Keep It Simple Stupid! Easy credit card acceptance for food trucks
Debate rages daily over credit card processing fees. Newbies want information on which is the “best” processor when what they really mean is the “cheapest”. Someone who has something to sell always replies “check out my page” or “my DMS and I’ll help”. Then my favorite response always comes up: “charge them, that’s what I do”. The comments will also be flooded with “Square” and “Clover” followed by complaints from skeptics about each company.
EVERY, I mean EVERY, company has complaints against the way they operate. Customer service, late/slow deposits, hidden fees, frozen accounts, intermediaries, different rates, equipment fees, ongoing fees, etc. etc. Square has them, Clover has them, and so do all the other companies. Asking for my opinion or otherwise in a public forum like Facebook groups will only get a limited response based on extremely limited experience. I have been in this business since 1977 and have been taking credit cards since 1990. I started with Square in 2010 and in all that time in the restaurant business I have only used a total of 5 different processors. Each with their own problems and advantages.
You should also understand that there are two different types of processing companies. Square (PayPal Here, Intuit ToGo, etc.) are flat fee aggregators. Which means that the fee is exactly the same regardless of which card is used and no merchant account it is required. This makes getting started much easier for the average food seller. Clover (and many other services) are merchant account processors. This means they require a merchant account (which some people won’t qualify for), as well as potentially charging variable fees based on the type and brand of card. Comparing the two account types is unfair as they have completely different benefits and application requirements.
To get a complete view of each type of processor and unbiased reviews, go to the Merchant Maverick website and check out their reviews. Choose the processor that fits your financial needs and has rates and fees that your business can afford. Also find out what you need from the hardware they offer. Do you need a simple POS or one with lots of inventory control, payroll features, loyalty programs, etc., or do you just need to process credit cards?
Here’s what you need to know about accepting credit and debit cards. Easy to sell on the street.
- Card acceptance is MANDATORY for street vending. Over 80% of ALL paychecks are direct deposited. Mobile food vendors need to be convenient not only in terms of location, but also in terms of payment options.
- 80% of consumers prefer to use debit/credit cards when making purchases. On the other hand, only 14% prefer cash. Not accepting cards drives business away.
- Processing fees are part of doing business just like purchasing inventory, paying staff, buying gasoline, obtaining permits and licenses, and any other expense in your business.
As a business owner, you have 4 choices:
- Do not accept cards. (Risk of driving away business)
- Pass the fees on to your guests as a “convenience fee”. (Looks cheap and little time)
- Offer a “cash back program.” (Looks like a gas station)
- Do the math when setting menu prices. (Look like a professional businessman)
Let’s look at each of the choices in detail.
Do not accept cards. I hope you can tell from the stats in numbers 1 and 2 above that taking cards is a necessary evil when selling streets and events. In my 40 years of experience (through observation and actual time studies) credit card transactions are significantly faster than counting change. Yes, there may be internet issues, connection issues, etc. that occur from time to time. Money has its own set of problems like breaking a hundred dollar bill at the start of the day, using a fake pen to check bills, opening new rolls of coins, needing to take more ones or fives, lots of cash makes your business an easy target for robbery. Still convinced to get cards? Since taking cards is a MUST for a food vendor, let’s figure out the best way to deal with these pesky fees.
Pass the fees on to your guests as a “convenience fee”. Seems smart, right? Not exactly. Charging a fee looks petty and cheap from a guest perception perspective, and it’s illegal in 10 states. Where fees are legal they are capped at 4% as the merchant CANNOT PROFIT from charging a fee. “Convenience fees” become overly complicated when a debit card is presented rather than a credit card. Credit card issuers also do not accept convenience fees, and each has a specific policy AGAINST these fees in most cases. Setting a minimum purchase also complicates matters. Debit cards have different rules than credit cards. It is also against the rules of credit card issuers to set a minimum fee for debit cards. Ok, ok, without charging additional fees, what should the provider consider?
Offer a Cash Discount Program (CDP). This type of program is permitted and is actually described in the card issuer’s policies. A cash discount policy means that the seller must list TWO different prices for each product. Just like a gas station that offers a cash discount does. The pump will display one price labeled “Credit” and one price labeled “Cash.” Of course, the cost of the loan is higher when processing fees are taken into account. There are several companies that offer CDP processing, all of which use some promise of “free” (to you) processing. The most important thing for a legitimate CDP is to have a menu that clearly spells out both the cash price and the credit price, as well as other notices that explain and/or alert your guests to the two-tier pricing system. The problem with this system is guest confusion and overly complicated pricing structures. Trading on the street or event is very limited in time. The faster you accept and fulfill orders, the more money you will earn. But with CDP, the order-taking process is slowed down by long explanations of a two-tier pricing system. As well as complaints about having to pay more because the guest doesn’t have the money available. In food service, any obstacle you put in the way of a smooth order-taking process is magnified into a negative review, bad word-of-mouth, or lack of repeat guests when another service or food issue pops up.
The simplest thing is:
Do the math when setting menu prices. Wow what a concept! Just like you price your menu to account for the cost of food and propane, just price your menu assuming EVERYONE will be using a card. What?! Can it really be that easy? Yes, yes, it can.
Let’s take a look at a product that everyone freaked out about when Square raised fees to 10¢ + 2.6%. Carbonated drinks.
Canned soda is available from Sam’s Club for 32.05¢ each. Most people sell it for a dollar. When Square raised its price, people panicked, whining about the increase in a percentage basis for the cheapest product they sell, soda. This makes the sale of soda alone cost the seller 44.65¢ when a card is used. I can’t tell you how many posts I whined about 13% fees, blah blah blah. Still, if the soda company raises the price to 45¢, the seller will either absorb the increase or raise their own prices.
When pricing a menu, I I guess everyone will use a map. When Square added that 10¢ transaction fee, I just added 25¢ to some of my higher end food items to compensate. So the one dollar soda became a $1.25 soda. Still cheaper than a convenience store and much cheaper than a vending machine.
Gross profit (which is sales minus cost of goods sold) would look like this:
Before: $1.00 – $0.3205 – $0.0275 = $0.6520 gross profit
After: $1.25 – $0.3205 – $0.10 – $0.0260 = $0.8035 profit
See what happens when someone pays in cash.
Cash: $1.25 – $0.3205 = $0.9295
Does it make sense to use a cash rebate program? Does it make sense to add a surcharge (which is legally capped at 4% and you can’t show a profit from that fee)? Does it make financial sense to simply refuse to accept cards?
If you are confused, the answers are “NO”, “NO” and “NO”.
I can hear someone say, “I’m not into change, it slows me down.” Food service is a nickel and dime business. Billing even in dollars disappeared by the turn of the century. The only people who charge with the even dollar are amateurs or math-challenged. Maybe it’s time to get out the addition and subtraction flash cards from grade school and learn how to handle our nickel and dime business. Practice makes perfect, and the more you practice, the faster you’ll get.
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