Business: Pass the Buck
Find out which payment methods are right for your studio.
Whether your studio has 50 students or 500, chosing a payment plan that's ideal for both your business and your customers is essential to your success. When it comes to staying in business, after all, receiving your revenue tops the list of what's important. Depending on whether you charge by the session or by the month, some payment options may be more suitable than others. To stay organized and efficient with your finances, it's important to know why you should choose one method versus another, and be familiar with the advantages and disadvantages of each. Here are six payment methods to consider.
Cash
If parents want to pay for classes in cash, you'll have immediate access to the funds and no worries about bouncing checks or credit card fraud. But there's also a downside: the amount of handling involved. You or a staff member has to accept the money in person, provide a receipt, record the transaction and deposit the cash in you bank. You may have some concern about theft and, aside from the receipt you created, there's no paper trail of the transaction- and thus, no way to trace a discrepancy. Even though you provide that receipt, if there's a disagreement, you won't have a check or credit card record to refer to. If you do choose to accept cash, be sure to create a plan with your staff for recording, storing, and depositing the money.
Check
Nearly everyone you deal with has a checking account. Checks are easy to use and simple to process. Keep in mind, however, that creating a perfect system for handling, recording, endorsing and depositing the checks may be tough. Also, you may risk some checks being written against insufficient funds, though many owners go for years without experiencing a bounced check. Some studios prefer this form of payment, because it allows a transaction to be traced- you can always request a copy of the check.
Credit or Debit Card
Many parents will want to pay with plastic, whether it's a credit card or a debit/ATM card. It's convenient for them and you're sure to receive payment. Credit card fraud isn't likely to be a problem at a dance studio, so for many owners the main disadvantage of credit card payment is the cost.
To accept credit and debit cards, you'll need a merchant account, which you can set up through a commercial bank or through one of many merchant account providers. You'll also need a credit card processing service, which is included with many merchant accounts. Your initial startup cost may include an application fee, and you will need to purchase or lease a terminal device to scan the cards.
A merchant account usually charges a monthly fee. YOu'll also have to pay a percentage (typically 1.5 to 4 percent) of the total amount, plus a transaction fee (perhaps 20 to 40 cents). The percentage is called the discount rate, which is a financial term for a fee or interest that is deducted from the total customer payment, rather than paid in addition. In other words, this percentage is "taken off the top." If your merchant account has a discount rate of 3 percent and the transaction fee is 30 cents, then you would receive $96.70 from a $100 credit card payment.
If you decide to accept credit cards, do your homework. FInd reputable, reasonably priced merchant account providers, learn their fee structures and, before you sign up, find out the monthly cost. SOme studios start offering credit card payment and then dicover that it is too costly. If you run classes by the session, for example, you'll take in a large number of transactions in some months and no transactions in others, but still ahve to pay the monthly fee.
Debit or ATM cards work like credit cards, but the transactions generally cost less. The transaction fee for a debit card payment may be more than for a credit card, but many merchant account providers do not charge a percentage of the transaction, so the total cost will usually be less.
Online Services
Originally developed for internet commerce, PayPal (www.paypal.com) is finding great popularity among small businesses that have their own websites. Set up a PayPal account and provide a link on your website so parents can simply click to access it. THey can use credit or debit cards or they can transfer funds from their bank accounts. THere are transaction fees, but no up-front costs for you, and your customers have the convenience of using their credit cards. Some owners even pass along the transaction fee (about 3 percent plus 30 cents) to their clientele.
Other online payment services are available. Some enable you to accept online registration for classes or events for a price, while others process your fundraising donations online. For example, www.active.com/activegiving processes online donations for a charge of 50 cents per credit card transaction plus 6.5 percent.
Electronic Benefit Transfer
An EBT card looks like a credit or debit card. Some government agencies use these instead of checks to distrubute public assistance benefits. Once you swipe an EBT card through a special scanner, the funds are instantly tranfserred to your account. To enroll and find out about accepting EBT cards, go to www.fns.usda.gov.
Which to Offer?
The structure of your programs, whether session-based or membership-based, may determine which methods make sense. The overall objective should be to choose an option that will make it easy for the parents to make payments and easy for you to maintain your revenue stream.
Do your homework. Ask parents how they prefer to pay. Talk to your banker. Compare fees and terms. COnsult your accountant, fellow studio owners or a financial advisor. Once you set up a payment system that fits your customers, you can devote your attention to your dancers, not your cashflow. DT
Barbara Donohue is a freelance writer based in Acton, MA.
