How Merchant Services Work

Businesses that accept credit cards are a distinct advantage when it comes to attracting customers. With over 3/4 of the American population using some form of plastic to pay for regular purchases, you can’t afford not to offer a credit card payment option.

Merchant Account Basics

In order to accept credit card payments, you’ll need to open a merchant services account.The merchant account is the go-between that links your customers’ payments to your own business bank account.The merchant account provider checks credit card information, verifies balance amounts, and transfers funds from a customer’s account into your merchant account.At the end of the business day, transactions are “settled” and later transferred to your business bank account.A merchant account can work using a credit card terminal or swipe machine, or using specialized software to process payment information, as is the case with most online transactions.

Qualifying for an Account

Since the merchant account provider is responsible for chargebacks (when payments are returned to the customer, either as a refund or in the event of fraud), they’ll need to make sure your business is a good financial “risk.”The approval process isn’t difficult- almost all but the riskiest (think those headquartered in Caribbean islands or online businesses that deal in adult industries) businesses will be approved for an account.However, the best rates are reserved for those companies with reliable financial histories and good credit records.Even if you don’t qualify for the best rates when you first apply, you may be able ask for more preferable terms as your business becomes more profitable and your build a solid credit history.Be wary of online merchant account providers who brag that “Everyone is approved!”This isn’t a good thing- make sure you are able to obtain rates that are within your operating budget.

Rates and Costs

Rates will vary depending on your credit history and the type of credit card processing you require. Many online-only services charge a specific dollar amount per transaction, or a percentage of the total transaction cost- usually anywhere between 1 and 5% of the total sale amount. Rates for swipe machines are generally less expensive, and there’s no need to purchase or lease the “gateway” software necessary to process transactions online. If you use a swipe machine, you’ll need a credit card terminal- these can be purchased, or even lent to you by the merchant account provider. Keep in mind that the terminal itself can be usually be purchased for around several hundred dollars.

What to Look for in an Account Provider

Choose a merchant account services provider whose rate structure suits your business. For example, if you have a large amount of small dollar amount transactions, you’re better off choosing a provider that charges a percentage of the transaction amount only, rather than a dollar amount fee- it wouldn’t make sense to pay over a dollar to process a transaction for 99 cents. Beyond budget concerns, you should choose a credit card processing provider that offers the services you need-whether online or otherwise- that provides good customer service.Ask for referrals from other businesses, your bank, or a vendor locator service.

Previous Article

Buy One, Give One

Next Article

How to know if you're sitting pretty with customers

Related Posts
home-based businesses
Read More

The Value of Home-Based Businesses to Economic Recovery

The challenge of America’s economic recovery, in the wake of the COVID-19 pandemic, is to spread it to every community – and especially those that have been historically excluded. The key to meeting that challenge is to appreciate the civic and economic value of an overlooked resource: home-based businesses. There are about 16 million home-based...
startup team
Read More

5 Strategies for Building a Great Startup Team

The way you treat your employees, their time, skills and abilities in the early phases of your union as a team influences the rest of your company's course of action. Mark Zuckerberg once said, "The most important thing for you as an entrepreneur trying to build something is, you need to build a really good...
Read More

Business Entity Types Affect Financing Options

One of the most important decisions you’ll have to make for your new business is to determine a business entity type. While the topic may seem daunting for new entrepreneurs, establishing a business entity early on is vital because the structure you choose will have financial and legal implications for your business. One of the...
Read More

The Role of a Recruiter and HR in Small Business

You’ve launched your business and it’s humming along. Like most entrepreneurs, you wear plenty of hats, including chief human resources (HR) and recruitment officer. Here’s the problem, though: You can’t handle all your employee-related responsibilities forever. If you do, you could find yourself in trouble. The issue isn’t just that you’re going to spread yourself...