How to Optimize Payment Processing for Seasonal Businesses

Anyone who lives where it snows can appreciate the beauty of the seasons. As the year changes, each season is beautiful: think of Fall leaves or the rebirth of Spring. But when it comes to generating revenue, is having a seasonal business beautiful?

Seasonal sales are booming during key times like the holiday season. But other times, small business owners are not so busy operating. In fact, there may be short term periods where they are not even open at all, or lengthy slow periods where business has trickled down.

Most payment processors do not want to deal with the ups and downs of seasonal business cash flow. Payment processing cost management (for them) depends on a consistent stream of debit and credit card payments.

How can such a business find a seasonal business payment processor? Let’s take a look at some seasonal business payment challenges. Might such a business be doomed to taking cash only? No business model today can thrive or survive without taking credit and debit cards. But accepting payments like these means transaction processing.

Understanding Seasonal Business Dynamics With Payment Processors

A seasonal business is any business whose customer base fluctuates significantly based on cyclic periods or events, such as weather, holidays, local events, or the school calendar (to name a few). This variance in demand means that sales volume will also vary throughout the year.

In truth, almost every type of business is seasonal to a certain degree. For example, big box retailers have evergreen offerings that appeal to shoppers all year round. They offer consumer staples that are in demand all the time. However, even these stores experience sales surges in November and December and other times of the year, such as at the end of summer before school starts.

Some businesses, however, are truly seasonal in the strict sons of the word. Think of retailers and restaurants and a small tourist town. These locations will be absolutely swamped during the right time of year. Like beach towns in the summer or ski resorts in the winter.

Some businesses are so slow that they entirely shut down during the off season. These types of seasonal businesses may have trouble finding an agreeable payment processor to work with. First off, seasonal revenue is often unpredictable, especially when it is tied to uncontrollable events.

Seasonal Towns

One tragic example of this and recent history was the wildfire in Lahaina, Hawaii. Lahaina is very much a seasonal town whose economy entirely revolves around tourism. The fires not only threatened lives and destroyed property, but destroyed many small businesses as well. 

Sometimes, the revenue crisis is tied to broader socioeconomic concerns that the business has no control over. For example, a small resort town in Colorado has given up marketing itself to tourists because its workforce can no longer find affordable housing in the area.

Payment processing companies rely on transactions for revenue. During the off season, a business that shuts down or slows down significantly will disrupt the cash flow of the payment processor, even without natural disasters or the broader scope of a country wide recession.

Seasonal Business Fraud and Chargebacks

Seasonal businesses may also be more subject to fraud and chargebacks. Chargebacks are when a customer initiates a dispute with their bank or card company instead of reaching out to the business. They’ll do this because they don’t recognize the business name on their bank statement. 

Customers who visit a retailer or food bender may forget the name of the place or that they even made a transaction there. They may dispute this charge with their bank instead of contacting the retailer listed on their statement.

In terms of outright fraud, some seasonal businesses experience such an influx of transactions during their peak season that it can be hard to successfully deflect fraudulent purchases. Fraudsters are aware of the influx and find it easier to hide their purchases within the flurry of legitimate purchases.

Some seasonal businesses have also experienced an unfortunate uptick in what is called friendly fraud. This is when a cardholder pays for something, uses it, and then claims that it never happened. 

Although unethical, it is also surprisingly on the rise. In response to increasing friendly fraud, Visa has issued a new set of protocols called Compelling Evidence 3.0 (CE3.0). These protocols allow merchants to fight back more successfully than they have been within the climate of consumer favoring laws.

We have discussed how payment processors might feel about seasonal businesses. Now, let’s talk about the seasonal businesses themselves. If a business shuts down its operations or experiences a significant slow down during certain times of the year, it could be hard to meet its recurring overhead expenses.

Payment processing fees are one of them. It may be a strain to meet the minimum required by the payment processor. If they can’t, they may have to suspend services, and then pay for hardware and software to be reinitialized before the busy season.

Payment Processor Fees

What should a seasonal business look for in a payment processor? In many ways, they should look for the same things that any type of business looks for, good pricing and responsive customer service.

Beware of Losing Revenue With Flat Rate Pricing

Many seasonal businesses do not have human resources they can allocate to full time accounting. In fact, their workforce is very often seasonal as well. The end result is that many seasonal business owners do not have the resources to investigate and audit their own backend processes, such as how much they are losing to fees. As a result, many of them settle for working with a large payment aggregator like Square, Stripe, Venmo, or PayPal.

One of the biggest problems with large payment aggregators is that they typically charge flat rate processing fees. Often this is something like 2.90% plus $0.60 per transaction. Flat rate pricing is not problematic for businesses with low sales volumes. The simplicity afforded by working with an available processor like Square or Stripe outweighs the very minimal losses sustained by their simplistic pricing models.

For businesses, flat rate pricing can have some hidden costs. That’s because, in truth, every type of car transaction is different. First, banks and card networks use thousands of merchant category codes (MCCs) to categorize businesses.

Then, there are four main credit card networks (Visa, MasterCard, Discover, AMEX), as well as debit card networks. There are rewards credit cards and non rewards cards, business credit cards and consumer credit cards. All of these factors result in tens of thousands of permutations that yield different pricing: every single transaction has a different true cost, and most of them are not 3% plus change.

Understanding Interchange Plus Pricing

By contrast, interchange plus pricing allows a business to be charged more along the accurate lines of a transaction’s true cost. There’s another type of pricing called tiered pricing, which some financial institutions (e.g. banks) that also provide payment processing services use.

However, share pricing has a very punitive pricing scheme towards most of the cards that would benefit seasonal industries, such as business cards and rewards credit cards. Tiered pricing is about protecting the financial institution by compensating for the types of transactions that are more typically fraudulent (business cards or rewards credit cards).

It can be a struggle for a seasonal business to find a payment processor who will offer interchange plus pricing, particularly if the overall sales volume is low. You need a payment processor with flexibility who can create a contract that will factor in the seasonal fluctuations of your business. But during the part of the year when you are busy and active, interchange plus pricing is your go to preference.

Managing Payment Processing Costs

The first thing you can do to minimize payment processing fees during peak seasons is to work with a flexible payment processor that services seasonal businesses. As mentioned, transparent pricing models, such as Interchange plus pricing, are better than flat rate pricing models.

Given the fact that some types of credit cards have inherently higher fees, you may be wondering if you can steer customers towards using a particular card or refuse to accept certain cards. Refusing to accept certain cards is certainly within your rights, but you may find that it causes a bad impression on those cardholders.

One card network that typically gets a lot of flack from merchants is American Express. Some merchants are reluctant to take AMEX cards because of their slightly higher fees. However, research shows that AMEX users spend more than Visa or MasterCard holders.

Implementing Convenience Fees or Surcharges

In most states, you are legally allowed to charge convenience fees if customers use a specific brand of credit card or a specific credit card product, so long as you clearly post signage and the convenience fee dollar amount on receipts. However, this may also create a bad impression on those cardholders, as they feel they are being singled out.

Adopting these strategies for a seasonal business needs to be weighed carefully. Many seasonal businesses are viewed by their customers as an oasis of comfort away from home, particularly in the travel and hospitality sector. You do not want to alienate or frustrate any of your customers who may be relying on a single preferred payment method, especially in an era of social media when they can quickly broadcast that to the rest of their network.

Your best bet is to avoid product steering or blacklisting specific payment methods and instead hammer out the most favorable fee agreement you can with your payment processor. Consider negotiating for better rates during high volume periods and perhaps accepting less favorable rates during slower seasons.

Ideally, your payment processor should also offer different tears based on volume. As your volume goes up, your fees should go down. You want an agreement in place before the season so that a surprise fluctuation in sales can trigger lower fees.

Adapting Payment Systems for Peak Seasons

Seasonal businesses benefit from payment systems that are scalable, since fluctuations in sales volumes can be unpredictable. Facilitating these transaction waves will involve a combination of hardware and software.

Let’s take a brick and mortar business, for instance. It may be cost prohibitive for such a business to lease a dozen POS terminals over an entire year, especially if they are most of the year they only need one. But they may need all 12 at one time during peak sales.

Leasing Equipment

One approach is to create a flexible contract with the payment processor, who will lease the terminals on a seasonal basis. However, many payment processors would be willing to do this, as there would be costs associated with setting up the terminals. It would be difficult to find some productive revenue generating place for those terminals during the off season.

Smartphone Terminals

A better solution is now available due to the advent of smartphone technology. There are no applications that can turn mobile phones into contact terminals. Supporting businesses to transform employee smartphones into payment terminals with a specific application would be a much better route.

This type of cloud based SaaS is behind another type of technology that can also make your payment ecosystem extremely scalable: QR codes. QR codes allow smart users to scan a unique checkerboard design and arrive at a payment gateway right on their mobile phones. This is an extremely scalable solution, as each customer can process payments simultaneously.

Do take note that one drawback to this particular method is that transactions are considered card not present since the customer is making a payment online, even if they are in front of you. However, the ability to find such a solution may outweigh the fees. This type of pro con weighing is something a seasonal payment processor could hash out with you better than a large, faceless company like Square.

Ensuring Payment Security and Compliance

As mentioned, fraudsters know that busy seasons are the perfect time to sneak their theft in between all the legitimate transactions going on. Robust fraud monitoring tools will defend your business against fraud in every transaction.

Updating Payment Equipment

One way you can cut down on a significant amount of fraud is by updating your payment processing hardware. But it’s harder for truly seasonal businesses to invest in purchasing or leasing the most up to date hardware, as it is only used for a select portion of the year.

Leasing or financing such equipment year round is cost prohibitive for some businesses. Once again, flexibility is the keyword. A payment processor who works with seasonal businesses will be able to create better contracts or arrangements for this hardware.

The latest payment terminals facilitate contactless payments, which greatly cut down on some of the old types of fraud that were leveraged against magstripe cards. Both Visa and MasterCard have also come up with biometric POS terminals that conduct facial scans or hand scans. As biometrics are unique to each individual, this is the supreme form of fraud foiling.

PCI DSS

If your seasonal business saves customer account information year round, your business will need to adhere to standards set by Visa and MasterCard. The standards are called PCI DSS (payment card industry data security standards) and contain regulations and sub regulations about how to securely store customer payment information. Thankfully your payment processor can take on the bulk of managing PCI protocols.

Chargebacks

A related security concern is avoiding chargebacks. A significant part of chargeback management is transparency and consistency. Sometimes, a business has a DBA or signage that differs from the business name on receipts and baking statements. Make sure you communicate with customers if an unexpected name appears on their baking statements so you can avoid those types of post vacation chargebacks.

Your payment processor can also offer robust documentation tools that assist in contesting chargebacks with the card network. For example, if you have customer facing touchscreens, you can collect signatures at the point of sale, an effective way of documenting a transaction.

Leveraging Data and Analytics For Seasonal Businesses

Seasonal businesses are not the only type of business that can benefit from robust analytics. However, unlike an evergreen business, seasonal businesses only have periodic times when they can clean data from customers making payments.

With a limited sampling size throughout the year, analytic tools must be particularly insightful to guide a business toward making good decisions for the next year. 

Seasonal retailers and other businesses that carry inventory (like restaurants) have to be on point with planning supply chain logistics. Making bad decisions in this area can derail an entire season. Analytics are the key to understanding what will sell during the upcoming season.

Seasonal businesses should consider pulling additional demographics into a transaction to analyze for marking strategies. Can you collect an email and phone number at the point of sale? Email can be a gateway to year round marketing, while area codes can help you lock down where your customers are coming from. In turn, this can aid social media marketing strategies, such as where to show paid ads.

Customers can be encouraged to participate in supplying data with incentives. You can position this request as a suggestion to set up an account, with reward points for hitting milestones or repeat visits. Many businesses successfully use this type of loyalty program. 

For seasonal businesses, a program should certainly be digitized, as customers who come only periodically could lose or forget to bring tangible punch cards or proof of membership.

Case Studies and Success Stories For Seasonal Businesses

Let’s look at some examples of seasonal business payment processing. Joe’s Ski Shack is one of those businesses. Joe has been in business for over 30 years in the world renowned ski destination. Joe has also been taking cash for 30 years.

This year, Joe decided he would rather have all customer payments go right to his bank account. Besides, he has observed that customers prefer the rapid payment experience of making mobile payments. 

He did what most SMB owners do and contacted Square. Square provided him with two terminals. Square also charged him around 3% plus change for every transaction.

The first problem is that two terminals were not enough to handle payment spikes. There are days when Joe needs five cashiers, not two. If lines get too long, customers will go to a different store. The next problem is the fees.

The Need For Seasonal Merchant Account

Joe needs a merchant account for seasonal businesses. These merchant accounts can provide payment gateways for seasonal sales which would help manage peak season payments, without breaking the bank the rest of the year. They would offer seasonal business scalability using the most cost effective software and hardware.

Joe asked some of the other merchants on his block how they manage peak season payments. The restaurant down the street even takes digital payments by letting customers scan a code on their menu.

Thankfully, one merchant had a good lead for Joe in a seasonal business payment solution. This company was not as big as Square, but they answered all his questions and were willing to offer a more flexible contract. Instead of charging 3% plus change, they would offer him different rates based on what type of card the customer uses–interchange plus pricing.

Not only that, but they had an innovative idea for high volume payment processing when things get busy. This company had a phone application that employees could use to turn their smartphones into contactless payment terminals.

Joe had some qualms about this idea. What if employees sent the payment to their bank account instead? The account manager explained the robust fraud protection measures they had set up to protect mobile contactless payments. 

Joe signed a contract with this company. They provided him a solution for his seasonal demand for payment processing with (1) better, more nuanced fees that accepted the reality of his seasonal sales management and (2) an innovative hardware solution that would not create an overhead burden during the spring, summer, and fall months.

Conclusion 

That example largely summarizes payment processing tips for seasonal businesses. Seasonal businesses have a unique challenge. The feast or famine attribute of their cash flow is a given. Securing a seasonal merchant account for part of the year may be difficult, especially if they still do some business during the off season.

What they need is efficient payment processing for high sales periods. They need flexible hardware (and software) arrangements that do not become costly in the off season. They need fee structures that don’t punish them with higher percentages to compensate for slower months. Remember, the best payment processors for seasonal businesses will offer flexible payment processing. 

Thankfully, there are ways to optimize seasonal payment systems. ECS Payments has experience working with all types of merchants, including high risk and seasonal businesses, which are two business types that other payment processors may snub. Contact us to discuss how our hands on approach and innovative thinking can provide you with seasonal business revenue optimization. 

Frequently Asked Questions About Payment Processing For Seasonal Businesses