctuations and conditions include:

  • Introductory rates: If the high-interest rate is an introductory offer—a proposal exclusively for the account opening—assess how long this rate applies and what the standard rate will be post-introductory period.
  • Variable rates: For accounts with variable rates, consider how fluctuations in the rate could affect interest earnings and whether the business can withstand this variability.
  • Adjustment periods: The rate changes at predefined intervals in the statement cycle, which can be monthly, quarterly, annually, or as specified in the account or business loan terms.

3. Fees and charges

Fees can significantly reduce the account’s potential earnings. High-interest rates, coupled with high fees, will nullify the benefit of those rates. These must be understood and compared to avoid being tempted by what looks best on the surface.

Common fees include:

  • monthly maintenance fees
  • transaction fees
  • overdraft fees
  • penalties for not maintaining a minimum balance. 

Some banks might offer fee waivers under certain conditions, such as maintaining a combined balance across multiple accounts.

Net interest earnings vs. fees

Remember that high-interest accounts might also come with higher fees. Calculating the two is crucial to get an accurate picture of the net interest earnings after accounting for monthly maintenance fees, transaction fees, or other charges. This can be done by looking at the annual percentage yield and a break-even analysis:

Annual percentage yield (APY)

The APY is the rate of return that an investment earns over a year. Unlike a simple interest rate, an APY includes the effects of compounding, which is the process where earned interest is added to the principal balance, and future interest calculations are based on this increased balance.

Break-even analysis

Determine the APY and then take out the fees. Find the balance at which the interest earned outweighs the fees. This helps in understanding the minimum effective balance to maintain in the account for it to be beneficial.

4. Deposit requirements

Deposit requirements will determine which business savings account is suitable for different types of businesses. Within this, there are two types of requirements:

Minimum opening deposit

Many business savings accounts require a minimum cash deposit to open the account. Depending on the bank and the type of account, this can range from a nominal sum to a substantial amount.

Minimum balance requirement

Some accounts require a minimum balance to avoid fees or earn the advertised interest rate. This can affect cash flow, particularly for smaller businesses or those with fluctuating revenue.

5. Liquidity needs vs. withdrawal restrictions

Some accounts may have limitations on withdrawals or wire transfers. Businesses need to ensure that these restrictions align with their cash flow needs. Check for:

  • Penalties for access: penalties or fees for accessing funds could negate the benefit of higher interest earnings.
  • Minimum balance penalties: falling below the minimum could result in lower interest rates and attract additional fees. Moreover, it can impact cash flow and operational expenses, limiting the money available when it’s needed in order to maintain the balance required by the account.

6. Accessibility and online services

Easy access to the account and robust online services are essential for efficient business operations. When assessing these features, small business owners should focus on how they align with the business’s operational efficiency and convenience. The ease of managing finances can significantly impact a business’s day-to-day operations. The following should be considered:

  • Online banking capabilities: User interface, account management features, and integration with business software can streamline financial management and save time.
  • Mobile banking services: A robust mobile app with comprehensive features like mobile check deposit, real-time alerts, and transaction capabilities allow for smooth management of finances on the go. Strong mobile banking security measures, such as two-factor authentication and encrypted data transmission, are essential to protect sensitive financial information.
  • ATM and branch network: ATM access is important for businesses that handle cash or need to deposit checks frequently. Access to ATMs, as well as branch locations, might be of significant convenience.

7. Additional benefits and features

Beyond the basic features, some accounts offer additional benefits that can be valuable for businesses. These might include free business advice, options to set up joint account holders for partnerships, higher transaction limits, or bundled products and services that offer cost savings. Specialized features tailored to specific business needs, such as integration with accounting software, can also be a deciding factor.

Additionally, look out for banks that say “Member FDIC” on their website. All reputable banks in the U.S. are compliant with FDIC insurance, but it’s worth an extra check.

Top Business Savings Accounts for 2024

Looking at high-interest accounts, no-fee accounts, the most accessible accounts, and those with extra perks, we have put together a list of the best business bank accounts to build business savings in 2024.

Live Oak Bank Business Savings Account

Live Oak Bank specializes in small business financing, offering business loans, lender solutions, and savings products. Its focus on business growth makes it a go-to for companies seeking comprehensive financial services beyond just savings. In addition, they offer personal finance solutions, including personal savings accounts — great for businesses that like a single bank to suit all needs.

Live Oak Bank Business Savings Account offers:

  • APY: 4.00%
  • Minimum Deposit: $0
  • Maintenance Fee: $0

First Internet Bank Business Money Market Savings

First Internet Bank, a pioneer in online banking, offers a range of digital-first banking services. Its advanced online platform caters to businesses looking for efficient, tech-savvy banking solutions along with competitive savings options. Although its services are online-first, money can be accessed in person with their ATM card.

First Internet Bank Business Money Market Savings account offers: 

  • APY: 3.67% to 5.33%
  • Minimum Deposit: $100
  • Maintenance Fee: $5

Axos Business Premium Savings

Axos Bank is a digital-first financial institution offering a broad spectrum of innovative banking services, including high-yield business savings accounts, checking accounts, commercial lending, and treasury management solutions. Known for its efficient online platform, Axos caters to both personal and business customers, emphasizing convenience, competitive rates, and reduced fees.

Axos Business Premium Savings account offers: 

  • APY: 4.01%
  • Minimum Deposit: $5,000
  • Maintenance Fee: $0

nbkc Bank Business Money Market Account

nbkc Bank is known for its transparent fee structure and customer-centric approach. It provides a suite of digital banking tools, making it an attractive option for businesses valuing simplicity and clarity in their banking relationships.

nbkc Bank Business Money Market Account offers: 

  • APY: 2.50%
  • Minimum Deposit: $0.01
  • Maintenance Fee: $0

Capital One Business Savings

Capital One offers a broad spectrum of financial products and is recognized for its extensive branch and ATM network. Its commitment to both digital innovation and physical accessibility makes it a strong choice for businesses seeking versatile banking solutions.

Capital One Business Savings account offers: 

  • APY: 0.10%
  • Minimum Deposit: $250
  • Maintenance Fee: $3 (if businesses maintain a minimum balance of $300, Capital One waives its $3 monthly maintenance fee)

Best High-Interest Accounts

High-interest accounts are ideal for businesses looking to maximize returns on surplus business funds. The best high-interest accounts for 2024 are:

Account

APY

Live Oak Bank Business Savings Account 4.00%
First Internet Bank Business Money Market Savings 3.67% to 5.33%
Axos Business Premium Savings 4.01%

Best No-Fee Accounts

For cost-conscious businesses, no account fee savings accounts offer an opportunity to save without the burden of monthly service fees, minimum balance requirements, and other charges.

Account

Minimum deposit

Maintenance fee

nbkc Bank Business Money Market Account $0 $0
Live Oak Bank Business Savings Account $0 $0
Axos Business Premium Savings $5,000 $0

Top Easily Accessible Accounts

Ease of access is vital for businesses that need to withdraw or transfer from their savings account regularly. For some businesses, this may mean ATM access is paramount; for others, easy accessibility could mean advanced online features.

Account

Access benefits

Capital One Business Savings Extensive branch and ATM network
First Internet Bank Business Money Market Savings Range of digital-first banking services

Best Small Business Savings Account

What is “best” should be carefully determined by each business, but of the business savings account providers on our list, one stands out above the rest for small businesses and sole proprietors:

Live Oak Bank Business Savings Account

What we love about Live Oak Bank Business Savings Accounts:

  • High-interest rates: APY: 4.00%
  • No minimum deposit
  • No fees
  • Offers a CD account
  • Provides a broad range of services beyond business banking.

Best Certificate of Deposit Account

Different from a business savings account, a Certificate of Deposit (CD) account is a financial product offered by banks and credit unions that provides an interest rate premium in exchange for a lump-sum deposit that is to be untouched for a predetermined period, anywhere from a few months to several years.

CD accounts often have higher interest rates than traditional savings accounts, making them an attractive option for businesses with idle funds available to lock away for a specific duration.

Live Oak Bank

  • Business Savings Account APY: 4.00%
  • CD Account APY: 5.40%
  • Terms: 12-month hold with a minimum deposit of $2,500, with a cap of $250,000 per CD.

Chase, Bank of America, and U.S. Bank fall short

Notably absent from the list above are traditional banks, Chase, Bank of America, and U.S. Bank. Barely comparable to those on our list, U.S. Bank offers 0.05% APY, while Chase and Bank of America come in well below at only 0.01%.

While not competitive in their business savings account offering, the traditional banks still prove their value for other business services like loans and business credit cards.

Interest-Earning Business Checking Accounts

Another great interest-earning strategy, particularly for businesses seeking additional functionalities such as check writing and a business debit card, is a high-yield business checking account. Our favorites are:

  • Bluevine Business Checking: This account provides a 2.0% interest rate on balances up to $250,000 and is free from monthly, minimum balance, and non-sufficient funds (NSF) fees.
  • Grasshopper Business Checking Account: This account yields an APY of up to 2.25% for balances between $25,000 and $250,000. Additionally, it offers unlimited 1% cashback rewards on signature-based purchases made online and in-store.

Tips for Maximizing Benefits from Your Business Savings Account

Minimums, variable rates, fees and other accounts all make it necessary to actively manage a business savings account. Set and forget may not yield the best benefits. Careful planning can go a long way.

Strategically balance between savings and checking accounts

  1. Strategically allocate funds: Keep enough in the checking account to cover operational expenses and short-term needs. Then, move excess funds to a savings account to earn higher interest.
  2. Set up automatic transfers: Automate transfers from the checking to the savings account. This can be a fixed amount or a percentage of monthly revenue.

Understand the implications of interest rates and fees

  1. Compare APYs across different banks to ensure you’re getting a competitive rate.
  2. Beware of introductory rates that drop significantly after a certain period.
  3. Analyze all associated fees, such as monthly maintenance fees, transaction fees, or minimum balance fees, and how they might offset interest earnings.

Best practices for account management and review

  1. Periodically review the business savings account to ensure it still meets business needs, especially as the organization grows or market conditions change.
  2. Utilize online and mobile banking tools for convenient account monitoring and management.
  3. Build a relationship with the bank to get a better service, valuable financial advice, and potentially more favorable terms or rates.
  4. Set up alerts for low balances, large transactions, or other important account activities to stay informed and proactive in account management.

Start Saving for Your Business

Money in the bank serves as one of the most crucial buffers against the unpredictable nature of business operations. A solid financial reserve can help businesses navigate tough times without disrupting the business’s core operations. In good times, this financial cushion can also be pivotal in capitalizing on sudden opportunities, such as investing in growth initiatives or taking advantage of favorable market conditions.

As with all business solutions, individual research is imperative. Every organization has unique requirements, and while certain options stand out in key categories, each business needs to conduct thorough due diligence to find the solution that best fits its specific needs. Once that’s done, all that’s required is to go in-store or online, provide a social security number and employer identification number (EIN), and get started building this invaluable asset.

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FAQs about the Best Business Savings Accounts

Q: Are there savings accounts for business?

Yes, there are savings accounts specifically designed for businesses. These accounts are tailored to meet the unique needs of businesses, such as higher transaction limits and potential for earning interest.

Q: Do businesses use savings accounts?

Many businesses use savings accounts to manage their finances. These accounts can help businesses save for future expenses, earn interest on surplus funds, and provide a buffer for unexpected costs.

Q: What is the best interest rate on business savings accounts?

The best interest rate on business savings accounts varies depending on the financial institution and the current economic environment. Be sure to shop around and compare rates from different banks or credit unions to find the most competitive offer.

Q: Do you pay taxes on business savings?

Generally, the interest earned on business savings accounts is subject to taxation. Businesses must report this interest income on their tax returns. The tax treatment can vary depending on the business structure (e.g., sole proprietorship, partnership, corporation).

Q: Where can I open a business savings account?

Business savings accounts can be opened at most banks, credit unions, and online financial institutions. 

Q: How many months of savings should a business have?

A common guideline is to have enough savings to cover at least 3 to 6 months of operating expenses, though some businesses may need more.

Q: Does FDIC apply to business accounts?

Yes, the Federal Deposit Insurance Corporation (FDIC) insures business accounts just like personal accounts. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

Q: Do business savings accounts pay interest?

Most business savings accounts pay interest. The rate of interest can vary based on the account balance, the type of account, and the policies of the financial institution. It’s important to read the terms and conditions to understand how interest is calculated and paid.

 

What are Merchant Accounts and How Do They Work?

Accepting payments is the most important functionality that a business needs to start selling. But to accept payments seamlessly and securely, you need a merchant account.

A merchant account acts as a pathway between your business, your customers, and the issuer and acquiring banks to process electronic transactions like credit cards. Without a merchant account, it’s very difficult to ensure consistent cash flow or manage multiple sales channels effectively. Moreover, many merchant accounts today come bundled with a payment gateway, another crucial component of the online payment process that streamlines transactions and protects against fraudulent activity.

In this blog, we’re going to explain how merchant accounts work in both eCommerce and offline settings and what businesses need to consider when selecting a merchant services provider.

TL;DR

  • A merchant account is a type of business bank account that facilitates electronic payments, including credit cards, and acts as a temporary holding place for funds incurred from customer transactions.
  • Different types of merchant accounts exist that cater to different business needs, such as retail merchant accounts for in-person transactions, online merchant accounts for eCommerce and high-risk merchant accounts.
  • Setting up a merchant account involves choosing the right merchant account provider for your needs, identifying your type of business, submitting an application, and undergoing an underwriting process to assess risk.
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What Is a Merchant Account?

A merchant account refers to a business bank account that allows businesses to accept electronic payments for goods and services. This includes credit card payments, debit cards, and other payment options that require a merchant account to process payments, such as eChecks and ACH. A business will typically set up a merchant account in collaboration with a merchant services provider or merchant account provider.

Merchant accounts form an essential piece of payment infrastructure for businesses that want to process online transactions. In addition to streamlining the payment process, a merchant account makes it easy for businesses to accept a variety of payment methods and maintain cash flow.

How Merchant Accounts Differ from Regular Bank Accounts

Unlike a regular bank account, a merchant account is not a place for businesses to store funds for an indefinite period. Instead, it acts as an intermediary holding place to secure and verify funds when a customer makes a purchase. When a transaction takes place, the payment arrives first in the merchant account before being transferred to the business owner’s business checking account. It usually takes one to two business days before these funds are available to the business, though some payment processors may offer same-day deposits.

How Merchant Accounts Work

The process of transaction handling

When a customer makes a payment, their payment information is securely transmitted from the checkout to the payment processor for verification. In the case of a credit card or debit card transaction, the processor will check with the card network that there are sufficient funds to complete the purchase and that the details provided match what the card processor has on file.

Once funds are verified, the card issuing bank will issue an approval code for the acquiring bank to transfer funds to the business’s merchant account. The merchant account provider will deduct any necessary fees, including markups, processing fees, and interchange fees before the money moves to the business’s checking account and becomes accessible.

Because the merchant account acts as a temporary holding pen for funds incurred from a transaction, payment gateways and processors are key pieces of infrastructure that make it possible to move money between the issuing bank and the business’s bank account. The payment gateway provides a pathway between an eCommerce website or app and the payment processor, ensuring that accurate transaction and payment information are provided. Meanwhile, the payment processor facilitates the final transfer of funds.

Understanding Fees and Charges Associated with Merchant Accounts

Assessing the pricing structure used by merchant account providers is important to understand the cost of accepting electronic transactions. Different providers will charge different fees for their services, such as per-transaction fees or monthly and annual fees based on sales volume. The type of business you operate may dictate what pricing model is best for your business’s needs.

Common merchant account fees include:

Processing fees. Credit card processing fees represent the biggest cost of using a merchant account, as the processor will pass on merchant fees charged by the card network. Processing fees are typically a mix of percentage fees and flat-rate fees, depending on whether it involves a virtual terminal or in-person.

Setup fees. Some merchant account providers will charge a one-off setup fee to cover the cost of getting your account off the ground. This is especially common for high-risk accounts, as more vetting and due diligence are typically required.

Early termination fees. If you signed up for a fixed-term contract with a service provider, they may charge an additional fee to break this contract ahead of time.

Chargeback fees. If a customer initiates a chargeback, the merchant account provider may charge an extra fee to reverse the transaction to the issuing bank.

Types of Merchant Accounts

Type Description Ideal for Services Notes
Retail Merchant Accounts Process payments in-person at brick-and-mortar stores Retail stores, supermarkets, restaurants, beauty salons POS integration, high-volume processing Fast processing, secure transactions.
Online Merchant Accounts Process payments for online businesses eCommerce websites, marketplaces, mobile apps Secure payments, fraud prevention, payment gateway integration PCI DSS compliance, multi-currency, recurring billing.
High-Risk Merchant Accounts Process payments for high-risk industries Online gambling, pharmaceuticals, insurance, subscription businesses Specialized approval process, secure transactions Higher fees, additional due diligence.
Mobile Merchant Accounts Process payments on the go Businesses at trade shows, markets, pop-up stores Mobile card readers, contactless devices Flexible, convenient for mobile businesses.

Many variations of the traditional merchant account now exist to cater to a specific type of business or industry:

Retail merchant accounts

A retail merchant account caters to small business owners that operate brick-and-mortar storefronts and require in-person payment processing capabilities. This type of merchant account can manage debit and credit transactions at a POS (point of sale) as well as card-not-present transactions.

Because physical store locations may be required to process high sales volumes, retail accounts are capable of quick credit card processing. They integrate seamlessly with a variety of POS software and hardware components including card readers, cash registers, and barcode scanners. Common retail merchant account holders include retail stores, supermarkets, restaurants, and beauty salons.

Online merchant accounts

Online merchant accounts are specifically designed for eCommerce businesses that sell goods and services digitally. This includes purchases that are made via standalone eCommerce websites, online marketplaces, or mobile shopping apps.

The focus of online merchant accounts is ensuring that payments are processed securely and fraudulent behavior is identified. They will include or integrate with a payment gateway to securely submit credit card transactions from the merchant’s website to the payment processor, and then onto the merchant account itself. This should comply with Payment Card Industry Data Security Standard (PCI DSS) requirements to ensure that customer data is kept as safe as possible. Additional services offered by online merchant accounts may include multi-currency payments, virtual terminal services, and recurring billing.

High-risk merchant accounts

Because of the nature of the goods and services they sell, some merchants may be classified as ‘high-risk’ for payment processing. Industries commonly considered high-risk include online gambling, pharmaceuticals, insurance, and subscription businesses.

Because many merchant account services will not work with high-risk merchants, it may be necessary to work with a specialized account provider who can run a more thorough approval process.

Just like a regular merchant account, high-risk account providers offer credit card processing, integrations with payment gateways, and accept a range of payment methods. However, they typically charge a higher monthly minimum fee and/or per transaction fee to cover the additional due diligence or security measures.

Mobile merchant accounts

Mobile merchant accounts offer businesses the flexibility to accept payments on the go, as well as via traditional brick-and-mortar locations. This is valuable for business owners who regularly attend trade shows and markets, or host pop-up stores away from their regular storefront.

These accounts enable businesses to process card and debit card payments via mobile card readers or contactless devices. Some will include their own payment processing apps or integrate with others, facilitating a seamless payment process for customers.

Top Merchant Account Providers

Stax

Stax offers an industry-leading payment solution for eCommerce and in-person businesses. As well as integrating with a range of payment gateways and shopping cart plugins, the Stax Pay system brings all payment types into a single dashboard for seamless payment management. It’s a good fit for subscription businesses that require a full-service toolkit for billing and analytics. However, the higher monthly fee means that Stax is better suited for larger businesses with high processing volumes.

Features

  • eCommerce, in-person, and mobile payments all in one
  • U.S.-based customer support
  • Customizable batch times
  • Recurring billing
  • CRM management

Fees

Plans start at $99 per month

0% markup on interchange processing rates

FIS Global

Fintech company FIS Global offers a range of banking and merchant services to businesses, including payment processing for eCommerce merchants. After acquiring the Worldpay system in 2019, FIS became the largest payment processing company in the world. FIS Global also offers both a virtual terminal system and Commerce 360 platform for integrated payment processing and inventory management. Worldpay’s quote-based pricing means it’s highly customizable based on business needs, but is lacking in transparency and locks businesses into long contracts.

Features

  • Accepts a wide range of debit/credit card options
  • Includes POS technology
  • 24/7 customer support via phone

Fees

Quote-based pricing only

Stripe

Stripe Payments is tailored to eCommerce businesses that require a cost-effective and reliable payment processing solution. The wealth of payment options and currencies makes it well-suited to merchants with a global customer base. While Stripe does offer in-person payments, these capabilities are pretty limited. A system like Square, which offers a range of hardware and tailored plans, is a better choice for brick-and-mortar businesses.

Features

  • Easy set-up
  • Accepts multiple currencies
  • 24/7 customer support via email, live chat, and phone
  • Offers 100+ payment methods
  • No-code fraud protection tools

Fees

No monthly fees

In-person: 2.7% + $0.05 per transaction

Online: 2.9% + $0.30 per transaction

Authorize.net

Authorize.net is a comprehensive payment solution that offers businesses either a combined merchant account and payment gateway, or a payment gateway-only option. What separates Authorize from other providers is their comprehensive built-in fraud detection tool, which is fully configurable to the business’s preferences with filters like payment velocity and international currencies. However, Authorize is a relatively expensive option, and the outdated interface means a less seamless user experience than those offered by Stripe or PayPal.

Features

  • Recurring billing
  • Custom digital invoicing
  • Customer Information Management (CIM) for repeat customers
  • 24/7 customer support via phone, chat, or online form

Fees

$25 monthly gateway fee

2.9% plus 30 cents per transaction

ACH: 0.75% per transaction

Key Requirements for Opening a Merchant Account

To open a merchant account, businesses need to undergo a thorough underwriting process to assess their suitability. This process will vary depending on the merchant account provider, but usually involves the following:

  • Having the appropriate business license.
  • Having a dedicated business bank account.
  • Providing details such as contact information, business address, and website address.
  • Undergoing a credit check.
  • Providing current financial statements.

Steps Involved in Setting Up a Merchant Account

Identify the type of business/industry you belong to

The structure of your business (i.e. sole proprietorship, LLC, or corporation) as well as the industry you operate in will dictate which merchant account providers are available to you. Some industries may have specific requirements or restrictions, especially if they are considered to be high-risk.

Select a merchant account provider

As we covered earlier in this blog, there are different types of merchant accounts available that address different business needs. If you operate a brick-and-mortar storefront, for example, you will need a merchant account that is capable of integrating with a POS and processing in-person payments. Other factors to consider are pricing structure, contract length, security features, and relevant add-on services such as recurring billing or analytics (more on this below).

Submit your application for an account

Your chosen merchant services provider will require you to complete an application. This includes submitting certain information, such as your business license or EIN, as well as providing information about your business’s specific payment processing needs. Be prepared to answer questions about:

  • Your expected transaction volumes.
  • The payment methods you want to accept.
  • The types of products you sell.
  • How you can process transactions i.e. online or in-person.

Await the underwriting process

Underwriting is where the merchant services providers assess your business to understand how much risk your account presents and whether they can support your needs. At this point, the provider may conduct credit checks and ask for additional information, such as payment processing history and sales volume, to understand how vulnerable your business is to fraud or chargebacks. This process may take a few days or several weeks, depending on how thorough the checks are.

Set up your account

Once your application has been accepted, you can begin setting up your merchant account and payment processing tools. What this process looks like will depend on your provider and what types of payment you want to accept. Your merchant account provider should provide you with an account manager to guide you through the onboarding process, in addition to providing you with a wealth of self-service resources like knowledge hubs or set-up webinars. Key steps your business will need to complete to begin processing payments are:

  • Integrating with a payment gateway or POS.
  • Configuring security settings.
  • Completing a test transaction.

Choosing the Right Merchant Account Provider

Merchant account fees. Different providers will use different fee structures for transaction fees and account management, so it’s important to compare providers to understand which option offers the best value for your business.

Payment methods. Your account provider should be able to accept all of your chosen payment types, in-person payments, contactless payments, and other electronic transaction types like ACH.

PCI compliance. Make sure that the merchant account provider you select is fully compliant with PCI DSS standards for handling credit card transactions securely.

Scalability. Switching merchant accounts is time-consuming and disruptive, so your provider should be able to support your business’s growth and meet growing transaction volumes efficiently.

Customer support. Your merchant account is a critical piece of payment infrastructure, so you need to be able to access help quickly if you run into technical issues. Look for a provider who offers 24/7 support across a range of channels, including live chat, phone, and email.

Final Words

For eCommerce and in-person businesses alike, merchant accounts are essential to support payment security as well as growth. A merchant account enables businesses to accept payments securely and seamlessly via a range of payment types, from credit and debit cards to ACH and digital wallets, and receive them into their business bank account promptly. Businesses need to assess carefully the right merchant account provider for their needs, taking into account considerations such as fee structure, contract terms, payment options, and customer support. 

By selecting the best merchant account provider for your needs, you can feel confident that your business is ready to scale and provide customers with a seamless payment processing experience.

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FAQs about merchant accounts

Q: What is a merchant account?

A merchant account is a type of bank account that allows businesses to accept and process electronic payment card transactions. Merchant accounts are necessary for handling the funds that are transferred from the cardholder’s account to the business’s account after a credit or debit card transaction is completed. 

Q: What is an example of a merchant account?

An example of a merchant account would be a business account at a bank or financial institution specifically set up for a retail store or online business. This account enables the business to accept payments from customers using credit or debit cards, either in a physical storefront or through an e-commerce platform.

Q: What do you need to open a merchant account?

To open a merchant account, a business typically needs to provide:

  • Business information (like legal name, address, and tax ID)
  • Bank account details for fund transfers
  • Financial statements and credit history
  • An estimate of expected monthly card transaction volumes
  • A business license or proof of business registration
  • Personal identification documents for the business owner(s).

Q: What is a merchant account vs business account?

A merchant account is specifically designed for processing credit and debit card transactions and holding funds from these transactions temporarily. A business account, on the other hand, is a general bank account used for day-to-day financial operations of a business, like paying suppliers and receiving payments from clients that are not made by card.

Q: Who sets up a merchant account?

Merchant accounts are set up by a merchant acquiring bank or a specialized financial institution that processes credit and debit card transactions. The business seeking to accept card payments must apply for this account, and the provider evaluates the application based on various criteria, including the type of business, financial health, and projected sales volumes.

Q: Who qualifies as a merchant?

A merchant is typically defined as a business or individual that sells goods or services. Virtually any type of business, including retail stores, restaurants, online sellers, and service providers, can qualify as a merchant as long as they have a product or service to sell and meet the requirements set by the merchant account provider.