For small service contracting firms, the number one cause of business failure is lack of cash flow. The insidious thing about cash flow problems are that they can impact a company experiencing rapid growth through word of mouth as well as a firm struggling to attract new leads. Read on to find out a quick way you can improve your cash flow and generate new business.
Does Your Business Have a Cash Flow Problem?
It might if you are experiencing any of the following symptoms: You are behind on payments to subcontractors, staff, lenders, the government (taxes). You constantly have a fear of shutting down and it’s keeping you awake at night. You don’t have the money to buy the supplies and tools you need to take on existing or new work. You are using your personal finances to fund your business (and putting your home and other personal assets at risk).
If any of that sounds familiar, you might be headed for big trouble. This article focuses on a method that addresses one aspect of the cash flow problem: your money is tied up. This is either because you are paying your own creditors too fast (you should ask for lines of credit with suppliers or extended payment terms) or your customers are not paying you fast enough. This article deals with the latter, offering one method for freeing up money you’ve earned that is tied up: accepting credit cards.
Do Most Building and Renovation Contractors Accept Credit Cards?
In a 2012 survey of contractors by Angie’s list nearly 70% of professionals surveyed say they accept credit cards for payment. These days, the majority of customers pay with credit. Cards can really help facilitate collecting deposits on jobs, installment payments and final balances. It also helps save time (less frequent trips to the bank!) Additionally, you can increase your revenue as credit could allow clients to contract for larger projects (since they can choose to pay their credit card bills over time).
Just as consumer advocates and agencies are educating the public on the importance of using licensed professionals, consumers are being advised to pay contractors with credit cards for their own financial protection.
While many large and reputable companies still do not take credit, it could present an opportunity for up and coming contractors to do so, for a variety of reasons. In this article, we break down the pros and cons of cash only, check and credit cards as forms of payment and how they impact your cash flow.
Using Credit Cards In Your Business is Not Free
In particular, while credit cards could bring in more money, they also come with fees. On average, card transaction fees on a $100 charge would amount up to $3. Whether you are a general contractor, electrical contractor, plumbing, painting, landscaping, or other specialty contractor, you need to know the costs to help you make the best decision for your particular contracting business.
While there is a fee associated with taking credit cards as payment, you do get the cash up front, which you can use for your business, as opposed to waiting for payments and possible costs of collecting outstanding balance due. On top of this, 40 states in the US allow you to pass on the credit card fees to your customers, as long as you let them know up front they will be charged a different amount if they pay with credit.
New Payment Options, Lower Fees for Small Businesses
While traditionally accepting credit cards means opening a merchant account and costly credit card terminal to swipe cards, new, less costly options are opening up that present great opportunities for small businesses. Some contractors are set up to take credit cards through their bank (more and more are offering a variety of payment processing options for business customers).
Mobile credit card acceptance is huge now, with free apps and pay as you go fees that allow you to swipe customer cards with your smartphone or tablet. For most service contractors, who work in the field, doing a mobile payment process or field reader is a great idea. Paypal also has a variety of online invoicing, web payments, swipe, phone and mobile payment processing options that allow any business owner to offer credit processing to their customers with little hassle or setup required.
Moreover, the additional revenue from either larger jobs or more work or better cash flow may be worth the credit card transaction and processing fees. This webinar from the US Small Business Administration provides an in depth exploration of the impact of accepting credit card payments (and making payments with credit cards) on your business bottom line.
Offering Customer Credit…Without the Risk
Alternately, of course, if your cash flow problem is about attracting more work and larger jobs, you could extend credit to your customers on your own by offering financing. However, in that scenario you bear more of the risk. The longer you allow your customers to stretch out their payment terms, the more it ties up your cash flow (which is what we are tying to avoid!)
Stay tuned for our next article in this series, where we provide a comprehensive look at how much accepting credit card payments costs your business and the pros and cons of going cash only, accepting checks and adding credit cards to your payment options.