Technology October 22, 2013 Last updated September 18th, 2018 790 Reads share

How Mobile Payments Benefit Small Businesses

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Not many years ago, small businesses had little choice but to depend on cash only transactions, limiting opportunities for profit or making steady cash flow a rarity. Mobile businesses like food trucks, lawn services, and pop-up market booths, for instance, could sell only to customers with cash in hand, while caterers and contractors invoiced for jobs and covered expenses while waiting 30 to 90 days for payment. Many such businesses depend on credit lines to cover the gaps.

The launch of mobile payment processing changed everything

Businesses can collect on the spot to cover payroll and expenses, freeing them from the uncertainty of low cash flow periods while reducing operating costs and benefiting customers at the same time.

  • By the end of 2013, International Data Corporation (IDC) projects that 918.6 million cell phones will be in use, a 27% increase from the previous year.
  • About half of all cell phones in the U.S. are smartphones.
  • In five years, experts say that number is on track to grow to 1.7 billion smartphone users worldwide. The mobile payment market is huge, and growing.

The Carlisle & Gallagher Consulting Group estimates that 50% of smartphone users will abandon credit cards and other noncash methods of payment in favor of mobile payments within five years. Since the noncash market, including credit and debit cards, ACH transfers, mobile payments, and checks, racked up more than $73 trillion in 2012, the implications are clear.

Reducing the risks

Cash is a significant risk for any small business. Since it can’t be tracked, employee theft is always a potential issue. The National Retail Security Survey estimates the cost of employee theft at $34.5 billion in 2011, a figure that’s gone down in the last couple of years.  Unfortunately, about 75% of employee theft goes undetected.

Theft may take place in many different forms, from making a sandwich before leaving for the night to pocketing cash that should go into the register or cash box. It’s difficult to monitor everything, and impossible to  prevent all theft. It’s important to understand that opportunity is a common motivating factor. Reducing cash transactions also reduces an easy, untraceable, and tempting opportunity.

Employee theft is not the only risk, however. At the end of the day, small business owners, especially those with mobile businesses, take a personal risk while carrying the day’s receipts home, to the bank, or back to the office.

Customers, too, are more leery of carrying cash. They face the same risk of theft or loss, and can be inconvenienced by simply running out before the fun is over. Mobile credit card processing offers an efficient way to pay and get paid with equal benefits to both customers and vendors.

For businesses that depend on payment for large deliveries, like catering service, the ability to accept payments on-the-spot is far superior to the wait that invariably accompanies sending out invoices for goods already delivered. Prompt payment impacts the entire supply chain, from seafood delivery to table rentals. The faster the caterer collects, the better he’s able to meet his own obligations. In addition, with the expectation of immediate payment, the customer is less likely to default and leave the business owner on the hook for immediate expenses and prolonged collection efforts. The result: higher profits with less effort and minimized risk.

A primary consumer concern with mobile payments is security. Credit card theft and identity security continue to plague merchants, card issuers and consumers. Mobile payment processing relies on an encrypted and secured transactions to ensure centralized control and secure reporting. The best systems send encrypted credit card data directly to a point-of-sale (POS) system, without third-party processing.

It’s important to note that credit card terminals use the same technology as mobile payment processing. Every time a customer whips out a card for a transaction, whether buying tools at a retail giant like Sears or a gourmet goat cheese burger at the local food truck, the technology used to process the transaction is essentially the same, and customers face the same level of risk. No method of payment, including cash, can be 100% secure. Mobile payments are as secure as any other.

How mobile payments cut costs

Accepting mobile payments represents a significant savings in cost over today’s complicated cash register systems. Mobile credit card processing eliminates the need for pricey specialized equipment or custom software, making transactions accessible from any smartphone, with similar easy-use technology most customers and employees are already comfortable with. Shortening the learning curve saves time and money at every step, training, implementation, and processing.

More savings opportunity comes with smoother cash flow. Reduction in wait times means the up and down cash situation where a business is either flush from freshly paid invoices or struggling to stay afloat while waiting for overdue payments, commonly known as “lumpy cash flow,” is gone. To cover expenses prior to instant payment processing, many small businesses turned to credit, adding the expense of interest to their bottom line. Meeting payroll and supplier expenses with a loan or credit card is practical in the short run, but can quickly eat profits.

In 2012, Bank of America surveyed small business owners and found 45% of 1,000 respondents cited “not getting paid on time by clients and customers” as the biggest challenge to managing their cash flow. Other factors were low profits or lack of business, and 9% said they had trouble getting invoices out in a timely manner. Doing the paperwork, sending the bills, and following up are time consuming, costly, and potentially fraught with errors. Mobile payment processing client, Intuit Payments, solves a number of issues by integrating seamlessly with Quickbooks™ to simplify and improve accuracy for invoicing, bookkeeping, and billing.

It’s easy to speculate that the growing adoption of mobile technology might explain why 71% of small business owners say they have enough capital available to run their businesses. Robb Hilson, head of Bank of America small-business segment, said, “The bottom line: with improved cash flow, many small businesses don’t need to borrow to make payroll.”

Improving the customer experience

Business owners aren’t the only party to benefit from the boom in mobile payment processing. For customers, mobile payments offer a range of convenience. It’s is generally faster and more efficient than a traditional cash register transaction, and most payment processing software emails a receipt, which makes keeping track of purchases and spending easier.

An email trail of electronic receipts will make it easier at tax time for customers who write off expenses and for supporting businesses with their own bookkeeping needs. The IRS accepts electronic documentation for expenses as long as pertinent details such as venue name, date, and amount are included. Customers can happily toss the shoebox full of paper receipts and open a file folder full of electronic receipts instead.

Boosting sales with mobile payments

In 2012, a quintessential mobile business got an unexpected boost in sales numbers. In an interview with the Christian Science Monitor, John Graves, chief financial officer for the Girl Scouts of North East Ohio reports that Girl Scout cookie sales soared after he cut a deal with a mobile payment company to put credit card processing in the hands of little girls armed with Thin Mints. Customers loved it, and sales jumped by 13% for 150 participating troops, while troops that did not adopt the technology did not see any improvement in sales. In 2013, 536 troops participated in the card reader program. Graves reports that participating troops had the largest restocking orders in history.

Inventory tracking and consumer trends

Mobile payments allow businesses to automate inventory tracking and stay on top of consumer trends, making customer preferences more transparent. By collecting mobile payment data, small businesses have access to the kind of big data formerly available only to big businesses with deep pockets. Restaurants, for example, can use the consumer trend data to figure out what products sell best at a certain time of day, on a specific day of the week, or what appeals more to customer appetites when the temperature falls or rises.

Prepared with detailed information about when and what customers are most likely to purchase, business owners can reduce waste and stock the right products at the right time. By addressing customer preferences, businesses of any size will see a rise in sales and an improvement in customer satisfaction.

Images:  ”A young woman paying for grocery purchase with a mobile phone/


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Sherry Gray

Sherry Gray

Sherry Gray is a freelance writer from Key West FL, otherwise known as the coolest place on Earth to grow up. She writes about business, social media, science and medicine, college, and the business of food. And just about everything else.

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