What You’ll Learn:
- How credit cards can improve cash flow and keep your clients happy
- When to choose credit cards over alternative forms of payment
- Measurable benefits of accepting multiple payment methods
Wondering whether you should accept credit card payments as a freelancer or small business owner? Check out this quick breakdown on the pros and cons of sending and receiving payments by card.
Pros of sending and receiving credit card payments
01. Convenient for you and your customers
Just like consumers, businesses stand to gain significant advantages from making and accepting payments via credit card. Paying with plastic is a much easier alternative to methods like check or ACH, which typically require more setup and come with longer processing times. Just charge your expenses to a card, keep money in your bank account for longer, and rack up reward points along the way.
You can even use cards to take advantage of other perks like early payment incentives which allow you to pay less if you pay sooner. Having the financial dexterity to activate discounts like these can help small businesses and freelancers save money when it matters most. The only problem? Small businesses typically don’t have enough cash on hand to pay in advance—unless they use a credit card.
With credit cards, you can send immediate payment to vendors but the funds don’t actually leave your account until you pay off your balance (typically at the end of the month.) This lag time gives you the ability to strategically leverage potential discounts and incentives, keep your vendors happy, and maintain higher volumes of working capital throughout the month.
02. More sophisticated cashflow control
On top of potentially lucrative rewards, paying by card offers another extremely attractive benefit to businesses: improved cash flow.
Many small business owners and freelancers don’t have the luxury of steady, predictable income or extensive savings to cover unexpected costs. This means they have to carefully monitor how much cash is going in and coming out—which requires a balance of paying bills on time and conserving enough money to cover other expenses.
Because you pay credit card debt on a monthly billing date, you can schedule payments in advance that you won’t have to pay off until later. In this way, credit cards can almost function like short-term loans, providing “float” for businesses that need a little relief between payments.
The result? More cash on hand to use in the here and now. A win-win, as your business gets to hang on to more money until your next billing cycle, but short-term debts are paid off consistently.
03. Secure, fast, and trackable payments
Card payments can be recorded and balanced digitally. This eliminates tons of manual record-keeping and admin work from your plate, and can make it much simpler to file taxes at the end of the year. If you work with an accountant, handing off a clear record of payments sent and received is a breeze with credit card statements. If you accept multiple types of payments, using an all-in-one invoicing platform like Hopscotch can help you reconcile all the financial data in a streamlined leger and even integrate with QuickBooks—making your accountant very happy.
Compared to other payment solutions, funds from credit card payments transfer very quickly: typically 1-2 business days as opposed to 2-5 days with ACH and weeks with paper checks. This quicker timeline can be a huge advantage if unexpected payment delays have threatened your business in the past.
Lastly, credit cards offer an additional line of defense because they aren’t directly linked to any bank account. This feature protects both sides of a credit card transaction (payor and payee) and if fraud does occur, the injured party is likely eligible for a refund.
05. Rewards opportunities
In the same way that consumers often use this payment method for potential rewards, businesses can also earn points for travel, cashback incentives, and more just by paying via credit card. In fact, because businesses tend to have larger consistent recurring payment obligations month-over-month than individual consumers, they may be in a better position to meet certain spend criteria to qualify for rewards.
For small business owners and savvy freelancers, credit card reward opportunities can offer significant convenience and utility. Just be sure to research which credit cards offer the best incentives for businesses in your size and vertical.
Cons of sending and receiving credit card payments
Credit cards offer so many enticing features and advantages for small businesses and freelancers…so what’s the drawback? Here are a few of the limitations that you should be aware of, and tips for how to decide when cards make sense for your goals.
01. Acceptance limitations
Many businesses prefer to transact with credit cards, but you’ll also find that credit card payments aren’t accepted everywhere for B2B transactions—some businesses and vendors might prefer ACH or wire transfer, for example. Offering cards as a payment option might help you net more revenue overall, but it should probably be one method of many.
Being able to accept a range of payment options will fortify your business, allowing you to say yes to big opportunities with customers who only pay by card and also giving you the ability to negotiate in certain circumstances when you want to advocate for your preferred payment method. Hopscotch makes it possible to accept card payments, ACH payments, and Hopscotch Balance transfers.
If you want to pay your bills using a credit card and reap the rewards of different programs like cash back or points, Hopscotch makes it possible to pay by card even if your client doesn’t accept cards! You can pay a bill through Hopscotch using your card, and your vendor can accept that payment via a bank transfer—a win-win!
02. Unavoidable fees
There are some drawbacks for the party on the receiving end of card transactions— mainly, fees. When it comes to accepting payments, your business should be aware of the impact of transaction fees which can be significant for large orders or projects. Credit card processors often charge between 1.5%-3.5% per transaction, which can undermine your earnings if you’re getting paid via credit card.
(Transacting via Hopscotch? Decide whether you or your client will absorb the credit card processing fee and create a better payment experience for your customers.)
Despite the fees, you’ll likely choose to still work from clients who prefer to pay by card—you just want to proactively calculate how much those fees will impact your overall earnings and decide whether it makes financial sense to accept that method or suggest an alternative. At Hopscotch, you can choose zero-fee payment options as well as credit card options.
03. Interest rates
Credit cards come with terms and conditions, one of the most important of which is the APR or Annual Percentage Rate. This is the yearly interest rate you’ll pay if you carry a balance on your business card. Some credit cards have fixed APRs and others have variable APRs, meaning your rate can increase or decrease over time.
In a perfect world, you’ll pay off the balance of your credit card every month like clockwork—but we all know that unexpected conditions can arise preventing you from paying down your balance consistently. If that happens, you’ll incur interest costs which might be significant over time depending on the total balance of your card.
How to pay and get paid via credit card
To start accepting payments via credit card on Hopscotch, all you have to do is alert your customers that they can pay by card. To start making payments via credit card on Hopscotch, simply add a credit card as one of your payment methods.
Accepting payment via credit card makes your business stronger
Choosing not to accept credit transactions means you could miss out on significant business from clients who prefer this payment method. But relying on cards as your primary payment method could mean you wind up paying more in fees than you need to.
Businesses looking to grow might want to consider diversifying their payment method dashboard. Accepting a wider array of payment methods is a solid way to expand your book of business.
Ready to improve your payment process? Sign up and verify your Hopscotch account today. Choose the payment method that works for your business in every transaction.