For seasonal merchants, ‘the most wonderful time of the year’ is the short window of intense profitability that carries them through the months they are starved for cash flow. Among the many challenges seasonal businesses face is finding the right payment processor for their needs. Not all processors are suited to this unique business model. They may have contractual requirements, minimum processing amounts, and monthly fees that make it difficult for a seasonal business to thrive.
Seasonal businesses are marked by abbreviated periods of operation. They have defined sales peaks that occur during that time. Those that are only open part of the year are split into two categories: basic and short-term. Basic seasonal businesses, such as regional ski resorts and mini golf courses, operate from 6 to 9 months during the year. Short-term seasonal merchants, like holiday pop-ups, water parks, and fireworks outlets, are open less than six months annually.
Some retailers are open year-round but have a seasonality to their sales patterns. For example, lumber yard sales peak in the summer, while jewelry stores show spikes in the 4th quarter, around holiday time.
Seasonal merchants lack cash flow during off-peak months. They must budget carefully to cover expenses they incur throughout the year. For this reason, credit companies go beyond the usual risk analysis, reviewing the retailer's history and revenue patterns to ensure it is viable and stable.
Seasonal operations can be disadvantaged in the payment processing relationship. Some payment processors prefer to focus on more stable businesses with longer operating windows because there is less hassle and more potential to earn money from the investment. Creditors associate more risk with seasonal businesses than traditional models, so processing rates are often higher.
Short-term businesses can incur minimum processing fees from their payment provider because they only process payments for a fraction of the year. It is common for payment processors to place a 6-month maximum on seasonal status, so short-term merchants must set up a new account before re-opening unless they pay a fee to keep it active. New accounts require another credit approval, a fresh terminal ID, and download, and if a wireless terminal is in play, a new SIM card as well. These set-up and admin costs can add up quickly.
Credit card processing is a mandatory part of commerce, so, what are seasonal businesses to do?
- Read the fine print—Review the processor’s terms thoroughly before signing a contract that could be wrong for the business. Choose a processor that offers flexible contract terms.
- Review the pricing structure — The pricing models among processors vary, as can the rates they offer to different business types. Some use flat-rate pricing, which assigns the same percentage markup to all transactions regardless of the interchange rate. Others have a tiered structure that charges rates based on the type of card transactions. Interchange plus pricing adds a fixed percentage rate to each transaction plus a fluctuating interchange fee depending on the transaction. Select the vendor that complements your business activity, preferably one that offers features tailored to seasonal merchants.
- Explore other payment methods — Mobile and ACH (Automated Clearing House) payments can reduce costs during slow seasons because they have lower processing fees than credit cards. Venmo and PayPal are two examples of ACH network payment providers that take funds directly from customer bank accounts to merchant accounts.
- Be wary of minimums and monthly fees — Payment processors that assign minimum processing fees, setup and reactivation costs, and monthly charges are not good for seasonal businesses. Seek a provider that is enthusiastic about working with seasonal merchants and doesn’t penalize for low volume.
- Research multiple providers — Know your provider options, ask for formal quotes, and seek competitive pricing.
Taking some steps to stay fresh and fruitful year-round can allow seasonal businesses to be poised and ready for their reopening or busy sales season.
- Maintain a business social media account during the off-season and update it regularly. This will keep customers engaged and hype them for your reopening or generate excitement for upcoming events.
- Stay in communication with your payment processor and let them know when they can expect activity to resume.
- Use sales insights from the last season to make solid sales and inventory projections for the next season.
Seasonal merchants suffer the burden of making a year’s worth of profits in a fraction of the time. These unique businesses should partner with a payment processor that is invested in helping them reach their goals.
There are many payment processors options out there. A little legwork upfront to find the best fit for your seasonal business will maximize profits and minimize headaches.
