Whether you choose a contracted or Pay-As-You-Go (PAYG) card machine setup, choosing the correct option is an important decision for any business and there is no ‘one size fits all’ solution on the market.
Between 2008 and 2020, cash payments declined in the UK from 60% of all transactions to a mere 17%, and that number is now considerably lower following the impact from covid.
Previously, businesses debated whether or not they needed a card payment solution, however, following the pandemic, which accelerated the UK’s evolution into a cashless society, the question now is “which solution do I need?”
The fact that you’re reading this means there’s probably a good chance that you’re either a new start-up looking to get your card payment processes off the ground, or a growing firm on a PAYG setup contemplating whether it’s time to make the next step to a contracted terminal.
In the following piece, we’ll discuss how each service differs and the impact your income has on determining which solution is best for your business.
Generally popular with smaller businesses (particularly microbusinesses) a PAYG service involves a business purchasing their hardware (the card machine itself) upfront. This eliminates the need to pay monthly charges associated with a fixed term contract.
Owning your own equipment doesn’t mean you avoid a fixed rate charge per transaction, which typically stands at 1.69% for all businesses integrating a PAYG service.
With a contracted terminal, your business will typically lease the hardware instead of buying it outright, paying a monthly fee (usually around the £20 mark) to operate the equipment. As with PAYG, a fixed rate per transaction still applies, however, with a contracted terminal these rates are considerably lower, averaging around 0.4%.
To be frank, it’s an impossible question to answer without knowing your monthly income.
Whilst PAYG is cheaper in the sense that you avoid fixed monthly payments, the higher rates mean you’re paying an extra 1.29% (minimum) on all the sales you process. This pricing structure means that yes, PAYG makes sense for smaller businesses with a lower turnover. However, once you start generating more revenue, it becomes apparent that a contracted terminal is the most cost-effective option.
Below, we’ve compared the overall monthly cost for two small businesses, with differing monthly revenues.
As you can see, once businesses start generating revenue north of £1,500 a month, it becomes substantially more cost-effective to implement a contracted card payment solution.
If your business is predominantly seasonal, often three or four months’ worth of revenue at a particularly busy time of year can outweigh quiet months of wasted rental fees, making a contract more attractive than PAYG over the long term.
Understanding the needs of your business and the accuracy of your projected short-to-medium term income is fundamental to choosing the correct solution.
There are numerous advantages to both options, wholly dependent on where you’re at in your business’ lifecycle.
With a PAYG service, your terminal is completely contract free, meaning you can switch provider or upgrade to fixed contract at any point. The only charges you’ll face are your fixed transaction fees as you go.
Attempting to exit your fixed contract is a whole different matter and a notoriously unpleasant experience for many businesses.
Merchant contracts are purposefully restrictive, providing only short windows of opportunity for switching or cancelling in a 12-month period, as well as potential penalty fees for switching outside of this window. It’s advisable to enlist the help of an expert who can negotiate on your behalf and utilise their partnership to find the most competitive prices in the market.
To help businesses like yours, we have created a super-easy process for our experts to gather the necessary information to assess your costs and investigate savings, fast. All you need to do is upload your terminal and transaction statements to our web form and our team will undertake a complete audit of your billing.
Once we have this information, we will establish the most business-appropriate solution for you and approach the market on your behalf to negotiate a tailor-made cost-effective solution that adheres to your every business need.
Find out more about our card payment solutions and read our team’s answers to some of our customers most frequently asked questions.