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What’s Debit And Credit In Accounting
To understand how direct debit and credit are determined, the basic concepts of accounting and their actual application must be clarified. The word “direct debit” is a loan from the German language, but many consider the word “direct debit” from ancient Rome as the primary source, which means “obligation” in translation.
In the modern sense, the word “direct debit” primarily refers to all activities related to the company’s financial and ownership status, which is reflected in the accounting. With the help of accounting, the company management can correctly determine the profit after deducting expense items from the income.
The terms credit and debit, which are expressed in simple terms, help to examine the company’s financial condition. For an accountant, debiting active accounts means revenue, and crediting them is associated with fixation costs.
When we talk about passive accounts, the meanings of these concepts are opposite. When determining this or that billing process, it is therefore important to assign the account actively or passively.
The charge includes the profit from every activity (commercial, industrial,etc) sales, sale of services and products. The loan includes taking into account the cost of purchasing raw materials, paying wages, etc.
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What Small Business Owners Need to Know
With technology increasingly becoming a part of everyday life, many businesses wish to ensure that their customers have the most convenient options available to pay for purchases. The frequency of debit and credit card purchases has already outranked the frequency of cash purchases, and non-cash purchases are expected to surpass cash purchases by an even greater amount in the future. Establishing a merchant account that offers customers the opportunity to make purchases using debit and/or credit means that your business will stay ahead of the game.
When deciding whether to allow customers to make their purchases using a debit card, credit card or both, there are some important items to consider. Issues like the fees associated with these purchases, availability of funds and customer preference are some of what might be important for your business to ponder when deciding what forms of payment to make available to your customers.
1- Fees When Accepting Debit Or Credit As A Payment
Fees When you accept debit or credit as a form of payment, you agree to pay the bank or credit card issuer a fee for each transaction processed.
The fees for debit transactions are usually cheaper than the fees associated with credit transactions. Debit card purchases often only cost businesses a small fixed transaction fee. Credit card purchases charge a fee that is calculated as a percentage of the total purchase price.
So what does this mean for small businesses?
Because the fee for debit transactions is a fixed rate and small (usually less than $1.00) while the fee for credit transactions is variable and based on the amount of the purchase, it will usually be cheaper for small businesses to process debit transactions. Businesses that process a greater number of transactions with larger revenue amounts, however, may find that the higher fees associated with credit cards are offset by the income they provide.
2- Funds Availability In Debit and Credit Card
Funds Availability When your business processes a debit card transaction where the customer uses a personal identification number (PIN) to complete the purchase, the money is debited immediately from the customer’s bank account and is deposited nearly immediately into your merchant account.
When the customer uses a credit card to make the purchase or uses a debit card but selects the “credit” option, which requires a signature from the customer instead of a PIN, the funds can take one business day or longer to be available in your merchant account. So if you need your funds available sooner, debit may be a more appealing option.
However, small businesses need to keep in mind that customers may select the “credit” option even if they present a debit card and that the transaction would then be processed just like a credit card transaction. Businesses can avoid this scenario by accepting only debit cards, which would mean the customer would have to enter a PIN in order to process the transaction.
3- Customers Payment Preferences And Security
Customer Preference Since satisfied customers can be the key to more revenue for your business, which payment option your customers prefer might be the most important factor to consider when deciding whether to accept debit and/or credit cards as payment. Many customers will prefer to pay with credit cards for a number of reasons. First of all, security is often greater for the customer when the transaction is processed as credit. Many customers are concerned about entering their PINs because of the potential for data breaches. Even when they have a debit card, customers may wish to process the transaction as credit to keep their PIN secure. Also, many customers are aware that they have greater liability protection when using credit cards or credit-based transactions.
Debit cards often require customers to accept $50-500 worth of liability for fraudulent transactions. Credit card issuers often offer zero-liability protection for customers. Finally, the rewards programs associated with credit cards often provide greater incentive for customers to use them to pay.
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So should your small business accept debit cards, credit cards or both as forms of payment? The lower fees associated with debit cards may tempt business owners to accept debit only, but customers often prefer to pay with credit. You might save money if you choose to accept only debit, but you could drive away some of your customers.
While some states still outlaw the practice, federal law now permits merchants to charge a surcharge for credit card purchases to help offset the higher fees they must pay, which could mean that accepting both debit and credit as forms of payment is feasible for your business.