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Square Payment and It's Relevance to Small Businesses

Square Payment and It's Relevance to Small Businesses

Wednesday, September 23, 2020

In the past, most businesses were in fixed places, with customers going into the store to pay at the counters with cash, credit, and debit cards. Over the years, the mode of payment has drastically changed with the inclusion of recent technology. Some businesses operated on-the-go, but accepting payments electronically wasn't practical.

Today that is changing, fast. We live in a mobile society where commerce takes place almost everywhere. Businesses routinely operate outside their own stores. We also live in an age of rising customer service expectations when it comes to how they want to pay. Shoppers expect to be able to use credit cards, debit cards, and eWallets, no matter where they shop.

On this blog post, we will be talking about one of the easy to use payment processing systems that encourage less human contact. We will be talking about Square up and how it impacts your business 


What is Square? 

Square is an easy-to-use credit card processing system and the most feature-rich free Point of Sale (POS) system on the market today. Unlike many other points of sale systems, Square does not charge any monthly fees. As a result, this is an extraordinary deal for small business merchants.


A Brief History 

Square was founded in 2009 but became a public company in November of 2015, and its stock is traded on the New York Stock Exchange under the ticker symbol SQ. While Square does bring in a lot of money ($3.3 billion for the year 2018), it still has not made a profit. For the moment, the company seems to be more focused on growing by adding new services for its customers.

While Square’s main focus continues to be helping small businesses quickly and easily set up taking credit card payments, it has also expanded its services to point of sale, inventory, and employee management — giving small businesses the ability to run more like large ones (more on these services below). To this end, it has bought the food delivery business Caviar, the catering service Zesty, and the website building service Weebly. It also owns a consumer-centric digital wallet called the Cash App, where users can send money to each other and even buy from any store with the money in the app.

In the span of about ten years, Square has grown from a startup focusing on one aspect of helping small businesses grow to a large business providing a suite of services that help small businesses expand. With so many additional services, what exactly does Square do these days?


What does It do?

Square is still a credit card processing aggregator (sometimes called a third party payment processor or a payment service provider (PSP)). Credit card processing aggregators take more of a see-as-we-go approach and assume financial risk for bad accounts. Aggregators merely need to verify the identity of the applicant before authorizing a new account, and generally don’t ask too much more information. They have more freedom on who they sign up and how they do business with those they sign up. 

Square is an aggregator, so essentially the above is its business model. You can sign up for Square within minutes and without providing detailed financial information. Also, Square gives you a basic set of free hardware and software so you can start taking credit card payments almost right away. The free items include:


Square Point Of Sale Software: Square’s free POS software is incredibly advanced for being free, though it’s certainly not a full-fledged POS. Still, for most small businesses it is more than sufficient. Square also offers premium iPad POS systems for a monthly fee if you need more advanced features.

Credit Card Reader: You can get a basic magnetic strip reader for free, but if you want support for chip cards, you’ll have to upgrade to another reader, which will cost you.

Invoicing: For those businesses that bill a larger amount but less often (e.g. lawn care services), Square offers an electronic invoicing function. The invoices are free to send, but you will pay a transaction fee when your customer pays with their card.


Square’s Value-Added Services

As mentioned earlier, Square has been adding more services to its core credit card processing business. Some of these services are for free, but others are available for a small fee. These services include:


Team Management: With this service, you can manage your employees from anywhere. You can add new employees to the system, track their hours, track their register/sales (at either single location or multiple locations), edit and close employee timecards, and give selected employees selected access to various parts of this software (e.g. so they can enter their own hours but not see your weekly sales numbers).

Payroll Services: Square’s payroll service imports data from Square’s team management software so that you can easily pay your employees and contractors. Square will handle tax filings and withholdings, and they can handle the payments to other employee benefits such as health insurance and 401(k). You can even offer direct deposit to your employees.

Inventory Management: Square offers basic inventory management in its Point of Sale app for free, but the premium iPad POS systems offer a more detailed system that can track and analyze your business’s inventory across multiple stores and multiple registers. You are notified when inventory is low, and items are automatically removed from inventory when they’re sold, whether at one of your physical locations or online.

Business Debit Card (Square Card): When you are paid by your customers through Square, the money goes to an account kept by Square. Rather than moving the money to your bank, you can use it immediately with the Square Card. The Square Card is a debit card sponsored by Mastercard, and you can request it from Square for free. Check out How Does Square’s Instant Deposit Work? for more information about how to access your funds.

Appointments: Square provides a booking calendar for professional service businesses (like hair salons). The calendar not only tracks and moves appointments, but it can also send appointment reminders to customers. The POS and booking system is free for a single user, but if you have multiple users you’ll need to pay a monthly fee.

Square Online Store: Pretty much every business needs an online presence, and Square can help you build a professional-looking website even if you’ve never done it before. Square provides tools that can help you track your inventory sold through your online store and helps you with shipping (printing labels, discounted rates). Best of all, when you sell out of state, it tracks all the different sales taxes that you might owe. There’s a basic free web-store, but if you need more advanced features, you’ll need to upgrade to one of the other plans.

Other Services: Square offers many more services designed to make a small business owner’s life easier. For instance, Square offers marketing software to help you build email and social media advertising campaigns. It has an installment payment service for certain businesses so that a customer can buy a big-ticket item and pay Square in installments while you get paid right away. Square can help you build a loyalty program where customers can redeem goods or services with points. You can get your own branded gift cards to sell to your customers. Square even provides online store owners with a product photography service so that the items sold through web stores are presented in their best light.


What Are The Advantages of Square?

Every successful business has a few things it does extremely well, and Square is no exception. Square basically provides you with a free, fast, and easy-to-get-out-of way to start taking credit card sales. To elaborate a bit, the following are some advantages for signing up with Square:


  1. Fast Setup: You can sign up for Square within minutes and get a credit card reader shipped to you very quickly.
  2. Easy Termination: If you sign up and find that you don’t like Square, you can stop working with Square any time you want. There are no penalties for leaving, so you can sign up without fear. (There may be loose ends to tie up, but you can still terminate the services at will.)
  3. Easy To Use: Square is focused on small businesses that are just starting out. They provide a simple piece of hardware and intuitive software to help you run your business and help you grow.
  4. Simple Fee Structure: Compared with other pricing models, Square has an easy-to-understand flat fee structure so you can better predict your profits.
  5. Fast Payment: With Square, you can get paid almost right away after a customer makes a charge. You can instantly deposit these funds into your outside account or use the funds directly with the Square Card debit card. In contrast, traditional merchant account providers typically hold the funds for at least 24 hours before releasing it to you. For a small business with tight cash flow, Square’s fast payment can make a difference to the business’s survival.
  6. No Minimums Or Monthly Fees: A small fee here and there might seem insignificant, but they can add up in the long run. Square’s credit card processing service (and a lot of their other services) have no minimum or monthly fees, so a small business doesn’t have to worry about paying for anything other than the transaction processing costs.


What Are The Disadvantages Of Square?

No business can be everything to everyone, so Square is not suitable for every type of business. One of the biggest complaints we see about Square is that Square sometimes withhold funds in a merchant’s account, with or without warning.

Sometimes, you never get paid. If you fit into one of the categories below, you might want to think twice before signing up with Square:

  1. Not Suitable For High-Risk Businesses: A “high risk” business is usually defined as a business that deals with guns and ammo, tobacco and vaporizers, pharmaceuticals, gambling, and financial services, and similar — anything highly regulated or prone to chargebacks and disputes. If you deal with any of these, Square is likely not the right business partner for you. Specifically, in its Terms of Service, Square reserves the right to terminate service if you violate any export control regulations (for example, sell military-grade items to specific countries) and money laundering laws, sell weapons or devices designed to cause physical harm, or “use the Services except as otherwise allowed” under their agreements.
  2. Not Suitable For Business With Many Chargebacks: If you have a business that causes a high rate of dispute or chargebacks (even if it’s not otherwise a high-risk business), then Square is probably not the right company for you. Going back to Square’s business model, it fronts you the money that you take from your customers so you can collect right away while it waits for the banks to settle the charges. So, if Square can’t eventually get the money from the banks, it might stop fronting you the money (put a hold on your account) or stop working with you altogether.
  3. Not The Best Pricing For High-Volume businesses: Despite its transparent pricing, Square might not be the cheapest service provider for your particular business. If your business is mature, you have an established financial history and are doing a consistently high volume of card payments, and you know how your customers tend to pay for your goods or services, then you might want to shop around a little more to find the merchant account provider that can offer you interchange-plus pricing and volume discounts. (That said, Square does negotiate custom rates for high-volume businesses, but you should shop around all the same.)


What Are Square’s Fees?

Business owners like having predictable operating expenditures every month. Because credit card fees usually have a percentage component and a flat fee component, the cost of allowing credit card sales tend to be less predictable. Compared to traditional credit card processors, however, Square’s fees are easier to predict.

With Square, you usually only have to worry about just one fee, expressed in a percentage form. Right now, if you use Square’s free credit card reader and free Point of Sale software, you pay 2.6% + $0.10 of the sale. That’s it. If your customers choose to pay online, your rate is 2.9% + $0.30 per transaction. Having only to keep two numbers in mind makes it easier for you to figure out your markups so you can make a profit for your entire business.


What Kinds of Businesses Is Square Best For?

As is the case for most things, there is no one-size-fits-all solution when it comes to credit card processing or business software. Square provides a robust, easy-to-use ecosystem at a reasonable cost. Is it the cheapest option? No. Will it offer every feature you could possibly want? No. But knowing your business, the types and frequency of payments you take, your customer demographics, and even your own personal habits will help you make an informed decision. Larger businesses, for example, will probably have more complex software needs and be able to leverage their size and transaction volume to get discounts with other payment processors.

Square is a great starter option, one that’s able to grow and scale with your business as it develops. Better yet, you can sign up for Square without making a commitment, so it’s relatively easy to leave if you aren’t happy with the service. Nevertheless, there is still some risk involved, so weigh your options accordingly.

Got any questions about Square, do reach us via the Helpdesk or leave us a comment and we will get back to you.




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