Credit Card Machines for Business: 6 Best Payment Terminals for 2024

The surge in real-time payments underscores how fast the world is moving, and highlights just how important it is for businesses to adapt and modernize their systems. This is especially true when it comes to payment machines and hardware. In order to serve your customers better, you need to equip your business with the latest in payment processing technology.

If you’re an SMB, take this as a call to action to upgrade to modern, secure payment terminals. Today’s market for credit card machines is brimming with cutting-edge technology, elevated connectivity, and robust security features. 

To that end, this article covers the top-rated credit card machines poised to meet the demands of 2024’s real-time payment landscape.

TL;DR

  • POS terminal features to look for: multi-payment compatibility, advanced security, economical price point, user-friendly design, and integration with existing systems.
  • Top options range from compact, portable terminals for on-the-go services to full-service POS systems and budget-friendly startup choices. Consider advanced security and high-volume payment processors for enhanced functionality.
  • Once you acquire your new terminal, set up the hardware, initialize it, configure connectivity, install software, run testing, and implement security measures. Invest in staff training, regular maintenance, and troubleshooting to avoid future complications.
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5 Factors to Consider When Choosing a Payment Terminal

Slow or outdated payment terminals can lead to long queues and security breaches. To be future-proof, business owners must upgrade to a dependable payment terminal. Here are some considerations for this long-term investment.

1. Multi-payment compatibility

Only 17% of customers prefer cash when shopping in person. So, a lack of payment flexibility can alienate the remaining 83%. 

Look for payment terminals that cater to your customer base’s preferred payment methods. Popular options include digital wallets (e.g., PayPal, Google Pay, and Apple Pay), EMV chip cards, and NFC/contactless payments.

2. Security features

Online shoppers’ spending nearly doubled, prompting cybercriminals with more opportunities to carry out fraudulent transactions. The average value of attempted fraudulent purchases increased by 69% year-over-year. At this rate, credit card equipment with subpar security is simply not an option.

Opt for in-store and virtual terminals with advanced security measures. Among these are PCI compliance and encryption technology, which can help thwart these evolving threats. 

3. Cost-effectiveness

Evaluating the total cost of terminal installation and maintenance can help avoid unexpected budget overruns. Here’s a checklist to guide you through your assessment.

  • Initial setup costs. Some providers may offer transparent pricing online. If not, schedule an in-person meeting or contact customer service to discuss the detailed price breakdown.
  • Flat-rate or tiered-pricing monthly fees. Calculate potential monthly charges based on your average transaction volume to determine the most cost-effective option.
  • Processing and other transaction fees. Scrutinize the fine print for the processing fees and additional charges, including chargeback, cross-border, ACH transfer, and early termination fees.

Don’t hesitate to negotiate terms with service providers, especially if you anticipate high transaction volumes. Ensure the final cost meets your budget to sustain healthy profit margins.

4. Ease of use

Credit card machines for businesses streamline the checkout process. Your staff must find the system intuitive to minimize training time and foster a positive customer experience. So, prioritize a terminal with a navigable, user-friendly interface and robust training resources. 

5. Integration with existing POS systems and business software

Credit card terminals that can easily sync with your current infrastructure and migrate your existing data can save you a lot of stress and downtime. Search for terminals that boast seamless integration with your existing point-of-sale (POS) systems and business software.

Pro-tip: Assess if the functionality can adapt to your business processes and future scalability.

With these factors in mind, you can now select the ideal payment terminal for your business. Here are the top credit card machines for your in-store, eCommerce, and mobile payment processing.

6 Best Credit Card Machines for Business in 2024

Merchant services require different types of credit card terminals for various operational structures. From high-speed mobility to large-scale retail transactions, here are the top 6 credit card machines for businesses to consider.

Compact and portable terminals

Mobile credit card readers offer convenience for small businesses, particularly those that run pop-up stores and on-the-go services like food trucks. Their portable, compact design and wireless capabilities allow entrepreneurs to accept card payments anytime, anywhere.

Mobile payments – linked with a Bluetooth Swipe Simple B250 Reader and the Stax Mobile app (for iPhone and Android phones) for fast, secure mobile transactions

Swipesimple

Compact countertop terminals – cloud-based, PCI-compliant terminals (i.e., QD2 Dejavoo, QD4 Dejavoo, Clover Flex, Clover Mini LTE, Clover Station Solo, Clover Station Duo); offers advanced data analytics for businesses; accepts swipe, chip, and tap card transactions

Dejavoo

Another prime example is the mobile terminal Pax A920. Powered by Android 7.1, this mobile POS comes equipped with Wi-Fi, Bluetooth, and Ethernet connectivity for fast device pairing. This feature-rich and versatile payment system starts at $199 for new units.

Paxa920

Full-service POS systems

Full-service POS software allows retail enterprises and serviced-based merchants, such as restaurants, to handle online and in-person transactions. This simplifies invoicing and automatically updates inventory levels, preventing overselling and facilitating timely replenishment.

Clover offers a full POS system that supports basic payments and sales tracking. 

Pricing varies depending on your hardware and software subscription. At the time of writing, Clover’s Starter product comes with an 8 ” countertop POS and costs $60/mo for 36 months or $799+ $14.95/mo. Its Standard plan equips you with a 14″ touchscreen terminal and 8″ customer‑facing display and costs $135/mo for 36 months or $1,799+ $49.95/mo. On the high end is the Advanced plan which comes with $185/mo for 36 months or or $2,398+ $64.90/mo.

Budget-friendly options

Reliable, budget-friendly credit card machines can equip startups without incurring high overhead costs.

Pro-tip: Look for solutions with lower initial setup costs and transparent pricing structures to avoid hidden fees or unexpected charges.

Take Stax’s fixed monthly subscription. It starts at $99 for annual payments of up to $150,000, $139 for $250,000, and $199+ for over $250,000. Your processing volume determines the subscription prices—no additional cents per transaction or separate fee for your terminal.

High-volume payment processors 

Some terminals incorporate advanced hardware and software features to process high-volume transactions rapidly. They support efficient multiple payment options, minimizing customer wait times at the checkout during peak business days.

With a large built-in and expandable memory, the rugged countertop Verifone VX520 stands out for such requirements. It has a powerful processor that can effortlessly handle EMV, NFC, CTLS, and credit/‌debit card payments. The cost varies by provider, but the terminal alone generally ranges from $100 to $150.

Verifone

Advanced security terminals

Are data breaches and fraud your primary concerns? Terminals with Payment Card Industry Data Security Standard (PCI DSS) certification guarantee they meet industry standards for secure payment processing.

Take, for instance, the Ingenico iCT 250. This terminal is one of the credit card machines for business that holds PCI PTS version 3.x certification with SRED and Open protocol modules. The SRED module indicates secure data entry, while the latter contributes to the overall security infrastructure. 

Ingenico

The First Data FD150 Terminal and RP10 PIN Pad take this further under the PCI-PED version 5.x certification. The higher version number suggests compliance with more recent security standards in terms of encryption and secure key management.

Firstdata

The Ingenico iCT 250 and First Data FD150 terminals cost around $300. Prices vary depending on RAM, flash memory, plug-in PIN pad, and other add-on features. 

With these innovative credit card processors, your business is poised for future success. Learn how to set up, operate, and maintain your new equipment for a seamless, efficient payment experience.

A Quick Guide to Credit Card Machine Setup, Usage, and Maintenance

To maximize your terminal’s efficiency, follow these step-by-step instructions for setting up the hardware and software.

1. Physical setup. Upon unboxing, check that all components are present. Connect all cables to power sources and hardware devices.

2. Initialization. Power on the terminal and follow on-screen prompts if any setup is required.

3. Connectivity configuration. Establish a stable internet connection through Ethernet, Wi-Fi, or cellular data. Verify that the terminal can communicate with your payment processor.

4. Software installation. If not built-in, download the software and install it as instructed. Link your machine to any existing merchant account.

5. Testing. Double-check the terminal’s accuracy to prevent chargebacks and disputes. Conduct test transactions with several payment methods.

6. Security measures. Set up PIN protection, encryption, and any additional authentication methods.

7. User training. For error-free usage, provide staff with hands-on training on transaction processing, security protocols, and refund procedures.

8. Regular maintenance. Regular maintenance helps prevent glitches or malfunctions. Update the software and firmware as needed. Clean the credit card reader, receipt printer, and other components using a mild, non-abrasive cleaner and a soft cloth.

9. Troubleshooting. Prepare a troubleshooting guide to help employees handle minor problems without external support. Provide step-by-step instructions for common issues, such as network problems, error messages, and transaction failures. 

Handle your terminal with care to ensure its reliability and efficiency. This attention to detail prevents potential issues, resulting in a positive customer experience that builds trust and loyalty. 

Upgrade Your Credit Card Terminals with Stax

From multi-payment compatibility to security and seamless integration, the optimal POS machine can anticipate and surpass your business needs. The more efficient your terminal, the smoother the transactions and the superior the customer experience.

Invest in your company’s future. Embrace technology advancements and opt for a terminal that not only supports growth but propels your business forward. 

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FAQs about Credit Card Machine for Business

Q: Which card machine is the best for small business?

For small businesses, particularly those operating pop-up stores or on-the-go services like food trucks, compact and portable terminals are ideal. A good fit may be the Pax A920, a mobile terminal starting at $299 for new units, is another excellent option due to its versatility and wireless capabilities.

Q: How much does a credit card machine cost?

The cost of a credit card machine can vary significantly based on the model, features, and provider. For instance, mobile terminals like the Pax A920 start at $199 for new units. Full-service POS systems like those offered by Clover can have additional monthly fees for inventory management and tax reporting features. Budget-friendly options like Stripe’s entry-level mobile reader cost $59, while more advanced models like the Stripe Reader S700 are priced at $349.

Q: What is a credit card machine with no monthly fees?

If you’re looking for terminals that don’t include monthly fees, you can opt for a standalone terminal without an attached service plan. Just keep in mind that transaction fees and other charges may still apply.

Q: How can small businesses take card payments?

Small businesses can take card payments through a credit card machine that supports various payment methods, including digital wallets, EMV chip cards, and NFC/contactless payments.

Q: What is the cheapest way of taking card payments?

Finding the lowest-cost payments processor will hinge on factors like your credit card processing volume and the features you need. 

That said, Stax offers one of the most cost-effective solutions for taking card payments, with a fixed monthly subscription starting at $99 for annual payments of up to $150,000. This model is beneficial as your processing volume determines the subscription prices, with no additional cents per transaction or separate fee for your terminal,

Q: How to choose a credit card machine?

When choosing a credit card machine, you need to consider factors such as payment features, security, and budget. 

Take a look at your business’s specific needs, including the preferred payment methods of your customer base, the volume of transactions you process, and the security standard you need to comply with. 

You should also assess the total cost of ownership, including initial setup costs, monthly fees, and transaction fees, to ensure it fits within your budget while offering the functionalities you need.

What is an Online Terminal and Why Do Merchants Need One?

The landscape of commerce has been drastically transformed in the digital age. Online payment systems are the standard. Globally, one-third of people do their shopping through eCommerce sites. In the US, that amounts to $3,428 per capita spent online.

Online terminals (sometimes referred to as virtual terminals) power various types of transactions, including eCommerce and payments made over the phone. That said, these tools are more than just a means to accept payments; they represent a comprehensive solution that integrates sales, inventory management, and customer data into a unified system.

By leveraging online terminals, merchants can enhance their operational efficiency, expand their market reach, and provide an enriched customer experience. This article covers the what, why, and how of online terminals; all a business owner needs to know to dive in and thrive.

TL;DR

  • Virtual terminals power various types of transactions. They act as a bridge between traditional payment processing and online payment possibilities. 
  • With seamless online payment processing, streamlined processes, and enhanced operational efficiency, online terminals simplify transactions, bolster security, and provide valuable insights into customer behavior and sales trends. 
  • Adopting this technology ensures that businesses stay competitive and remain attuned to the evolving demands of their customers.
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Understanding Online Terminals (aka Virtual Terminals)

An online terminal, often called a virtual terminal, is a web-based application that enables online payments without needing a physical credit card machine or POS (Point of Sale) system. For eCommerce companies and other types of businesses with online booking or subscriptions, it’s essential.

Key features of online terminals

Payment processing is the core feature of an online terminal, but it enables so much more. As with all digital tools, virtual terminals offer features designed to streamline processes and enhance operational efficiency. These features simplify transactions, bolster security, and provide valuable insights into customer behavior and sales trends.

Key features of online terminals include:

  1. Multi-Channel Payment Processing: Online terminals can process payments from various sources, such as credit cards, debit cards, e-wallets, and, in some cases, bank transfers. This versatility ensures that customers can use their preferred payment method, enhancing the customer experience.
  2. Integration with Payment Gateways: The terminal connects to multiple payment gateways, which are services that authorize and process payments. This connection enables the business to accept payments from different financial networks and countries.
  3. Secure Transactions: Online terminals incorporate security protocols like SSL encryption, tokenization, and Payment Card Industry Data Security Standards (PCI DSS) compliance. This security infrastructure protects sensitive payment information during transactions, building customer trust.
  4. User-Friendly Interface: They offer a straightforward and intuitive interface for the business and its customers. For the business, setting up and managing payment options is simplified, allowing for easy customization and control over the payment process. For customers, the payment process is streamlined, making it easy to complete purchases without hassle.
  5. Real-Time Processing: Online terminals facilitate real-time payment processing, which means transactions are completed almost instantly. This immediacy improves business cash flow and confirms to customers that their payment has been successfully received.
  6. Integration with eCommerce Platforms: Online terminals are designed to integrate seamlessly with eCommerce platforms and shopping cart software. This integration allows for a smooth checkout process, where the payment options are embedded directly into the online store’s checkout page.
  7. Support for Recurring Payments: Online terminals can handle recurring payments for businesses with subscription services, making them suitable for companies that offer subscriptions or need to process regular payments without requiring the customer to manually complete a transaction each time.
  8. Analytics and Reporting Tools: Many online terminals have built-in analytics and reporting features. These tools allow businesses to track sales, monitor payment activity, and analyze trends, helping them make informed decisions about their operations.

Advantages of Utilizing Online Terminals

Online terminals come with an array of advantages that simplify business operations, bolster security measures, and elevate the customer experience. The key benefits include:

Seamless convenience and accessibility

The convenience and accessibility provided by online terminals are especially advantageous for digital-first businesses. This technology empowers businesses to reach customers beyond the confines of physical storefronts and conventional operating hours, broadening their market reach and ensuring that services are available around the clock.

State-of-the-art security measures

Through online terminal technology, businesses are equipped with cutting-edge security features, including robust encryption and fraud detection mechanisms. These critical security enhancements guard against unauthorized transactions and secure customer payment data, thus protecting the business’s reputation and minimizing financial risks.

Enhanced customer experience

By integrating online payment solutions through an online terminal, businesses significantly enhance the shopping experience. This smooth and efficient checkout process is available anytime, anywhere, catering to consumers’ preferences. Such convenience simplifies the purchasing process, and fosters increased customer satisfaction and loyalty, potentially boosting repeat business.

Effortless integration with business tools

Online terminals can integrate effortlessly with a wide range of business tools, from inventory management systems to customer relationship management (CRM) platforms. This harmonious integration simplifies various administrative processes and offers deep insights into sales trends and customer behaviors. Armed with this knowledge, businesses can make strategic decisions and customize their offerings to more closely align with consumer demands, enhancing overall business performance.

Which Merchants Need a Virtual Terminal?

Virtual terminal technology is often thought of as an eCommerce solution. While these businesses may be the terminal’s biggest client base, the utilities of an online terminal apply to other business types.

eCommerce ventures

At the forefront, eCommerce businesses leverage online terminals to effortlessly conduct transactions over the internet. This tech supports many payment options and amplifies the customer’s shopping journey by melding flexibility with security, making it a cornerstone for digital commerce success.

Subscription-based enterprises

From digital content platforms to curated monthly box services, subscription-based businesses harness online terminals for streamlined recurring billing. This automation secures a steady revenue stream and refines the customer experience, freeing businesses to zero in on enhancing service quality and bolstering customer loyalty.

Service providers

Service-oriented businesses, be they spas or consultancy agencies, find a valuable solution in online terminals. This technology empowers customers to book and pay for services via the business’s digital interface, simplifying the reservation and payment process and ensuring a smoother operation.

Brick-and-mortar stores

Traditional brick-and-mortar establishments expanding into online territories benefit immensely from online terminals. This integration offers a unified shopping experience, allowing customers to easily shop in-store, over the phone, by mail, and online, all while maintaining transaction security and consistency across channels.

Setting Up an Online Terminal

Integrating an online terminal marks a transformative step toward enhancing operational efficiency and security. The process unfolds through three strategic phases:

Choosing the ideal service provider

The foundation of a successful online terminal is the right service provider. This critical decision hinges on identifying providers that deliver robust security measures, ensuring seamless compatibility with the business’s existing sales infrastructure, and offering unparalleled customer support. Businesses should meticulously evaluate the pricing models of potential providers to find one that aligns with their transaction volumes and organizational scale. 

Integrating with the business’s digital ecosystem

The integration phase involves embedding the online terminal within the business’s website or eCommerce platform. Providers typically offer solutions designed for easy integration, requiring minimal technical expertise.

If you need a customized integration, you may have to collaborate with the provider’s technical support team or engage a professional developer. This step is crucial for ensuring that the terminal functions harmoniously within the business’s digital framework, facilitating a smooth transactional experience for customers.

Training the terminal’s users

Invest in solid training for your staff. Be sure to cover key operational aspects such as processing transactions, handling refunds, and accessing transaction reports. Providers usually offer training resources, including manuals, instructional videos, and live webinars. Committing to regular training sessions ensures that the staff remains proficient and up-to-date with the terminal’s latest features and compliance requirements.

Best Practices for Using Online Terminals

Optimizing the use of online terminals involves a blend of tech know-how, security compliance,  and customer-focused practices.  

Upholding security and regulatory standards

Security isn’t just a priority; it’s a necessity. Adherence to security protocols, such as PCI DSS compliance is a must. 

See to it that you have all your security bases covered. This includes encrypting transaction data, keeping security measures up to date, and scheduling regular audits. Equally important is training staff in security best practices, empowering them to be the first line of defense against potential data breaches.  

Ensuring timely updates of software and hardware

Tech moves fast, so be sure to keep up with all the necessary hardware and software updates. This fortifies security and ensures the business stays updated with the latest payment technologies and functionalities. Keeping systems updated minimizes vulnerabilities and maximizes efficiency, providing a seamless transactional experience that can adapt to market changes and customer expectations.

Streamlining the customer payment experience

A crucial aspect of effectively leveraging online terminals is to demystify the technology for customers. Providing clear, concise instructions and support for navigating the payment portal can drastically improve the customer experience. A user-friendly interface not only makes transactions smoother but also plays a significant role in reducing the likelihood of cart abandonment. This focus on clarity and ease of use reflects a business’s commitment to customer satisfaction, fostering loyalty, and encouraging repeat business.

Navigating the Challenges of Online Terminals

As with all technology, virtual terminals have some common challenges. Thankfully, with correct use, there are also easy solutions.

Technical issues

Technical hiccups are inevitable, but their impact can be minimized. Have a swift action plan in place, including immediate access to provider support and staff trained to troubleshoot common issues. This ensures transactions flow smoothly with minimal disruption.

Disputes and chargebacks

Clear communication is key to reducing payment disputes. Ensure product descriptions, service terms, and return policies are transparent. Use fraud detection tools and engage proactively with customers to address concerns early, preventing disputes from escalating into chargebacks.

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Final Words

Online terminals are critical tools in the digital toolkit of contemporary merchants, and they’ll continue to be indispensable as consumers become more digitally-focused. As such, having the right online terminal ensures that businesses not only stay competitive but also remain attuned to the evolving demands of their customers.

FAQs about Online Terminal

Q: What is an online terminal?

An online terminal, often referred to as a virtual terminal, is a web-based application that facilitates online payments without the need for a physical credit card machine or point of sale (POS) system.

Q: Why do businesses need an online terminal?

Online terminals offer seamless online payment processing, streamline business processes, bolster security, and provide valuable insights into customer behavior and sales trends. Adopting this technology helps businesses stay competitive and serve the needs of modern customers. 

Q: How can merchants select the best online terminal for their business?

You can select the best online terminal by considering factors like the provider’s security measures, compatibility with the business’s existing sales infrastructure, customer support quality, and pricing models that align with your transaction volumes .

Q: How do online terminals work?

Online terminals work as web-based applications that process payments online. They connect to multiple payment gateways, authorizing and processing payments from various sources like credit cards, debit cards, e-wallets, and sometimes bank transfers. The terminal’s security protocols, such as SSL encryption, tokenization, and PCI DSS compliance, protect sensitive payment information during transactions.

 

Everything You Need to Know About Secure Payment Processing Systems

Data protection and security are crucial not just for safeguarding customer information, but for protecting business owners as well. Having and maintaining secure payment systems is integral for protecting yourself and your customers.

Because more credit card-oriented purchases take place online, security and fraud protection are top priorities. Making sure there are secure payment technology policies and procedures within your company will guarantee the integrity of present and future transactions.

Businesses are converting to digital and online platforms to stabilize their profitability at this time. The need for security is at an all-time high and business owners need to enhance protection for their customers and secure their sites to maintain trust.

Sure, you might know about ensuring to have an SSL certificate for your site URL and may have other fundamental factors in place, but secure payment policies require more coordination, effort, and awareness.

If you currently run an online business or you’re interested in adding an online shopping cart to your business, protecting your customers is priority number one.

Security threats can come from anywhere, and that is why you must institute checks and specific credit card processing policies that secure sensitive client details.

Enter secure payment systems (SPS).

TL;DR

  • Secure payment systems are crucial for eCommerce stores and companies to utilize because they protect both consumers and businesses from theft and fraud.
  • Secure payment systems are easy to implement, as you use your payment processor to create a secure payment gateway.
  • By combining a secure payment system with secure payment habits like not collecting excess data from customers, you’ll go a long way in safeguarding your business against fraud.

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Related Content: What is a Payment Gateway?

What Are Secure Payment Systems?

A secure payment system pertains to payment processing solutions and information technology that help protect people’s financial and personal data from fraud and unauthorized activities. Secure payment systems are essentially the digital guardians of online shopping, keeping the customer’s money safe throughout the transaction.

Secure payment systems comply with strict security standards and regulations set forth by governing bodies and industry organizations. Compliance with these standards ensures that merchants and payment processors implement robust security measures to safeguard financial data. 

The primary security standards that payment systems typically adhere to include:

  • Payment Card Industry Data Security Standard (PCI DSS): PCI DSS sets forth requirements for securing payment card data, including encryption, access control, network monitoring, and regular security testing. Compliance with PCI DSS is mandatory for businesses that handle credit card transactions.
  • EMV Standards: EMV (Europay, Mastercard, and Visa) standards govern the technology used in chip-enabled payment credit and debit cards and terminals. These standards help prevent card-present fraud by authenticating transactions through dynamic data authentication and cryptographic processes.
  • Payment Application Data Security Standard (PA-DSS): PA-DSS applies to software vendors and developers of payment applications. It outlines security requirements for ensuring the secure storage and transmission of cardholder data within payment applications.
  • ISO/IEC 27001: This international standard provides a framework for establishing, implementing, maintaining, and continually improving an information security management system (ISMS). Adherence to ISO/IEC 27001 helps ensure the confidentiality, integrity, and availability of sensitive data, including payment information.
  • Regulatory Compliance: Payment systems may also need to comply with specific regulations and laws related to financial transactions and data protection, depending on the region and industry. Examples include the General Data Protection Regulation (GDPR) in the European Union and the Gramm-Leach-Bliley Act (GLBA) in the United States.

How Do Secure Payment Systems Work?

Secure payment systems employ various technologies to protect sensitive information and prevent unauthorized access or fraudulent activities. 

1. Encryption

The fundamental component of secure payment systems is encryption. Credit card encryption is a process where sensitive information, such as a credit card number, is encoded into a secure format to prevent unauthorized access or interception during transmission over the internet. 

Encryption works by scrambling plain, readable data (plaintext) into an unreadable format (ciphertext) using an algorithm and a key. The algorithm is a set of mathematical instructions that dictate how the encryption and decryption processes occur, while the key is a unique piece of information that controls the encryption and decryption operations.

When encrypting data, the algorithm takes the plaintext and combines it with the key to produce ciphertext. This ciphertext appears as a random sequence of characters and is meaningless without the corresponding key.

To decrypt the ciphertext and retrieve the original plaintext, the recipient uses the same algorithm but with the decryption key. The algorithm applies the key to the ciphertext, reversing the encryption process and transforming the ciphertext back into plaintext.

Encryption ensures that even if intercepted, the encrypted data remains unintelligible to unauthorized parties, providing confidentiality and security for sensitive information transmitted over networks.

2. Authentication Methods

Secure payment systems also implement a variety of authentication methods to verify the identities of both parties involved in the transaction. These include:

  • Passwords. Users create unique passwords that they must enter to access their accounts or complete transactions. This method is widely used but can be vulnerable to password guessing or theft if not properly managed.
  • Two-Factor Authentication (2FA). 2FA requires users to provide two different forms of verification before accessing their accounts or making transactions.
  • Digital Certificates. Digital certificates are electronic documents that verify the identity of a user or website. They are issued by trusted Certificate Authorities and are used to establish secure connections between parties in online transactions.

3. Tokenization

Tokenization is the act of replacing the full credit card number with a unique token that is meaningless on its own and cannot be reverse-engineered to obtain the original data.

Tokenization occurs before encryption, adding an additional layer of security to credit card transactions. Tokenization ensures that even if the encryption is intercepted and decrypted, the most sensitive information of the transaction is still hidden.

A payment processor that implements SPS can protect your business and customer data in the following ways.

Protect Your Customers and Your Business from Chargebacks

When a fraudulent purchase occurs at your online store, it could lead to a credit card chargeback. A chargeback is when a credit card transaction is reversed by the card issuer, usually initiated by the cardholder, due to a dispute with the merchant over the quality of goods or services received, unauthorized use of the card, or other reasons.These chargebacks mean directly issuing a refund to the customer whose credit card was used in the fraudulent transaction.

If your business is subject to a chargeback, you and your company can end up paying extra fees to your credit card processor as well.

There are steps businesses can take to respond to a credit card chargeback if the business owner would like to dispute it. But in the case of fraud, securing your payment systems (SPS) is the best protection, as it’s the best way to prevent fraud from happening in the first place. When you secure your payment systems, your customers can shop and use credit card payments at your online store with confidence.

Aspects such as chargebacks are a part of payment processing that many businesses may not spend as much time thinking about when observing and instituting secure payment processing (SPS) habits.

But these are the details that matter when processing payments online.

How to Secure Your Online Store with a Payment Gateway

A secure payment gateway is the best tool for protecting your payment systems. A secure payment gateway is a technology platform that facilitates the secure transmission of payment information between a merchant’s website or point-of-sale system and the payment processor or acquiring bank. It acts as a bridge between the customer, the merchant, and the financial institutions involved in processing a transaction.

 A secure payment gateway plays a crucial role in ensuring the safety and integrity of online transactions because it does the encryption and tokenization of cardholder information. This means that the cardholder information is far less vulnerable to data thieves, protecting you and your customers from fraud.

The best payment gateway acts as a secure “checkpoint” for transactions from customers to you. Most merchant services providers will offer eCommerce solutions, including shopping cart integrations and secure payment (SPS) gateways, meaning you can easily set up a secure payment system by working with your payment processor or merchant services provider

Implement Security Measures

A secure site will reassure your customers that their information is safe and stays private. Using SSL is a common and necessary step to protect that information. A Secure Sockets Layer, or “SSL”, ensures that sensitive information, such as login credentials, payment details, and personal data, remains confidential and secure during transmission. 

SSL encrypts all that info, which helps prevent unauthorized access and interception by malicious third parties, safeguarding users’ privacy and protecting against potential cyberattacks, such as man-in-the-middle attacks. 

An SSL certificate will reassure your website’s visitors that their data is secure if they enter in their payment information. Browsers will even show if a website has an SSL certificate or not.

In some cases, the payment processor may be using Transport Layer Security (TLS). This is an updated version of SSL and it implements a cryptographic protocol that encrypts and secures data sent over the web.

85% of Internet users reported that they would stop using a website if it wasn’t secure. So a TLS or an SSL certificate offers peace of mind and tightens your online store’s security.

Don’t Collect Too Much Information

Another way to boost your site’s security is to collect only the information you need. You’ll be cutting down the risk of a data leak or a security breach if you only collect what you need and don’t require your customers to create an account to check out. At the same time, you’re improving the customer experience by streamlining your entire checkout process.

Research shows that 23% of customers abandon their shopping carts if they have to create an account, while 12% abandon their carts if checking out is too confusing. As such, a streamlined and secure checkout is the best way to protect your customers’ data and keep them happy.

The data points most merchants can cut down to are:

  • Payment information such as credit card numbers, expiration dates, and security codes (CVV/CVC) for processing the payment. In some cases, alternative payment methods such as bank account information or digital wallet details may also be collected.
  • Billing address is required for verification purposes and to ensure that the payment card information matches the address associated with the cardholder’s account.
  • Contact information, including the customer’s email address and/or phone number, is necessary for sending order confirmations, updates on the status of the order, and resolving any issues related to the purchase.
  • Shipping address is also required for any physical deliveries.
  • Finally, depending on applicable privacy regulations such as the General Data Protection Regulation (GDPR) in the European Union, merchants may need to obtain explicit consent from customers for collecting and processing their personal data.

Finding the Right Payment Processor

Ultimately, ensuring that you have a secure payment system starts with choosing the right credit card processor, since that’s who you’ll be running your secure payment gateway through. That’s why when shopping around for merchant services providers, you must choose a payment platform that makes security a top priority. Ask vendors questions on:

  1. How they keep card transactions secure
  2. The steps and tools they use to protect credit card information
  3. How they ensure compliance with Payment Card Industry Data Security Standards
  4. The financial institutions they work with
  5. Who has access to payment data

Remember that when it comes to protecting your business, securing sensitive data can be as simple as using the right tools. And a merchant services provider will have the resources you need to protect your business from fraud and data breaches. With the necessary precautions, you can avoid penalties and your customers can shop with confidence at your online store.

Related Content: PCI DSS Compliance: How Stax Protects Your Payments

Final Words

At Stax, we’re committed to securing sensitive cardholder data. As a Level 1 PCI Service Provider, we take the utmost care in protecting this data. We use a host of security measures to prevent fraud and ensure PCI compliance across all of our products.

Our team will always be available to assist you in staying within PCI standards. In the new digital age of payments and shopping, security is top of mind for businesses. With Stax, you can rest easy knowing your data is protected and secure.

To learn more about our online payment solutions and services or to have a free consultation, don’t hesitate to reach out to Stax today.

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FAQs about Secure Payment Systems

Q: What are Secure Payment Systems (SPS)?

Secure Payment Systems (SPS) refer to payment processing solutions and information technology that help safeguard people’s personal and financial data from unauthorized activities and fraud.

Q: How do Secure Payment Systems protect businesses and their customers?

Secure Payment Systems can protect businesses and their customers in various ways. They can prevent fraudulent purchases that may lead to credit chargebacks. By incorporating SPS, customers can confidently shop and use credit card payments on your online store, knowing their sensitive information is protected.

Q: What is a secure payment gateway?

A secure payment gateway is a PCI-compliant tool that encrypts and tokenizes cardholder information to protect against data thieves. This tool can serve as a secure “checkpoint” for transactions from customers, further protecting the integrity of your payment systems.

Q: What are some security measures for secure sites?

Common security measures include Secure Sockets Layer (SSL) certification, which encrypts the customer’s data as it moves between the website and the server. Other tools include Transport Layer Security (TLS), which implements a cryptographic protocol that encrypts and secures data sent over the internet.

Q: Why is limiting data collection important for security?

Collecting only the essential information reduces the risk of data leaks or security breaches. By streamlining your checkout process and not making account creation mandatory, you can further enhance your site’s security and improve the customer experience.

Q: What aspects should be considered in choosing the right payment processor?

When selecting a payment processor, ensure it prioritizes security and complies with Payment Card Industry Data Security Standards. Look into how they secure card transactions, protect credit card information, their associated financial institutions, and who has access to payment data.

Q: What role does a merchant services provider play in secure payment systems?

A merchant services provider can offer the necessary resources and tools to protect your business from fraud and data breaches. They can implement security measures to prevent fraud and ensure PCI compliance across all products, safeguarding the data and giving customers confidence to shop at your online store.


 

EMV Chip Cards: What You Need to Know About PIN or Signature Cards and How They Work

EMV (Europay, Mastercard, and Visa) chip card use has continued to expand in use since its tumultuous rollout in 2015. The EMV standard has now become a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions. Yet, while time has provided customers and businesses with more education on the security benefits of EMV card chips, many businesses and consumers are still confused about key components.

One area that continues to cause confusion is the difference between ‘chip and PIN’ and ‘chip and signature’. 

TLDR

  • Chip and PIN vs chip and signature refers to the way the cardholder provides authorization for the purchase. Chip and PIN cards are authorized with the cardholder’s personal identification number (PIN), while chip and signature are authorized by the cardholder’s signature that is matched to the back of the card or to a signature on file in the credit card’s database.
  • Whether signature or PIN authorized, EMV chip cards are the new global standard for debit and credit cards due to the increased security of EMV technology over the classic magstripe.
  • The chip does not affect the price of processing payments. You will still be subject to the costs of debit vs. credit payments, etc.
  • During the EMV chip card rollout, consumers reported frustration with slower transaction times. However, there are very few problems associated with EMV cards as of now.

So what is the difference between these two EMV chip card payment formats?

What Types of EMV Chip Cards Are There?

There are two types of EMV chip cards – ‘chip and PIN’ cards, and ‘chip and signature’ cards. 

A consumer using a chip and PIN card will enter their PIN (Personal Identification Number) to authorize a purchase. The PIN adds an extra layer of security, as it verifies that the person using the card is the rightful owner. If the PIN entered matches the one associated with the card, the transaction is approved. If not, the transaction may be declined. PIN cards are commonly used in regions where PIN authentication is prevalent, such as Europe and many other parts of the world.

A consumer using a chip and signature card will sign for the purchase. The signature is compared with the one on the back of the card or with the signature stored in the card issuer’s system. If the signatures matches, the transaction is typically approved. Signature cards are more commonly used in regions where signature-based authentication is the norm, such as the United States. However, the adoption of signature cards has been decreasing in favor of PIN cards and other authentication methods.

EMV technology is designed to reduce credit card fraud, particularly counterfeit card fraud, by making it more difficult for criminals to create counterfeit cards. The chip in an EMV card generates a unique code for each transaction, making it nearly impossible for fraudsters to duplicate the card’s information for fraudulent purposes. 

However, the level of security provided can vary depending on whether the card is used with a PIN or a signature. Generally, PIN transactions are considered more secure because they rely on a secret code known only to the cardholder, whereas signatures can be forged or otherwise bypassed more easily.

Currently, in the United States, most credit cards are chip and signature, while most debit cards are chip and PIN. Like magnetic strip credit cards, you sign for a purchase when using a chip credit card. When using a chip debit card, you enter a PIN just as you did with your magnetic strip debit card.

It’s worth noting that credit card companies have begun to experiment with new, more secure forms of authentication, due to the insecurities both PIN and signatures face. The not-too-distant future may feature ‘chip and biometric’ cards.

Learn More

What Are the Costs to Accept EMV Chip Cards?

At the time of this writing, there is no difference in cost to accept chip cards as opposed to magnetic strip cards. For example, if your customer uses a chip rewards card, the cost will be the same if they use a magstripe rewards card.

There can be differences in costs to process chip and PIN cards in contrast to chip and signature cards. If a customer uses a chip and PIN debit card, it may be less expensive than if they use a chip and signature card. This is due to the fact that PIN debit processing costs are often lower than credit card processing costs.

Since chip and PIN are typically only available on debit cards in the United States, it is safe to assume that chip and PIN may be cheaper as a result.

Can I Run an EMV Debit Card “as credit”?

Just because there’s no difference in cost to accept chip cards vs. magstripe cards doesn’t mean there aren’t still fluctuations in costs. This is especially true when accepting debit cards, which can be authorized with either a PIN or a signature.

Many chip debit cards provide the option to skip PIN entry and run the card “as credit” instead. The cardholder will sign for the transaction instead of entering a PIN.

When running the debit card “as credit,” the transaction will be charged according to the debit rates noted in Visa and Mastercard’s interchange tables, not according to the debit network fee schedules. In some cases, it’s less expensive for a merchant to accept PIN debit cards than signature debit cards.

Related Post: The True Cost of Debit Card Transactions

When purchasing equipment or deciding on how you’ll accept cards, consider adding a PIN pad so customers can enter PINs for debit transactions.

It’s also worth noting that even though chip cards do not cost more to process by default, some processing companies impose “EMV Non-Enabled” fees for merchants that can’t or won’t accept chip cards. You’ll need to have and use EMV-capable equipment to avoid those fees.

What’s the Difference Between EMV and NFC technologies?

EMV and NFC (Near Field Communication) technologies both came out around the same time and both are involved in the payment process—which can make them easy to confuse. They are quite distinct technologies, though.

EMV

As mentioned, EMV technology focuses on securing card-present transactions through the use of chip cards. The goal of EMV is to reduce counterfeit card fraud and unauthorized use of lost or stolen cards and exclusively deals with payment cards.

NFC

On the other hand, NFC is a short-range wireless communication technology that enables devices, such as smartphones or contactless cards, to communicate with each other when brought into close proximity (usually within a few centimeters). This means that NFC technology is not limited to payment applications and can be used for a wide range of purposes beyond payments, such as data exchange and access control.

In the context of payments, NFC technology allows for contactless transactions where the payment device (e.g., smartphone or contactless card) is simply tapped or waved near a compatible payment terminal to complete a transaction.

NFC technology is commonly used in contactless payment systems, mobile payment apps (e.g., Apple Pay, Google Pay), and transit systems for fare payment.

Do I Need a Special Payment Processor for EMV Chips?

The short answer to this is yes, you need to have a payment processor with a chip reader either in addition to or instead of the classic magstripe reader. At this point, it’s unlikely you’ll be able to find a new card reader that doesn’t feature a chip reader, though, so it’s hard to go wrong. (Need some help choosing the right card reader for your business? Check out this guide!) 

How Does EMV Affect Card-Not-Present Transactions?

While EMV technology primarily aims to enhance security for card-present transactions, where the card is physically present in-person at the point of sale, its implementation has had implications for card-not-present (CNP) transactions. (Purchases where the cardholder is not physically present, such as eCommerce or over-the-phone purchases.) 

That said, EMV chip cards have had some effect on CNP transactions:

  • With the widespread adoption of EMV chip technology for card-present transactions, there’s been a liability shift for fraudulent transactions from the card issuer to the merchant if the merchant does not support EMV transactions. However, this shift in liability does not apply to CNP transactions. 
  • Tokenization, which replaces sensitive card data with a unique token, has become more prevalent in CNP transactions. Instead of transmitting actual card numbers, merchants and payment processors exchange tokens that are meaningless to fraudsters if intercepted. This helps mitigate the risk of data breaches and unauthorized access to cardholder information.
  • Some EMV card issuers offer dynamic authentication methods, such as one-time passwords or biometric authentication, for CNP transactions. These methods add an extra layer of security by ensuring that each transaction requires unique authentication credentials, making it more difficult for fraudsters to gain unauthorized access to cardholder accounts.

Are There Any Known Problems in Using EMV Chip Cards?

At the introduction of EMV chips, consumers frequently complained that the transaction speed was much slower than the standard magstripe card. This was the main problem associated with EMV chips and has largely been resolved with time. 

Some merchants do still report issues with chip cards, particularly EMV PIN debit cards. Problems include terminals not requiring PIN entry, lack of cashback options when using a debit card, and terminals not permitting a customer to skip PIN entry.

There are several possible reasons for the issues, including terminals not set up correctly and customers choosing the wrong option. If your machine isn’t prompting for PINs (or requires PIN entry and won’t allow signature authorization instead) it’s a good idea to contact your merchant services provider to troubleshoot the problem.

One other issue that EMV chip cards face is card cloning. 

Card cloning, also known as skimming, involves copying the information stored on the magnetic stripe or EMV chip of a legitimate payment card onto another card, typically a blank card or a card with a stolen or expired account number. 

Here’s a general overview of how card cloning works:

  1. Fraudsters use a device called a skimmer to illegally capture credit card information. Skimmers can be installed on legitimate card readers, such as ATMs or POS terminals. When a card is inserted into the compromised device, the skimmer reads and stores the card’s data, including the card number, expiration date, and sometimes the cardholder’s name. In addition to skimmers, fraudsters may also use hidden cameras or keypad overlays to capture PINs entered by cardholders during transactions. This information can be used in conjunction with the cloned card data to make unauthorized purchases or withdraw cash from ATMs.
  2. Once the card data has been captured, the fraudster typically transfers it to a blank magnetic stripe card or a counterfeit EMV chip card using a card writer or encoder. This creates a clone of the original card that contains all the stolen information.
  3. Before using the cloned card for fraudulent transactions, the fraudster may conduct small test transactions to ensure that the card works properly and that the stolen information is accurate. Once satisfied, they may proceed to make larger purchases or cash withdrawals, often in multiple locations to avoid detection. A fraudster may also sell the cloned card on the black market instead of using it directly themselves.

Final words

At Stax, we’re all about helping merchants implement robust payment security that go above and beyond security standards. To learn more, get in touch and learn how Stax integrated payment processing platform helps prevent fraud and safeguard payment data. 

Request a custom quote to see how the Stax integrated payment processing platform will work for you.

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FAQs about EMV chip cards

Q: What are the two types of EMV chip cards?

There are two types of EMV (Europay, Mastercard, and Visa) chip cards – ‘chip and PIN’ cards, and ‘chip and signature’ cards. The former requires a customer to enter their PIN to authorize a purchase while the latter necessitates a customer’s signature for the purchase.

Q: Which card type is more common in the United States, chip and PIN or chip and signature?

In the United States, most credit cards fall under the category of chip and signature, while most debit cards are chip and PIN.

Q: Are there cost differences when accepting chip and PIN vs. chip and signature cards?

Processing costs can vary when dealing with these two types of cards owing to the fact that PIN debit processing costs are often lower than credit card processing costs. Therefore, a chip and PIN debit card may be less expensive to process than a chip and signature card.

Q: Can an EMV debit card be run as credit?

Yes, many chip debit cards give the cardholder the option to skip PIN entry and run the card “as credit”. In this case, the cardholder signs for the transaction instead of entering a PIN.

Q: What are potential issues that can arise when using EMV chip cards?

Some merchants have reported problems related to EMV PIN debit cards, including terminals not requiring PIN entry, lack of cashback options with a debit card, and terminals not allowing a customer to skip PIN entry. Addressing these issues often involves contacting the merchant services provider or ensuring the terminals are correctly set up.

Q: Is there a difference in cost when accepting chip cards vs. magstripe cards?

As of present times, there is no cost difference when accepting chip cards as opposed to magstripe cards. However, fluctuations in costs may still occur, especially when accepting debit cards.

Q: Are there any additional fees for merchants who don’t accept chip cards?

Yes. Some processing companies impose “EMV Non-Enabled” fees for merchants who don’t have or don’t use EMV-capable equipment.

Q: What’s the significance of having a PIN pad in the transaction equipment?

A PIN pad allows customers to enter PINs for debit transactions. This can be a beneficial addition for merchants, especially given the cost benefits of processing PIN debit cards over signature debit cards.


 

Days Sales Outstanding Formula: What is DSO and How Do You Calculate It?

In an ideal world, all customers would pay an invoice the moment they receive it. But in reality, companies often have to spend considerable time and resources chasing down late payments that are stuck in Accounts Receivable.

Promptly collecting payments from your customers is essential to run a sustainable business. Over time, late payments have a detrimental effect on cash flow and company resources, especially if you need to get outside creditors involved. In fact, 81% of large retailers say that real-time payments are critical to their operations.

DSO, or Days Sales Outstanding, is a formula and KPI for small and medium-sized businesses to measure the average number of days it takes to collect payments from customers. As well as identifying inefficiencies in payment processing or customer communications, DSO is a key financial benchmark to assess liquidity and the state of accounts receivable.

In this blog, we’re going to explore the importance of DSO, how to calculate it, and strategies to help improve DSO to create a healthier business.

TL;DR

  • DSO is calculated by dividing Net Credit Sales by Accounts Receivable, then multiplying by the number of days in any given period.
  • DSO is influenced by a range of factors, including a company’s credit policy, customer purchasing patterns, and invoice management.
  • Implementing stricter credit policies, automated invoicing, and better customer relationship management lead to more efficient account receivables management and improved DSO.
Learn More

What is Days Sales Outstanding?

DSO means Days Sales Outstanding and is a metric for measuring the average number of days it takes for a business to collect payment after products or services are rendered. The faster that credit sales are collected, the faster it can be reinvested into your business to attract more customers.

Because businesses collect the proceeds from cash sales immediately, DSO calculations are only used to measure credit sales, which may be realized over weeks or months, depending on the payment terms.

Measuring DSO ratio helps businesses understand when they can expect to receive payment and whether there’s an imminent risk to cash flow. A low DSO value means a business is collecting payments quickly and efficiently, meaning more robust working capital and a streamlined cash conversion cycle.

A high DSO may indicate that a business does not have a robust collection process in place, which is resulting in delays to receiving customer payments. In addition to reducing profitability and increasing days payable outstanding (DPO), high DSO can seriously hinder business growth – especially if your total credit sales make up a large proportion of overall sales.

How to Calculate DSO: Days Sales Outstanding Formula

The standard DSO formula is as follows:

Days Sales Outstanding (DSO)= Net Credit Sales / Accounts Receivable​)× X Number of Days in the Period

Let’s break this down:

1. Define the time period

First, you need to decide what period of time you want to calculate DSO for. This could be monthly, quarterly, or annually, depending on your needs.

2. Divide Total Accounts Receivable by Net Credit Sales

Your Net Credit Sales should be recorded after any discounts or returns have been taken into account. Accounts Receivable is the total figure at the end of the time period chosen.

3. Multiply by the exact number of days in your chosen period

Let’s say you wanted to understand the average DSO for the entire month of April. If your Total Accounts Receivable was $80,000 at the end of April while total Net Credit Sales were $35,000, dividing Accounts Receivable by Net Credit Sales would be represented like this:

$80,000 / $35,000 = 2.28

Multiplying this figure by the total number of days in April (30 days) gives us your company’s DSO for the whole month:

2.28 x 30 = 68.4

In this example, it takes 68 days on average in this example for your business to collect payment for credit sales.

Factors Influencing DSO

Credit policies

The credit policy decided by a business has a big influence on DSO, as more lenient policies—such as longer payment terms or a lack of credit checks – will likely result in later payments by customers, which in turn pushes up DSO. Taking a more conservative approach to credit sales, by only making them available with stricter terms or to existing customers with a good payment history, help keep DSO under control.

Customer payment behaviors

How quickly or slowly your customers make payments has a direct impact on DSO, as timely payments by the due date keep DSO low. If payments are consistently collected late or after multiple reminders, this lengthens DSO and requires more company resources to secure payments, which can impact customer satisfaction as well as company finances.

The impact of economic conditions on DSO

When economic conditions are unpredictable or less favorable for businesses, this can result in increased DSO as businesses prolong paying what they owe to preserve cash flow. When interest rates are high, companies may have a less liquidity due to paying bigger loans or having difficulty securing lending, which has a knock-on effect on vendors.

Strategies for Improving DSO

Implementing stricter credit policies

Taking a more conservative approach to which customers are eligible for credit sales is a good way to lower DSO and minimize delayed payments. 

For example, you could decide that credit is only offered to existing customers who have a track record of on-time payments, or reward customers who make early payments with incentives such as discounts. If you want new customers to have access to credit, it’s worth implementing credit checks to determine whether they’re an appropriate fit for credit sales. It’s a good idea to use a standardized approach and request information such as financial statements when new customers are onboarded.

Enhancing invoice management processes

Invoice management plays a pivotal role in avoiding late payments. This includes schedules, templates, and follow-up reminders for outstanding invoices – something which is difficult to do with just an excel spreadsheet. All invoices should clearly state when payments are due, what payment methods are available, and any penalties that will be levied on unpaid invoices. This helps to streamline the payment process and remove friction on the customer’s end.

Automation of invoice workflows is a great way to free up staff time and avoid unnecessary delays to payment collection. For example, automating the sending of invoices helps reduce your days sales outstanding by ensuring that invoices don’t require manual send-offs that could be delayed by holidays or staff sickness.

Fostering better customer relationships to improve payment times

Building better trust and communication with your customers helps to nip payment issues in the bud by setting clear expectations and boundaries in the business relationship. It’s important to address payment and credit terms ahead of time and give your customer a chance to raise any concerns or questions before invoices are due. This also provides opportunities to amend payment terms with full agreement from both parties, such as alternative payment methods, a different time frame for due dates, or certain services being paid for upfront.

Leveraging technology for efficient receivables management

Improving your overall process for managing the Accounts Receivable process makes it far easier to get a handle on your company’s accounts and what is being entered on the balance sheet. In addition to automating the sending and follow-up of invoices, tools like recurring billing, online payment portals, and receivables tracking minimize the amount of time your business needs to spend chasing up payments or understanding how many payments are left to collect.

Case in point: Stax Bill, a recurring billing and subscription management platform that automates payments. Stax Bill simplifies your processes, enabling you to work more efficiently, recover revenue, and collect on invoices.  

Some platforms enable you to track DSO directly and identify trends like seasonality or whether different industries are more liable to higher DSO than others.

The Limitations of DSO

Although useful, there are a lot of reasons why DSO doesn’t provide businesses with a clear financial picture, such as:

Credit terms differ between businesses

Different companies will offer their customers different credit policies, depending on the industry, the length of the customer relationship, and the size of the sale. More generous credit terms can cause higher DSO, as customers may take longer to make payments, resulting in a higher average accounts receivable balance. However, this doesn’t necessarily mean a business has been lax with collecting payments, or that a company’s cash flow is adversely affected.

Seasonal variations in DSO

For the majority of businesses, consumer spending patterns are not uniform throughout the year; instead, there are peaks and troughs that align with key events or seasons. Retail companies typically see the biggest spike in sales and DSO during the holiday season, which is also when many consumers use credit to make purchases. These kinds of seasonal variations mean it’s a good idea to exclude time periods like the holiday season when tracking DSO, as this may skew financial ratios.

Different industries see different DSO numbers

Some industries are more prone to high DSO than others, which can result in a distorted impression of what is considered a good Days Sales Outstanding ratio. For example, industries such as construction, healthcare, and manufacturing typically see longer payment cycles due to having long project timelines and additional steps like reimbursements, billing approvals, and progress payments that push up DSO. In these cases, DSO doesn’t necessarily equate to cash flow problems, as companies in these industries typically set pricing or invoice schedules accordingly.

Example of Successfully Managing DSO

The healthcare industry is one of the most adversely affected by DSO, due to the difficulty in collecting payments from insurers in a timely manner. 

Long processing times for even minor insurance claims result in DSO timeframes ballooning, with the average DSO from healthcare providers reaching 47 days, according to the Working Capital Tracker study

Furthermore, 37% of healthcare providers reported being owed amounts ranging from $25,000 – $100,000, while another 32% reported amounts exceeding $100,000.

Given that healthcare providers rely on timely claim resolutions to release funds, automation and predictive analytics have proven to be useful methods in reducing DSO. Automation allows for simpler medical claims to be either approved or denied in a much faster timeframe, while overdue invoices can be flagged for further action much more quickly than via a manual approach. For this reason, 52% of surveyed healthcare providers reported having replaced previous claims processing technology with automated systems in the past year, which will go a long way towards reducing DSO.

Final words

Tracking your Days Sales Outstanding (DSO) is one of the best ways to manage the overall financial health of your business. A low DSO is a good sign that your business is collecting payments from customers promptly and keeping Accounts Receivable under control. High DSO, however, is a strong indicator that your business is struggling to collect payments in a timely manner and may be at risk of struggling with cash flow.

DSO can be more effectively controlled by implementing stricter credit policies, implementing automation for invoice management, and fostering better relationships with customers. However, DSO does have some limitations, such as industry variations and seasonal fluctuations, which can make it difficult to assess DSO and make accurate comparisons between businesses.

In sum, by prioritizing DSO and accounts receivable management, businesses can set themselves up for better resilience during tough challenging economic times and spend less time and resources chasing up payments. This means more bandwidth for initiatives that grow your business and achieve better long-term success.

Payment processing can go a long way in ensuring you’re able to collect payments efficiently. That’s why it’s important to partner with a payment processing company that offers quick payouts—like Stax.

Learn more about how we can help you process payments quickly and in the most cost-efficient way possible. 

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FAQs about Days Sales Outstanding Formula

Q: What is the days sales outstanding formula?

The most common DSO formula is:

Days Sales Outstanding (DSO)= Net Credit Sales / Accounts Receivable​)× X Number of Days in the Period

Q: What does a high DSO indicate? 

A high DSO value indicates that a company takes a longer time to collect its receivables. This can imply poor credit control and might affect the company’s cash flow negatively since it is taking longer to convert sales into cash.

Q: Is a low DSO always better? 

Generally, a lower DSO is preferred as it implies faster collection of receivables, leading to better cash flow. However, it’s important to balance between too low a DSO (which might indicate overly strict credit terms that could drive away potential sales) and too high a DSO (indicating poor collection processes).

Q: What is a good DSO ratio?

A “good” Days Sales Outstanding (DSO) ratio can vary significantly depending on the industry, the nature of the business, and the specific credit terms offered to customers. There’s no one-size-fits-all answer, as what might be considered good for one industry could be seen as poor for another.

Q: What is the average DSO per industry?

According to CFO.com, the average DSO ratio per industry are as follows:

  • Airlines: 23 
  • Retail: 6 
  • Hotels, restaurants, and recreation: 32 
  • Motor vehicles: 24 
  • Telecom: 51 
  • Healthcare: 32   

 

Card Machines: 6 Ways to Save Money on Payment Processing Equipment

Owning a business can take quite the investment. Then when you layer in the need for payment processing, the complexity of managing your finances escalates significantly.

This is especially true when solution providers charge hidden fees, outrageous markups, and endless hours of confused Google searches. Not to mention, some credit card machines can be shockingly expensive. Depending on the credit card terminal you choose, buying a new machine could cost your business between $200-$1,000 per terminal. Most small businesses cannot handle that cost when starting.

Thankfully, we’re here to break down how you can save when investing in a credit card machine. Whether the solution is leasing machines, opting for refurbished models, or joining groups, there are several ways to save on your business’s credit card machines. 

TL;DR

  • Credit card machines and terminals can be costly. Thankfully, your small business can find alternatives to renting or buying equipment at full price. Many businesses buy refurbished machines at a low cost or lease-to-own their equipment. 
  • Some small business owners choose to join buying groups of experts in their field. These groups serve as a great resource, as well as a place to buy products in bulk. 
  • Owners are encouraged to ask for help from their point of sales representatives or other providers. 

Learn More

Opt for a Lease-to-Own Option

Many small businesses choose to lease their credit card machines. But unlike renting the machines and throwing money at them with no return benefits, a lease-to-own option allows businesses to pay off their credit card machines incrementally. Most lease-to-own options range between 24-48 months. The leasing agreement is often between the merchant service provider.

Lease-to-own agreements differ in price, depending on the type of terminal you purchase (wireless are more expensive than older models), the length, and if your business requires a separate receipt printer. Lease agreements range from $25-$50 a month typically.  

Benefits of leasing credit card machines

Leasing agreements on expensive equipment can benefit small to medium-sized businesses just starting. Spreading out smaller expenses allows your business to gain all the equipment to thrive. Small businesses can also benefit from tax deductions on their lease payments more than they would if they paid in full. 

Plus, leasing agreements provide small businesses access to the latest business technology they might not have had access to if they chose a credit card terminal they had to pay in full.

Drawbacks of the leasing-to-own 

While leasing equipment can be one of the best short-term options for your business, compare the cumulative lease costs to the direct purchase expenses. Most lease agreements end up costing more than purchasing the product flat-out. While incremental payments are convenient, buying the equipment can be wiser than paying more than the card machine is worth. 

Buy Refurbished Equipment

Buying refurbished credit card machines is another cost-effective solution to a potentially expensive problem. Refurbished credit card processing machines offer both cost and environmental benefits. 

And contrary to what some might think, these terminals aren’t not old or outdated. Many connect to ethernet, come with contactless payment, and connect to the wifi. More often than not, refurbished machines work perfectly fine.

Ensuring your equipment’s reliability

When purchasing a refurbished payment terminal, choose one with a warranty. Never buy a machine labeled “as-is.” Always purchase from a trusted source. Many businesses refurbish the best credit card machines, so you don’t have to worry about quality. 

And don’t forget to read the reviews and the fine print before you buy. Verify the seller’s authenticity and the product to ensure everything is above board. 

Trusted sources for purchasing refurbished machines

While we cannot guarantee that every store will have refurbished credit card readers, here are some of the most trusted vendors and refurbishers. 

Negotiate with Providers

One of the best ways to save money when making a big purchase is to develop and flex your negotiation skills. (If you’re able to negotiate in person—even better.)

If you choose to purchase from an eCommerce company, research their competitors’ prices for credit card processors and ask if they can meet or beat them. Negotiating also helps vendors get to know you and your business needs.

Tips for negotiating

  • Be professional 
  • Do your research
  • Watch the market for the best time to buy
  • Treat your vendors like experts
  • Get quotes 
  • Don’t be desperate

Join a Buying Group

Buying groups are where small and medium-sized business owners and merchant accounts can buy products and services, like credit card machines, for a low price. These groups are designed for multiple businesses, so they often provide bulk buying and other benefits. These groups are also great for negotiations and experts to join forces and get the best deal. Before you join a group, make sure it aligns with your business’s specific needs. 

As for how to find these groups, consult businesses in your industry or consult with your trade organizations. They can often offer resources and recommendations for buying groups based on your needs.

Buying group memberships

Most buying groups charge a monthly or annual processing fee for the services one can access once they’re in the group. The fees cover the group’s operating costs. Buying groups are often filled with experts who know how to negotiate and what services or products businesses should buy. When you join a buying group, you’re joining a community of experts, which is worth the cost. 

Some groups have affiliate programs with certain providers. Many groups require them to hit a minimum purchase requirement from the preferred supplier. Others only allow their members to purchase from one supplier, not allowing for diversity or flexibility.

That said, most buying groups are led by experts. The products on which they focus are never low quality. 

While buying groups have some drawbacks, the network and group negotiation skills you will gain access to when you join the group are often worth the fees. 

Avoid Renting Equipment

Although the benefits of renting might tempt small to medium-sized business owners, the risks are not worth the reward. Before you decide to rent your credit card terminals, run a long-term cost analysis to see if you would be saving money.

Renting vs. leasing

Unlike with leasing-to-own, renting equipment will throw away money that you could have invested in your products. While some leasing agreements are more expensive than renting options, the long-term effects are much more cost-efficient.

As you’re running your business’ long-term cost analysis on renting, run it on a leasing agreement. While there is red tape in both of these agreements, leasing-to-own results in the product completely in your ownership, while renting is a continual cost with no return benefit. 

Alternatives to Rental Agreements

  • Borrowing from business friends
  • Leading-to-own
  • Incremental payment plans 
  • Alternative payment solutions

Buy Equipment from Your POS or Payment Processing Provider

If none of these money-saving hacks work for you, consider buying your necessary equipment from your POS system, point of sale system, or payment processing provider. 

Both systems interact throughout the sales. Your POS system takes the card payment, while the processing provider transfers the funds. If you purchase your equipment directly from your providers, you will likely have a smoother, potentially contactless checkout process. 

POS and Payment Processing Providers don’t necessarily need credit card terminals. As long as they can connect to your machine’s wifi or Bluetooth, they can conduct their tasks. If you already have a subscription to these systems, you can bundle the equipment in a deal and find new savings. 

If you already set up a point-of-sale system or payment provider, make sure the equipment you’re purchasing is compatible with your system, whether by Bluetooth or internet connection. Make sure they work with typical cards like debit cards, Discover, Master, Apple Pay, EMV, and more.

Conclusion

Although you would have never guessed how expensive countertop payment terminals were before you owned a business, we hope our list of cost-effective solutions inspired you. While there is not one clear solution to finding the best credit card machine for your business, there are several options.

Want to save even more money on payment processing? Stax Payments’ membership-based pricing saves merchants hundreds of dollars per month. Contact us to learn more.

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FAQs about Card Machines

Q: How can you save money on credit card machines?

To save money on credit card machines, consider these strategies:

  • Compare pricing models of different providers to find competitive rates.
  • Look into refurbished or second-hand machines from reputable sources.
  • Join buying groups. This helps you leverage negotiating power by asking for discounts or waived fees based on your business volume.
  • Purchase your card readers from your POS or payment solutions provider.

Q: How much does a card machine cost?

The cost of a card machine varies based on the type, functionality, and provider. Traditional countertop models can range from $100 to $600, while portable or mobile readers might cost anywhere from $0 (with certain contracts) up to $250. Additionally, there may be ongoing fees for service, transactions, and possibly rental fees, depending on the provider and plan you choose. The most sophisticated ones can cost up to $1,000 per terminal. 

Q: What is the cheapest way of taking card payments?

A good way to save on credit card payment processing is through a membership-based pricing model like Stax Payments. With Stax, businesses pay a flat monthly fee for access to direct-cost payment processing, eliminating the variable fees and percentages typically charged per transaction.

Q: Which card machine is the best for small business?

The best card machine for a small business depends on the business’s specific needs, sales volume, and mobility requirements. Look into your business requirements and prioritize providers that offer flexibility and no long-term contracts. It’s also best to choose systems that integrate with existing POS software to help you save money (and headaches) from having to integrate separate solutions.

 

Recurring Billing: Definition, How it Works, and Best Practices

As the business landscape continues its unstoppable evolution, the necessity for operational efficiency and innovation becomes even more pronounced. 

For businesses offering subscriptions, memberships, retainers, and other recurring services, recurring billing is a powerful solution to streamline processes and ultimately enhance revenue generation.

Consider this: Consumers are already conditioned to the subscription model. Almost everyone —98% of consumers—has a streaming service subscription. Physical and eCommerce product subscription businesses are expected to make up 45% of the market’s value. Mobile apps make up 53%, and the SaaS market is worth $152 billion. Users are used to recurring charges, and businesses are primed to take advantage.

In this article, we’ll unpack the complexities of recurring billing for businesses operating or transitioning to a recurring billing payment option. 

By the end of this guide, you’ll have a clear overview of its operational framework, strategic benefits, best practices, and advanced strategies to maximize this powerful, rapidly rising payment tool.

TL;DR

  • Recurring billing is a powerful solution to streamline processes and enhance revenue generation and customer engagement.
  • 98% of consumers have a streaming service subscription. Physical and eCommerce product subscription businesses are expected to make up 45% of the market’s value. Mobile apps make up 53%, and the SaaS market is worth $152 billion.
  • Beyond the standard benefits, recurring billing can be used to maximize revenues, improve internal processes, and create experiences that delight and captivate customers. 
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What is Recurring Billing?

Recurring billing is a subscription payment model that automatically charges customers at regular intervals for access to a product or service. This business model is used for subscriptions, memberships, retainers, and other solutions offered on a recurring basis. Rather than manually processing payments, recurring billing automates this process for predictability and consistency.

How Recurring Billing Works

Imagine a customer signs up for a subscription (product or service) and agrees to a recurring billing arrangement. The customer would need to provide their payment details just once, consenting for these specific charges to be applied to their account according to the established frequency. That schedule could be monthly, quarterly, annual, or any other agreed interval. Upon agreeing to these terms, the merchant is authorized to process automatic payments from the customer’s credit card, debit card, or bank account.

Setting up recurring payments

  1. Select a Recurring Billing Software Platform: The solution you choose must support recurring payments and integrate seamlessly with your existing operations. It should offer flexible payment schedules, support various payment methods, and provide robust security features.
  2. Create Pricing Plans: Subscription offerings need to be defined according to the business model and services. Plans include pricing, billing cycles (e.g., monthly, quarterly), and any terms or conditions.
  3. Integrate with Payment Gateway: The payment gateway transfers payment information and funds between the customer’s account, bank, and the business’s account. This may come with the billing software platform, or a gateway provider may need to be sought separately.
  4. Onboard Customers: Once set up, customers can choose their subscription plan, provide payment information, and authorize the business to charge their payment method at the specified billing interval.

The role of payment gateways in recurring billing

Payment gateways play a crucial role in the recurring billing process by securely processing and managing the transactions between customers and businesses. They ensure the safe transfer of payment information, validate transaction details and facilitate the authorization and settlement of payments. Choosing a reliable payment gateway with comprehensive support for recurring payments is essential for maintaining the integrity and security of the billing process.

Different types of recurring billing models

Recurring billing models can vary based on the structure of the billing cycle and the nature of the product or service, influencing how best to charge customers. There are two primary types of recurring billing models:

Fixed billing

Fixed billing charges customers a set amount at the agreed-upon intervals. This model is straightforward and predictable, ideally suited for services or products with consistent value over time, such as software subscriptions or gym memberships.

Usage-based billing

Usage-based billing charges customers based on their consumption of goods or services. This model is more flexible and can be tailored to the customer’s actual usage, making it suitable for utility bills, cloud services, or any service where consumption can vary significantly from one period to the next.

In addition to the two primary models, other less common types may apply to more unique business needs.

  • Tiered pricing: Different pricing tiers are set at fixed intervals but offer varying service or product access levels.
  • Volume-based billing: The more customers use, the less they pay per unit, incentivizing higher usage.
  • Subscription with add-ons or upsells: Starting with a base subscription fee, this model can add additional charges for optional services or products, allowing for personalization.

Benefits of Recurring Billing for Merchants

Recurring billing presents a strategic advantage for merchants, transforming how payments are managed and fostering stronger customer relationships. The key benefits include:

Predictable revenue streams

The predictability of recurring billing creates a win-win situation for merchants and customers. Recurring revenue allows merchants to forecast future revenues more accurately, which aids in financial planning and resource allocation. Simultaneously, customers appreciate the ability to budget their expenses more efficiently, knowing their commitments in advance.

Enhanced customer retention

The convenience of a “set and forget” payment model lowers the barriers for customers to continue using a service, fostering loyalty and reducing churn. Recurring billing simplifies the continuation process, making it less likely for customers to reconsider their decision at every billing cycle, thus enhancing customer retention rates.

Lower costs and improved cash flow

Automating the billing process minimizes manual intervention in billing and collections, leading to significant cost savings through workflow improvements. This streamlined approach ensures timely collections and optimizes cash flow.

Customer convenience

Recurring billing enhances the customer experience by adding a layer of simplicity to their interactions with the service.

Challenges and Considerations in Recurring Invoicing

While recurring billing offers numerous advantages for merchants, it also presents unique challenges. Certain considerations require careful management and strategic planning.

Failed payments and dunning

A common challenge in recurring billing is the management of failed payments, which can occur when a card expires, there are insufficient funds or a bank declines. 

You need effective dunning management in place, which involves communicating with customers to update payment information to resolve failed transactions. An automated dunning process can help mitigate payment failures by notifying customers of issues and prompting them to take action, thereby minimizing revenue loss and maintaining customer relationships.

Legal and payment compliance

Adhering to compliance standards, including those set by the Payment Card Industry Data Security Standard (PCI DSS), is essential. These standards ensure that customer payment information is handled securely and that transactions meet legal requirements. Non-compliance can result in significant fines and damage to reputation, making it imperative for businesses to stay informed about and adhere to relevant regulations and standards.

Data security and privacy

Merchants must implement robust security measures to protect sensitive information from breaches and unauthorized access. This includes encryption and tokenization of payment data, secure storage practices, and regular security audits. 

Additionally, businesses must be transparent about their data use policies and comply with privacy regulations, such as the General Data Protection Regulation (GDPR) in the European Union and US state-level laws like the California Consumer Privacy Act (CCPA), which grants consumers rights over their personal data.

Best Practices for Implementing Recurring Billing

Now that we’ve discussed the fundamentals of recurring billing, let’s talk about how you can implement it successfully. Check out the tips below, and note that each of these should be approached strategically. 

Choose the right service provider

The ideal platform should offer robust functionality that includes flexible billing cycles, support for various payment methods, comprehensive security features, and seamless integration with existing systems. Additionally, it should provide an intuitive user interface for the merchant team and customers, facilitating easy management and monitoring of subscription services.

Prioritize transparency

Transparent communication requires just two priorities:

Clear terms and conditions

Clear, concise, and accessible subscription service terms and conditions help set expectations, build trust, and reduce confusion, contributing to a more satisfactory customer experience. They should include detailed explanations of billing cycles, payment amounts, renewal policies, and cancellation procedures.

Easy subscription billing management

Implementing user-friendly tools and interfaces for managing subscriptions—such as updating billing information, pausing or canceling services, and changing subscription levels—enhances customers’ sense of control and satisfaction. It also reduces the workload on customer support teams.

Regularly review and optimize pricing models

The subscription economy is dynamic, and customer preferences can shift. Regularly reviewing and optimizing pricing models keeps the offerings competitive and appealing. This may involve adjusting pricing, adding new subscription tiers, or offering promotions and discounts to retain existing customers and attract new ones.

Leverage analytics for decision-making

Billing software captures insights into trends, churn rates, and revenue opportunities. By analyzing subscription metrics, customer behavior, and financial performance, businesses can leverage this data for informed decision-making to refine marketing strategies, tailor offerings, and drive growth and profitability.

Maximizing Revenue with Recurring Billing

Beyond the standard benefits, recurring billing can be activated to maximize revenues through advanced strategies, such as these:

Pricing tiers and add-ons

Pricing tiers cater to a broader customer base by offering different billing solutions or product access at varying price points. Additionally, add-ons and upgrades allow customers to customize their subscriptions with additional features or services, enhancing their experience while increasing the businesses’ average revenue per user (ARPU).

Longer-term commitments

Encouraging customers to commit to longer subscription periods will improve revenue stability and reduce churn. This can be achieved using incentives like discounts or additional benefits for annual or multi-year commitments.

Customer experience personalization

With customer data insights, subscription experiences could be personalized to enhance customer satisfaction, retention, and ARPU. Personalization could be recommending relevant add-ons or sending customized communication based on their unique preferences and behaviors.

The Customer’s Journey in a Recurring Billing System

With all of the steps above thoroughly executed, the customer’s subscription billing journey begins at the checkout, where they select a subscription service and provide their card information. Once subscribed, customers receive regular communications regarding their subscription status, upcoming payments, and any changes to their subscription plan. Transparent communication and easy access to subscription management tools offer a positive customer experience. The recurring billing system allows customers to update their payment methods, pause or cancel subscriptions, and view their billing history easily. The smooth process fosters trust and loyalty in the brand.

Common Mistakes to Avoid with Recurring Billing

Every system comes with challenges and required actions to make it worthwhile. Recurring billing is no different. Thankfully, the common mistakes are known. Businesses must not:

Neglect customer service and support

Neglecting this area can lead to increased customer frustration and higher churn rates. Efficient and responsive customer service is essential for addressing billing inquiries, resolving issues, and maintaining customer satisfaction. Customer support teams should be well-trained, accessible, and equipped to handle the specific nuances of recurring billing queries.

Fail to monitor and reduce churn rates

Merchants must address the reasons why customers leave and proactively engage with them to improve their experience. Understanding and acting on the underlying causes of churn can transform a potential negative into an opportunity for service improvement and customer retention.

Underestimate the importance of compliance

Compliance with legal standards, revenue recognition, and payment processing regulations, such as the Payment Card Industry Data Security Standard (PCI DSS), is non-negotiable. Failure to do so can result in fines and other penalties and undermine the business’s credibility and viability.

Elevating Your Business with Recurring Billing

Now equipped with the insights and strategies outlined above, it’s time to implement or refine your business’s recurring billing system. It’s not just about adopting a new billing model; it’s an opportunity to transform customer relationships, streamline revenue streams, and secure a competitive edge in the market.

Maximizing the benefits of recurring billing requires careful consideration of the right platform, a commitment to transparent communication, and a dedication to continuous improvement. Remember that these digital tools provide value beyond their core solution. Leverage available data to glean insights, improve internal processes, and create customer experiences that delight, captivate, and create unwavering loyalty.

Contact Stax Payments today to learn more about their recurring billing and payment processing solutions.

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FAQs about Recurring Billing

Q: What is recurring billing? 

Recurring billing is an automated payment system where charges are made to a customer’s credit card or bank account on a regular schedule. This model is commonly used for subscriptions, memberships, and other services where the customer receives ongoing value.

Q: How do businesses handle failed payments in recurring billing? 

Businesses should have a dunning process in place to handle failed payments. This process involves notifying customers of the failed attempt, requesting updated payment information, and retrying the charge within a specific timeframe. Effective communication and automation tools are vital to manage this process smoothly.

Q: What regulations apply to recurring billing? 

Some of the key regulations to follow when implementing recurring billing are: 

  • Payment Card Industry Data Security Standard (PCI DSS): Ensures the secure handling of credit card information. 
  • General Data Protection Regulation (GDPR) (in Europe): Governs the privacy and protection of personal data. 
  • Local and International Laws: These vary by region and govern consumer rights, disclosures, and consent related to recurring payments.

Q: Does recurring payment mean automatic? 

Yes, a recurring payment means automatic charges are made to a customer’s payment method on a pre-scheduled basis without the need for manual input for each transaction.

Q: Can you cancel recurring billing? 

Yes, customers can typically cancel recurring billing. This usually involves logging into their account on the service provider’s website and choosing to cancel the subscription or contacting customer service directly to request cancellation.

Q: What is the difference between recurring billing and subscription billing? 

Recurring billing and subscription billing are often used interchangeably. Both involve automatic, scheduled payments for ongoing access to a product or service. The difference, if any, might be in context: “subscription billing” specifically refers to payment for subscriptions (like magazines, software, or services), while “recurring billing” can apply more broadly to any regular, automatic payment arrangement.

 

Payment Security: Everything You Need to Know About Secure Payments

Let’s talk about the “F” word—fraud. In 2023, the cost of fraud to online businesses was $48 billion globally, according to Mastercard. To stay ahead of fraud means merchants must understand the threats, use trusted and secure providers, and keep up to date on payment security trends.

So, let’s dive into payment security, touching on the basics of what you need to know to ensure secure payments.

TL;DR

  • The PCI DSS determines security protocols and sets the standards for payment security.
  • Taking precautions to implement security measures such as secure firewalls and cybersecurity training helps to protect cardholder data and other sensitive information.
  • A secure payment gateway is one of the main ways merchants can protect their business and customers. 

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Payment Security Fundamentals 

Merchants hold a lot of sensitive data when processing transactions, and if not properly safeguarded, hackers could wreak havoc. Safeguarding customer payment information requires secure processes during the collection, transmission, processing and storage of payment data and working with a trusted payment processor

Taking precautions to implement security measures like firewalls and cybersecurity training helps to protect cardholder data and other sensitive information from cybercriminals. It’s also critical to ensure card information is protected from data breaches with secure encryption and cybersecurity standards in place. 

Offering multiple payment methods is just one of many ways to improve customer experience, and it is becoming more important as the market shifts towards more convenient and secure payment options.

While debit and credit card transactions remain popular, many are now contactless, using near-field communication (NFC). Outside of standard card transactions, mobile wallets are gaining popularity, with 3.4 billion digital wallet users, or 42.6% of the global population using this method of payment in 2022. NFC payments, including digital wallets, are very secure, relying on encryption to mask the card number, further protecting cardholder information.

Other trending payment methods include peer-to-peer (P2P) payment apps like PayPal or Venmo are a secure and convenient way to transfer funds between people and businesses. 

Essential Payment Security Components for Merchants

Encryption and tokenization, what is the difference?

Encryption and tokenization are two distinct methods of scrambling payment information, including but not limited to credit card numbers. 

Encryption converts the card information into a scrambled cipher that uses an algorithm and encryption key to decipher the data. Tokenization, on the other hand, replaces the sensitive data with a string of meaningless characters, with the original data stored in a “token vault”. The tokens are then used to substitute the card information when the payment is processed.

How do two-factor authentication and “3-D secure” protect payment information?

Multi-factor authentication (MFA) adds additional layers of security by requiring additional verification during the transaction process. Users provide two separate forms of identification to complete a purchase, such as a password or biometric authentication. Many people use MFA when making purchases through Apple Pay, for example, using Face ID or a passcode to complete a purchase.

Similarly, “3-D secure”, also known as “Verified by Visa” or “Mastercard SecureCode,” prompts users to enter a one-time password or biometric data to confirm their identity and authenticate the transaction. Using security features like MFA helps protect customer data and prevent fraudulent transactions and the resulting chargebacks.

What is SSL/TLS?

SSL/TLS is the acronym for Secure Sockets Layer and Transport Layer Security. Essentially, these are encryption protocols that create a secure internet connection for online transactions. For online transactions, a secure connection is critical, and the SSL/TLS protocol helps ensure transactions are protected from cyber attacks and data breaches. 

SSL/TLS is a complex payment security practice involving two different kinds of encryption keys—for more detailed information, check out this guide.

How to Comply with Payment Security Standards

The Payment Card Industry Data Security Standards, or PCI DSS, are the North Star for payment processing security. Set by card associations like Visa, Mastercard, American Express, and Discover, the PCI DSS determines security protocols and sets the standards for payment security.

All businesses and organizations handling cardholder data must be PCI compliant, and violating the PCI DSS standards results in fines and damages your customer’s trust. Ultimately, PCI DSS compliance helps prevent fraudulent transactions, mitigates data breaches, cultivates customer trust and protects your business.

The significance of EMV cards

EMV cards use a microchip that generates a code for each transaction, which is transmitted instead of the card number as the transaction processes. This is more secure than the magnetic strip, as the card information is not stored or sent when it’s swiped at the payment terminal. The role EMV cards play in preventing counterfeit cards and reducing fraud cannot be overstated. 

Secure protocols for secure transactions

Secure Electronic Transaction (SET) protocols are designed to ensure security measures for online card transactions. SET protocols use digital certificates that protect online credit card transactions.

Identifying and Mitigating Payment Security Threats

Phishing scams, social engineering, bot attacks—these are just a few of the most pressing cybersecurity threats that can be so devastating they have real-time effects. Many businesses and respected institutions have immediately been taken down for days, weeks or longer due to cyber attacks designed to exploit their vulnerabilities.

Fraud and chargebacks also cause significant losses for businesses. Innovations in social engineering scams, sometimes conducted through social media, and phishing emails are designed to get the user to divulge sensitive information. This can happen easily to customers, resulting in their account numbers being compromised, and to businesses that unwittingly accept payment for fraudulent transactions resulting in chargebacks. A recent report estimates cyber attacks will cost businesses $8 trillion worldwide, meaning cybersecurity solutions should be a top priority for businesses.

Best Security Practices for Merchants

A secure payment gateway is one of the main ways merchants can protect their business and customers. This ensures a secure ecosystem for in-person and online payments and will have the needed functionality to easily and securely process transactions. 

Find the right payment processor

Choosing a reputable payment processor is your first step. Stax delivers an all-in-one payments platform that is secure, stable and customizable—and did we mention affordable?

Train your team on secure payment practices

Another critical step is ensuring cybersecurity best practices and awareness is instilled across your workforce. Whether it is a small shop or an international chain, cybersecurity training and hygiene will protect customer information. 

Check and audit for payment security

Regularly do security audits and compliance checks. It’s important to look under the hood regularly to ensure vulnerabilities can be discovered and addressed. Standardize these checks to ensure consistency in evaluating your security practices.

Don’t store payment data unless you need to

Only store the minimum amount of customer data—and do so securely. Make sure account numbers and other sensitive information are treated carefully and stored in the appropriate and secured software, ideally encrypted.

Emerging Technologies in Payment Security

Because the threat landscape continues to evolve, so do payment processing security measures. Innovations in artificial intelligence (AI) and machine learning are helping develop security solutions faster than ever. AI and machine learning are both commonly used for authenticating and encrypting payments, adding additional layers of security, like biometric authentication.

Blockchain technology is another technology used to advance payment security. Information exists in a distributed ledger that records transactions in an immutable record. Blockchain will likely continue to be adopted as payment security will be an ongoing focus.

Advances in security solutions and standards continue to work against the cybersecurity and fraud threats facing businesses and consumers today. However, it’s vital for merchants and their providers to focus on the threats facing the business and the solutions available to protect it.

At Stax, we help businesses keep up with all things payment security. As a Level 1 PCI Service Provider, Stax offers the highest level of PCI compliance. We also provide the resources and insights needed to each one of our members so they can stay PCI compliant, avoiding those fines.

Contact us to learn more.

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FAQs about Payment Security 

Q: What is payment security?

Payment security refers to the protocols, technologies, and practices designed to protect financial transactions from fraud, theft, and unauthorized access. It encompasses a broad range of measures, including encryption, authentication, and compliance standards, aimed at safeguarding the integrity and confidentiality of payment information during and after transactions.

Q: What are the benefits of payment security?

The main benefit of payment security is reduced fraud. It minimizes the risk of fraudulent transactions, chargebacks, and associated financial losses. Merchants with secure payment practices earn their customers’ trust. Payment security builds confidence in your payment systems, encouraging more transactions. There’s also compliance. Payment security ensures  adherence to legal and regulatory requirements, such as PCI DSS, reducing legal risks.

Q: How do I ensure online payment security?

Start by using Secure Sockets Layer (SSL)  encryption   Implement SSL certificates on your website to secure data transmission. You must also follow PCI DSS guidelines to protect payment card information and keep your payment systems up to date.  Beyond that, it helps to use multi-factor authentication (MFA) for transactions and access controls. Finally, train employees on security best practices and how to recognize phishing attempts and other frauds.

Q: What is the most secure online payment method?

The most secure online payment method often depends on the specific security measures implemented by the payment provider. However, payment options that use advanced encryption, tokenization, and authentication processes are generally considered more secure. Digital wallets (e.g., Apple Pay, Google Wallet) and payment methods that require biometric authentication or one-time passwords (OTPs) are widely regarded as highly secure options due to their additional layers of security.

Q: How do I know if a customer’s payment is secured?

You can determine if a customer’s payment is secured by using a reputable payment gateway that provides real-time notifications and security assessments for each transaction. From there, check that encryption, tokenization, and fraud detection tools are actively working during transactions.

You can also look for successful authentication measures, such as OTPs, biometric verification, or MFA confirmations. Don’t forget to verify that your payment processes are PCI DSS compliant, which is a strong indicator of secure payment handling.

Understanding the Payment Terminal: Integrated vs. Semi-Integrated vs. Non-Integrated Payment Terminals

With only 17% of U.S. consumers using cash for purchases, choosing the right payment terminal for your business is more important than ever. Businesses need to streamline the entire payment process by offering customers a payment setup that’s fast and convenient for credit card transactions. At the same time, you need to address security concerns since you’ll be handling sensitive client information.

To decide which credit card terminal is right for you, it’s useful to take a close look at the different types of payment terminal setups available.

In this article, we’ll be examining fully-integrated terminals, semi-integrated terminals, and non-integrated terminals. We’ll consider the pros and cons of each and we’ll look at what you should consider before choosing a terminal for your business.

  • A Comparison of Different Payment Terminal Setups?
  • What is a Fully Integrated Terminal?
  • What is a Semi-Integrated Terminal?
  • What is a Non-Integrated Terminal?
  • What Type of Terminal is Right for You?

TL;DR

  • A payment terminal enables a merchant to take chip card and contactless payments. In the modern economic landscape, it’s essentially a requirement to have a successful business.
  • There are a variety of payment terminal brands on the market, but the place to start is by looking at the payment terminals your payment processing provider supports.
  • Your payment terminal can be fully or semi-integrated with your POS system. It’s possible to have a non-integrated system, but this is becoming increasingly less common.

TL;DR—A Quick Comparison of Different Payment Terminal Setups

If you’re looking for an at-a-glance view that compares fully integrated, semi-integrated, and non-integrated terminals, the following table has got you covered.

Fully-Integrated Semi-Integrated Non-Integrated
POS Requirements The POS and terminal are one and the same. As such, there is a 2-way sync between the devices The POS system offers One-way communication to the physical terminal. A POS system isn’t required to process payments; just a physical terminal and Internet access. *Note: If you are planning to use a POS system, it must be purchased separately.
Payment Processing Rate Card-present rate. Card-present rate. Card-present rate.
Initiating Transactions Can start transactions from either the POS or payment terminal. Can start transactions in the POS system and send to the semi-integrated terminal. Can only start transactions using the payment terminal.
Access to Data and Reports Access to real-time transactional data and rich reports from one platform. Access to real-time reporting by sending data to the terminal. No real-time reporting. Reports are limited to customers, transaction dates, and totals. Only access the most recent batch and settlement data from that day.

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What are payment terminals?

In simplest terms, payment terminals are the machines used to pay for things using credit or debit cards when you make a purchase in-person. 

When you buy something at a store and insert your chip card into a machine that uses EMV technology, that’s a payment terminal. (Previously you would swipe your magstripe card in a payment terminal. However, magstripes are no longer PCI compliant.) These days, payment terminals can also conduct contactless payments and mobile payments, like Apple Pay, via Near Field Communication (NFC) technology. 

The payment terminal reads the information on your card or from your digital wallet and helps transfer money from your account to the store’s account. These terminals are often found at cash registers in stores, restaurants, and other places where you can make purchases. 

You will often find that payment terminals are hooked up to both a POS system and a receipt printer. It’s also growing more common for the payment terminals themselves to have receipt printers built in. 

Wireless terminals are becoming increasingly common as they provide a huge amount of flexibility to the merchant to improve the customer experience. For instance, wireless terminals in restaurants enable servers to take payments right at the table, increasing security and giving patrons the option of paying with a mobile device, like their Android phone. A wireless terminal will typically hook into your credit card processing system via wifi or bluetooth.

Why do merchants need a payment terminal?

Merchants need payment terminals to make it easier for customers to pay for goods and services using credit or debit cards, and increasingly contactless payments from mobile devices. 

Instead of dealing only with cash, which can be cumbersome and sometimes risky, payment terminals allow merchants to accept card payments securely and efficiently. 

This helps businesses attract more customers and manage transactions more smoothly and quickly. Especially as so few customers even carry cash, let alone pay with it these days.

Beyond providing convenience at the point of sale and improving the customer experience, payment terminals also store transaction information electronically, creating a record of sales. This record helps merchants track their income, understand spending patterns, and manage finances effectively. By accessing these transaction records, businesses can make informed decisions, such as adjusting inventory or analyzing customer preferences, to improve overall financial performance.

Overall, payment terminals are essential tools for modern businesses to accept various forms of payment and provide convenience to their customers.

What are the top brands of payment terminals in the market?

There are a lot of payment terminals on the market. That means when it comes time to pick one, there’s a lot of information to sift through. A good starting place, though, is by looking into the payment terminal brands that your payment processing provider supports. Those terminals will, of course, be the easiest to get up and running as they will be well integrated with your credit card processing system. 

The next thing to look at would be the top brands other merchants are using. To make that easier for you, some of the most popular brands currently in use are:

  • Clover (by First Data): Clover is a popular brand known for its sleek and user-friendly payment terminals, which integrate with a range of business management tools and software.
  • Dejavoo (by IPOS Systems): The Dejavoo payment terminal is a versatile and user-friendly device designed to securely process various forms of electronic payments, providing businesses with a reliable solution for managing transactions.
  • Verifone: Verifone is a leading provider of payment terminals and solutions worldwide, offering a wide range of products tailored to different business needs.
  • Ingenico: Ingenico is another prominent brand known for its innovative payment solutions, including terminals that support various payment methods and offer advanced security features.
  • PAX Technology: PAX is a global provider of electronic payment solutions, offering a diverse range of payment terminals designed for different industries and business sizes.
  • Square: Square offers a unique ecosystem of payment solutions, including its iconic Square Terminal, which is designed for small businesses and features built-in software for managing transactions and inventory. Square Terminals, while popular, do only work with Square systems.
  • Infinite Peripherals: Infinite Peripherals offers mobile payment solutions, including POS terminals and accessories designed for use with smartphones and tablets, ideal for businesses needing flexibility in accepting payments on the go.
  • SumUp: SumUp provides affordable and easy-to-use POS terminals for small businesses, offering features such as contactless payments and integration with smartphones via Bluetooth, making it a convenient option for entrepreneurs and small merchants.

Each of these brands offers a variety of payment terminal types, like countertop and wireless, at different pricing.

When it comes to evaluating which payment terminal brand is right for you, you should: 

  • Take a look at available user reviews of any payment terminal you’re considering to get a good idea of how they truly function versus the claims the brand makes.
  • Consider the features offered by different POS terminal brands, such as security features, ease of use, and compatibility with additional software or hardware (like a bar code scanner).
  • Evaluate the reliability and reputation of the brand, looking for established companies with a track record of providing quality products and customer support.

What is a Fully-Integrated Payment Terminal?

Fully Integrated Terminals_Body Image_Web Ready

A fully-integrated payment terminal often comes in the form of an all-in-one solution that combines your point-of-sale system and card terminal into one device.

This setup eliminates the need for a separate POS and credit card machine. A fully-integrated payment terminal has a 2-way sync capability between the POS and the terminal, enabling you to process and refund payments on either device.

Pros

A fully-integrated setup means the payment app or software is downloaded directly on the terminal,  offering a fast way to process payments.

The two-way sync between your POS and credit card machine (which happens in real-time) enables you to ring up sales using either your POS or payments terminal without worrying about data loss or inaccuracies. This seamless sync between the two systems also gives you access to rich and updated payment reports.

Payment information is transmitted automatically, so there’s no need to re-enter payment amounts at the checkout counter. As such, cashiers can process sales faster, and there’s no room for human error. Plus, you reap the benefits of card-present rates.

Cons

A fully-integrated payment terminal may limit your choices when it comes to which devices and payment processors to choose. If you have a preferred POS system and want to pair it with a separate payments terminal, then a fully-integrated setup won’t work for you.

What is a Semi-Integrated Payment Terminal?

With a semi-integrated solution, your POS system is separate from your payments terminal. However, the two systems are integrated in the sense that they can “talk” to each other. The credit card terminal sends payment data to the POS system, enabling you to process and record payments easily.

This means when a customer swipes, taps, or dips their credit card using your payment terminal, the purchase amount and payment data are automatically transmitted to your POS.

Pros

Like fully-integrated payment terminals, semi-integrated payment terminals offer customers quick ways to process their payments. Transaction data like payment amounts are automatically synced between the POS and payment terminal, which reduces human error. The systems can also associate transactions to customer records or profiles.

In addition, transactions made through these terminals are considered “card-present,” which come with lower fees.

Cons

Semi-integrated payment terminals require separate devices for payments and point of sale, so the setup can be a bit clunky. You may also encounter issues with processing payments if the connection between your terminals and POS system breaks down.

The biggest disadvantage of this setup is it offers a 1-way relationship from the POS to the terminal. As such, you can only initiate payments from the POS system. Unlike with fully-integrated terminals, you can’t use the terminal on its own to start a payment independently from the POS.

What is a Non-Integrated Payment Terminal?

With a non-integrated payment terminal, the POS system and terminals are not connected.

When it comes to ringing up sales, you only need the terminal and WiFi to process payments. Your customer inserts or swipes a credit card through the terminal, sending the information for processing directly from the card reader to the payment processor.

Once the card is authorized, you can manually record the transaction into the POS or record-keeping system while a receipt is printed from the card terminal.

You don’t necessarily need a point-of-sale system with a non-integrated setup. But if you do decide to use a POS, it would have to be purchased separately.

You can see non-integrated payment terminals still being used in smaller retail stores where cashiers calculate your total on a calculator before entering it on a PIN pad. However, most modern businesses tend to use fully-integrated or semi-integrated payment terminals.

Pros

Non-integrated payment terminals offer you a very basic way for your business to accept credit cards from your customers. While they don’t communicate with your software, they do allow you to service clients who prefer to pay by card instead of in cash. You’ll also get card-present rates when using this setup.

Cons

A major disadvantage of using a non-integrated terminal is the limited reporting that it offers. Data isn’t synced in real-time, so you won’t have access to live transactional data. Instead, you’ll get the data within the next business day, once the transaction has been processed.

Accessing reports can also be cumbersome because you have to manually print out long batch reports at end of the day to see what amount will be deposited.

Additionally, non-integrated payment terminals don’t keep all of the data. They can typically retain just the most recent batch and settlements from that day. This means it would be difficult to access historical information and track trends over time. You may also need to pay extra to access a point-of-sale solution since the POS isn’t part of your terminal.

What Type of Terminal is Right For You?

So, how should you decide which payment terminal is right for you? Ultimately, this depends on the size of your business, your company’s needs, and the type of customers you serve.

Fully-integrated payment terminals offer a much faster way to process credit card payments.

Customers will appreciate this efficiency during checkout. Fully-integrated terminals also offer real-time data sync between your POS and payment device, so you can access rich reporting and live transaction data.

Semi-integrated payment terminals offer better security when processing your customer’s credit cards.

Because their card information does not enter your POS software during the transaction, you’ll enjoy more peace of mind if you’re concerned about data breaches or hacker activity. This makes semi-integrated payment terminals a great choice if you value speed and security in your credit card transactions.

Non-integrated payment terminals are becoming outdated, with an increased possibility of human error from manually recording the transaction data (such as payment amounts) into your POS system.

Nevertheless, they do offer an affordable way to accept credit cards if you don’t have to deal with a large number of clients who insist on quick checkouts.

Knowing which payment terminal provides you with the most beneficial payment solutions is vital to running a successful business.

Contact Stax today to learn more about the credit card terminals we offer and how they help your needs. Whether you’re looking for fully-integrated or semi-integrated terminals, Stax can point you in the right direction.

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FAQs about Payment Terminals

Q: What is a payment terminal and how does it work?

A payment terminal  is a device that interfaces with payment cards to make electronic funds transfers. The terminal typically reads the chip on the card or the magnetic stripe to access the data necessary to process the transaction. It then communicates with the cardholder’s bank via a telephone network or internet connection to authorize the transaction. The transaction is approved if the account has sufficient funds or credit available. Modern payment terminals may also accept contactless payments using NFC technology.

Q: What is the difference between a POS system and a payment terminal?

A POS (Point of Sale) system and a payment terminal are related but distinct components of the checkout process. A payment terminal is a device that processes card payments, interfacing directly with the customer’s payment card. A POS system, on the other hand, encompasses a broader range of functionalities, including not just the payment processing but also sales reporting, inventory management, customer management, and more. While a payment terminal is focused on the transaction aspect, a POS system provides a comprehensive solution for managing sales operations.

Q: Is a POS a terminal?

A POS is not just a terminal; it refers to the entire system used for conducting sales and processing payments. It can include hardware (such as a terminal, barcode scanner, receipt printer, and cash drawer) and software that manages the transaction process, inventory, reporting, and sometimes even customer relationships. A payment terminal can be part of a POS system as the device that handles the card payment processing.

Q: What is the difference between a terminal and a gateway?

A terminal is a physical device that allows for the swiping, dipping, or tapping of a payment card to process a transaction. It can be part of a larger POS system. A gateway, on the other hand, is a service that authorizes and processes online payments for e-commerce businesses and online retailers. It securely transmits transaction data to the payment processor or bank. While a terminal is used for in-person transactions, a gateway is used for online transactions.

Q: What is the difference between POS and virtual terminal?

The main difference between a POS system and a virtual terminal lies in their intended use and operation. A POS system is designed for in-person transactions, involving hardware for managing the entire sales process, including payment processing. It’s ideal for retail, hospitality, and restaurants where physical customer presence is typical.

A virtual terminal, on the other hand, is a software application that allows businesses to process card payments without the physical card being present. It’s typically used for telephone or mail-order transactions where the merchant manually enters payment details into an online interface. This setup is ideal for businesses that take orders over the phone or through mail order, providing flexibility for processing payments without needing the physical card or hardware terminal.

 

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.