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To Square or Not to Square?

When a business should consider an alternative.

It’s sleek. It’s easy. As a consumer, you have probably swiped your credit card on one of these readers at some point, be it at your local coffee shop or small retail outlet.  Well branded and backed by significant financial investment, Square markets itself as a one size fits all solution.  At first glance, it might seem like the right choice for your business as well.  But there are limitations and costs that every business owner needs to consider before deciding to implement this product.

Though it is marketed otherwise, Square really works best for lower credit card volume or sporadic credit card sales volumes – about $3,000 or less per month.  Why?  Square boasts a simply processing rate plan, about 2.65% + $.10/transaction -3.50% + $.15/transaction, on all credit card transactions with no monthly fees.   In contract, a traditional merchant processing account with true V/MC/D/A Interchange pass through pricing carries monthly fees of $10-$25.  For micro businesses with lower sales volumes, these monthly costs may represent the majority of total fees the company is paying to accept credit cards, which may make the traditional merchant account cost prohibitive.  What you don’t see is Square’s rate plan is marked up significantly over the true V/MC/D/A Interchange fees – up to 45% higher.  So,  as a business’s sales volume increases above $3,000/month, those monthly fees associated with a traditional merchant account will have less of an impact on their overall bottom line – while the Square rates will have a much greater impact to the bottom line.   This is when Square can become less cost effective. 

Even if you are a new business or a small business just starting to accept credit cards, it may prove beneficial to look at alternatives early on to better prepare your company for growth.  The hassle of switching out a POS (point-of-sale), down the road can prove cumbersome, especially when inventory and customer data is wrapped up in your current product. 

Before choosing Square, or similar solutions with simple rate plans (like Stripe),  it’s important to understand your typical sales transactions. If you periodically accept higher individual sales via credit card, Square may flag your account and hold your funds for weeks due to risk concerns.  Unfortunately this is fairly common.  For example, say  you are an HVAC company and the  majority of your customers have  repairs on a regular basis with the average price between $50-$300. They use their credit cards to pay for these services.  However, when a repair turns into a new AC unit or there is a new install, your customer is now charging $3,000 to $5000 on their credit card and Square is going to flag this payment as unusual (higher risk). This will result in holding those funds and reviewing the sale; thus, delaying your deposit into your bank account; potentially for weeks

Yet another consideration, while Square’s website provides access to online resources, they do not offer live support for their customers.  If you need technical assistance, training, help with a reconciliation issue, or help resolving the held funds , you are on your own.  As your business needs become more complex, you might need a solution that requires more hands-on support. 

As always, we are happy to field any questions you might have about Square or any other POS provider to help you find the solution that best fits your needs.  Contact us at 913-890-4900 or email (support@msp-consulting.net).        

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