Credit Cards, Merchant Accounts, and Your Bottomline
Q: I'm opening a gift shop and want to be able to accept credit cards. I talked to the branch manager at my bank, but he didn't seem to know much about how it all worked. He did say that I would need something called "a merchant account" and something else called "a credit card processor." Beyond that he seemed as clueless as I am. I'm thinking about going to another bank. Can you explain how that all works? -- Mary Ann G.
A: Maryann, I'm going to give your banker the benefit of the doubt and say that a lack of knowledge regarding the specifics of credit card processing is not necessarily a reflection of the banker's competence. I have found over the years that most bankers, no matter how experienced or knowledgeable about the banking business they my be, don't really know much about how credit card processing and acceptance really works. That's because the task of accepting and verifying credit card purchases is handled by third party service companies who process and deposit (or settle) the funds into a bank merchant account.
The decision to accept credit cards is a wise one for any retailer. I agree with financial guru Dave Ramsey's teachings regarding the use and abuse of credit cards. Many people dig deep holes with credit cards that are hard to climb out of. But, from a practical business point of view, any retail business that does not accept credit cards is leaving money on the table. Research has shown that accepting credit cards increases revenue and helps with cash flow since you receive the money within a couple of days instead of waiting up to a week for a check to clear.
Credit cards don't bounce, as some checks have a tendency to do. Credit card users are also more likely to buy on impulse and spend more when they do. Bad news for them, but good news for you. If you have a social conscience concerning the use of consumer credit cards, a retail operation probably isn't the business for you.
To accept credit cards at a brick and mortar location you typically need four things. The requirements may vary a little, but the following applies in most cases. You will need: (1) A way to enter the customer's credit card information into a verification and processing system. This can be done with a swipe terminal, point of sale system, or by calling the credit card in by phone; (2) A credit card gateway company to verify the credit card's validity and process the payments; (3) A credit card merchant account in which the gateway company will deposit payments made to you; and (4) A business bank account into which the settled funds will ultimately be deposited for your use.
Here's how the process works. (1) You make a sale and the customer pays by credit card. (2) Using a card swipe machine or telephone, you contact what is known as a "gateway company" who takes the card information you submit and verifies that the card is valid and the charge can be made against the card account. The gateway company returns an approval code for the purchase.
With a swipe machine or point of sale terminal the verification process happens in a matter of seconds. If you're doing telephone verification it can take a couple of minutes. You call the gateway company, give them the credit card number and expiration date and they give you an approval code that you write on the credit card charge slip. Either way, the money is typically deposited in your merchant account within 24 to 48 hours (less fees, of course).
You'll also need to apply for merchant status with each credit card company whose card you want to accept. To do business with American Express and Discover all you have to do is fill out an application, but to accept Visa and MasterCard you must have a merchant account. A merchant account is a special bank account set up for the expressed purpose of accepting credit card payments processed by the gateway company. Merchant accounts are usually associated with banks, though you can also use credit card merchant account service companies to perform the same function if you can not get approved for a bank merchant account.
Applying for a merchant account at a bank is much the same as applying for a loan. The only difference is sometimes a loan is easier to get. There is the prerequisite paperwork to complete and pledging of the first born, followed by an approval process that can take up to several weeks. And you are not guaranteed that the bank will approve your merchant account, even if you have been a favored customer for many years. Banks have strict regulations regarding the granting of merchant accounts and if issuing you a merchant account in anyway puts the bank at risk of losing money, you will be turned down. Banks always make decisions based on economics, not relationships (no matter what your banker tells you).
Requirements for qualifying for a merchant account varies among banks, but in general the bank will look at the following criteria:
How long have you been in business? Business longevity suggests a history of stability, efficient management, and good financial health.
What is your product or service? Does your product lend itself to a high rate of returns and chargebacks? A chargeback is a disputed credit card charge that is refunded to the buyer and charged against your account. You are accessed a chargeback fee that can be as much as $20 per event. If your business lends itself to high chargebacks, you will not get the merchant account.
How's your credit report? Banks always look at how much you owe and how you pay your bills, so it's important to have good financial and trade references. If you have a history of late payments or defaults to vendors, it will count against you.
What is your anticipated volume of sales and average transaction amount? The more money you make, the more money the bank makes. If you anticipate just a few credit card charges per week it may not be enough to justify the merchant account in the bank's eyes.
Is your business categorized as a "high risk merchant?" High risk merchants are those with the highest instances of credit card fraud and chargebacks. High risk merchants include many types of internet-based businesses, telemarketers, travel and cruise businesses, and membership clubs. Being a high risk merchant dramatically decreases your chances of getting a merchant account with a bank.
Being a high risk merchant doesn't mean that you can't get a merchant account from somewhere else. Thanks to the growth of ecommerce in recent years there are a number of alternative companies that will provide you with a merchant account, sometimes with more perks than a traditional account, but almost always with higher fees.
Also, not all banks support internet merchant accounts. If yours does not, shop around for one that does.
Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim's latest books include "Small Business Success Secrets" and "The 30 Day Blueprint For Success!" Related Links: http://www.smallbusinessqa.com http://www.dropshipwholesale.net
 Google News Updated : Mon, 13 Oct 2008 11:51:33 GMT Manatee dies before reaching rehab site - Boston Globe
Boston Globe - By Emily Canal After a 27-hour trip to Florida, Dennis the manatee, rescued from the frigid waters of Cape Cod, died in Orlando yesterday as SeaWorld employees carted the mammal to a rehabilitation center. Video: Rescued Manatee Dies After Mass. Rescue Manatee rescued off Cape Cod dies en route to Florida Sea World Publ.Date : Mon, 13 Oct 2008 07:21:21 GMT Dodgers stand up to Phillies in Game 3 win - FOXSports.com
FOXSports.com - by Ken Rosenthal Ken Rosenthal has been the senior baseball writer for FOXSports.com since Aug. 2005. He appears weekly on the FSN Baseball Report and MLB on FOX. LA revitalized at Moyer's expense Kuroda's pitch serves its purpose for Dodgers Publ.Date : Mon, 13 Oct 2008 07:00:36 GMT European, Asian markets bounce back - The Associated Press
The Associated Press - LONDON (AP) - European markets opened strongly Monday following Asia's lead in response to the widespread government efforts over the weekend to shore up the world's troubled financial system. The financial crisis A light at the end of the tunnel? World stock markets welcome European bank rescue Publ.Date : Mon, 13 Oct 2008 10:23:04 GMT Forecast: Summery Sunshine Sticks Around - Washington Post
Washington Post - Columbus Day will feel a lot more like Labor Day as temperatures climb to around 80 degrees. This unseasonably warm weather will continue for the next several days. Enjoy a warm, sunny Columbus Day Beautiful start to the work week Publ.Date : Mon, 13 Oct 2008 09:03:26 GMT 1.5 million G1 Android phones pre-ordered - TG Daily
TG Daily - By Wolfgang Gruener Chicago (IL) - T-Mobile’s upcoming G1 may not be the best-looking iPhone rival, it may not have the most complete feature set and T-Mobile may have undersold the device at the recent launch event. Get ready for next-gen mobile HTC G1 Android Phone Racks up 1.5 Million Pre-orders Publ.Date : Mon, 13 Oct 2008 05:21:21 GMT Fantastic finishes: 5 NFL games down to the wire - Washington Post
Washington Post - Dallas Cowboys' Mat McBriar (1) has his punt blocked by Arizona Cardinals' Sean Morey as Monty Beisel (52) looks on during overtime of an NFL football game Sunday, Oct. 12, 2008 in Glendale, Ariz. Blocked punt downs Dallas Backups Burst Through Line and Lift Cardinals in Overtime Publ.Date : Mon, 13 Oct 2008 08:15:50 GMT UK government takes stake in three banks - CNN International
CNN International - LONDON, England (CNN) -- The British government on Monday said it would make a multi-billion investment in three of the country's major banks to help them through the "first financial crisis of the global age. In quotes: Bank bail-out reaction TEXT-Lloyds TSB terms for acquisition of HBOS Publ.Date : Mon, 13 Oct 2008 11:18:47 GMT Amazon Associate Store |
PARLOT::Ebooks, Scripts,
Websites, and more... This summary of the Fair Credit Reporting Act will explain... Read More We spend money every single day on many different types... Read More Today there are so many different credit cards available, student... Read More Ok, let's face it, everybody hates high credit card rates,... Read More How do these people get my name? If you have... Read More With so many low interest credit cards on offer, how... Read More Secured Credit Card is similar to a prepaid credit card... Read More There are many different ways to borrow money. Outlined below... Read More Credit repair, is in a word, vital to reestablishing your... Read More A credit card allows you to buy things even though... Read More Whether or not you receive a loan and what interest... Read More Online car finance is convenient. You can apply over the... Read More In this week's article, I am going to offer some... Read More What is a balance transfer ? A balance transfer can... Read More "Menis - the author translates as "indignant rage" - It... Read More Credit is a funny thing. It can be a useful... Read More Mortgage loans are some of the most difficult loans to... Read More 1. Buy clothes at thrift stores. BEFORE you buy them,... Read More Prepaid credit cards also called stored value card can be... Read More Credit cards have migrated from being hip or convenience product... Read More There are seven consumer credit laws you should be aware... Read More Congress passed the Fair Credit Reporting Act several years ago... Read More #1 Make sure mistakes aren't hurting your credit.Reviewing your credit... Read More Credit counseling is a free service that many people with... Read More WHAT IS HIRE PURCHASE/CONDITIONAL SALE?Although people often talk about "buying... Read More
Adsense
websites
A Summary of the Fair Credit Reporting Act
Maximizing Credit Card Rewards
Credit Cards - The Top 3 Things You Need To Know
Negotiating Rates with Your Credit Card Company
How did a Thief get my Name? Don?t be a Victim of Identity Theft
Choosing the Best Low Interest Credit Card
Rebuild & Keep Good Credit Ratings by Understanding Your Credit Cards
Different Ways to Borrow Money
Credit Repair, How To
What is a Credit Card?
What Is a FICO Score and How Do I Make It Work for Me?
Is it Safe to Use Online Car Finance?
How to Order the Right Credit Reports to Repair Your Own Credit
Credit Card Balance Transfers Explained
Why Americans Find Predatory Lending Offensive
Good Credit -- Essential for the Prospective Home Buyer
Credit and Loan Help for Mortgage Loans
Ways to Look Good without Selling Your Soul to the Credit Card Sharks
Learn About Prepaid Credit Card
Top 7 Factors to Consider While Reviewing Credit Card Offers
7 Consumer Credit Laws You Should Know if You are Trying to Repair Your Credit
Identity Theft ? Additional Protection for Soldiers on Active Duty
Top 5 Reasons To Check Your Credit Report Regularly
What You Should Know About Credit Counseling
How to Deal with Hire Purchase Debt
Affordable and Reliable Web Hosting Starting at $4.49/Month
Understanding the Function of Credit
What is Credit?Credit is the backbone and the engine behind... Read More
Credit Scoring: What You Dont Know Can Hurt You
You've probably heard the term credit scoring. You may have... Read More
Credit Cards - The Basics
How Lenders Operate ? And How They'll Make a Tidy... Read More
Credit Cards for Home Business
It is wise for you to have a company credit... Read More
Beginners Guide to Credit
I remember back when I was 18 and completely oblivious... Read More
Are 0% Credit Cards Reaching Their End?
Are Credit Card companies starting to feel the pinch? We... Read More
Building Good Business Credit After Bad Credit
Can you establish good business credit if you have bad... Read More
Credit cards
If gold medals were awarded for marketing consistency, the credit... Read More
10 Ways To Boost Your Credit Score
1. Deleting Errors in 48 HoursThis is the absolute fastest... Read More
Finding the Right Credit Card
There are so many credit cards out there to choose... Read More
Understanding Credit Card Penalties
Because most of us have one or two credit cards... Read More
Comprehending a Credit Report
Obtaining a credit report is an excellent way to begin... Read More
Fixing A Credit Report
Fixing a credit report starts with seeing what's on it.... Read More
Understanding Credit Report Score
Understanding credit report scores is important when you see your... Read More
Finding What is on Your Credit Report
A credit report is basically a file about you kept... Read More
Top 5 Reasons To Check Your Credit Report Regularly
#1 Make sure mistakes aren't hurting your credit.Reviewing your credit... Read More
Credit Reports ? Why Your Credit Score is Important
If you have never heard of a FICO score before,... Read More
Good Credit -- Essential for the Prospective Home Buyer
Credit is a funny thing. It can be a useful... Read More
Why Americans Find Predatory Lending Offensive
"Menis - the author translates as "indignant rage" - It... Read More
Some Truth About Credit
Credit is currently and has been historically an integral component... Read More
A Debt Mentality
While working through my own debt situation, and helping others... Read More
What Are The Most Common Credit Card Mistakes?
Now in a world with so many easy to get... Read More
Fair Credit Reporting Act: What You Should Know About It?
The Federal Fair Credit Reporting Act (FCRA) is designated to... Read More
10 Simple Steps to Manage Your Credit
By far the greatest invention the banks have ever come... Read More
Bad Credit? No Credit? Yeah, Its a Problem.
Many companies use the slogan "Bad Credit? No Credit? No... Read More
Credit |