As a small business owner, offering your customers a variety of ways to make their purchases is integral. Once you've made the decision to allow customers to utilize their credit cards, you've got to put certain machinery in place. When it comes to your credit card machine, you may be tempted to lease one from a company rather than buying one outright. Here's why that decision could be a mistake:
While it may seem that paying $50 to $100 a month for a leased machine makes good financial sense, consider that buying a new terminal will only cost you about $400. If you purchase the machine with your credit card, you can make minimum payments that are equal to the cost of a lease and own your machine outright in a matter of months. If, on the other hand, you do opt for a lease, that $400 machine could end up costing you over $2,000 by the time you've made all of your payments. When you run the numbers, you'll realize that you will have paid more than 500 percent in interest for a machine that you don't own. The good news is that the purchase price of your credit card machine is a tax deductible business expense; your lease payments, on the other hand, will not be tax deductible.
If you've made it this far in life, you know that nothing in life is free. Companies that offer free credit card machines will still charge you a terminal replacement fee or a warranty charge on a yearly basis. These fees typically range between $50 and $100 a year. While this is cheaper than a lease, you still won't own your machine and, if your business goes under, you may still be responsible for these payments if you are tied into a contract. If you do find a processor that is offering free machines, make sure that you read the fine print to discover exactly how much you will be charged and how often.
Speaking of contracts, all leases come with some sort of agreement. When you lease a machine, you will be asked to enter into a two-year contract, on average. If you lease a machine for $100 a month, for example, you will have paid $4,800 for a machine that would have originally cost you about $400. In addition, if you close your business, make changes to the way that you accept payments or decide that the company you have leased from is not meeting your expectations, you will still be responsible for making your payments. Consider how these mandatory payments will affect your personal budget should your business close.
Many business owners consider leasing machinery because of the service provided by the companies the machines are leased from. While having the ability to make a quick phone call and have your machine fixed, consider that you can just as easily buy a new machine to replace one that is malfunctioning. Additionally, when you purchase a credit card machine, they often come with a warranty against manufacturer defect. If having service provided free of charge is the only reason you are considering leasing a machine, rethink your decision.
If your business is successful, you may be processing dozens of transactions in a day. Credit card machines can only stand so much use and will begin to look old and worn out in a relatively short time. You should also stop to consider that technology changes rapidly and if you need to upgrade your machine, you won't be able to do so until your lease has expired. By purchasing your own machine, you can easily buy a new one when your first is worn and, as technology changes, you can buy a new machine to keep up with current security upgrades.
If you think that leasing a credit card machine is your best option, you aren't alone. Thousands of merchants lease these small pieces of machinery every year. Our advice is this: don't lease a credit card terminal.When you research your options and run the numbers, you'll undoubtedly find that buying a credit card machine makes better business sense.