Having difficulty finding
and choosing a bank
or financial organization to process charge card sales for you?
You aren't alone. Although there
are a number of financial services now offer merchant accounts to
homebased, mail order and Internet businesses, finding the right one for
your small business is still a difficult task, fraught with many pitfalls,
both before and after you get the account.
For starters, many banks won't
offer merchant accounts directly to small businesses. Instead, small
businesses need to go through third party providers who secure the
merchant account, for you. Each of these third parties may have
different fee structures and somewhat different rules.
To complicate matters, if you are
processing orders online, there are several online gateway systems to
process credit cards. Whatever shopping cart software you choose has to
interface with these gateways. Not all shopping carts work out of the box
with all gateways. Thus you need to be sure the shopping cart you plan on
using will work with the merchant card you choose.
Rates and fees
Many factors can influence the discount rate and other fees you pay for
the privilege of accepting charge cards. Among those factors: the length
of time you have been in business, the percentage of your sales that are
made over the phone or the Internet, the type of business you are in, the
number of years you've been in business, your personal credit rating, the
average dollar amount of each sales transaction, the total dollar amount
of sales per month. Service fees tacked on by the third party providers or
by their sales people, can also add to your costs.
Typically, however, discounts
rates ranged from 2.25 to 3 percent for home and small businesses that accept
mail order and phone orders.
Some companies were charging as
much as 5 percent discount rate. While poor personal credit or the type of
business you run might possibly cause you to have to pay that much, do not
agree to such a high a discount rate until you have personally determined
that no other company will process your charges at a lower rate. Even
though banks in many parts of the country still don't want to deal with
home and small business merchant accounts, it is not as difficult as it
once was for new, home mail order businesses to get merchant status - at
least not if the owners have good personal credit and aren't
"adult" products or services.
Some companies advertise discount fees less than 2 percent.
Usually these lower fees are for swiped transactions (sales made by running the customer's credit card through a
machine).
Therefore, in comparing
processors, be sure to find out what all of the fees will be. Compare not
only the application fees and the discount rate, but also the initial cost
of equipment, transaction fees (the fee you pay on top of the discount for
each transaction you process), monthly minimums, voice verification
charges, address verification (if extra) fees, monthly statement fees, and
any other costs you will incur. A difference of 10 cents on the
transaction fee is equivalent to a one-half a percent on the discount rate
if your average sale is $20.
Some companies require you to maintain an account in their bank in order to process
cards. Read all such agreements closely to determine under what
circumstances the bank can put a hold on your account, and how much of the
account it can hold back. Find out how often you can withdraw money from
such accounts, and check with your own local bank to find out how long it
will take to clear checks drawn on the merchant bank.
Pay close attention to the cost
of equipment or software for processing the charges, too. Identical
software and comparable hardware varies in price by as much as $600 or
more depending on who you use purchase it from.
If at all possible do not lease
equipment or software. Buy it at the start. By leasing it you often set
yourself up for three or four years of noncancellable lease payments and
wind up paying thousands of dollars more than necessary.
Be sure to read ALL applications
forms and contracts mailed to you carefully. Read all of the small print.
Several companies will charge you if you want to stop processing charges
through them in less than two to three years. That cancellation fee
is separate from any noncancellable lease clauses for equipment. If you are planning to sell
via mail order, look for information on the application form and contract
about the percent of transactions you can process as phone orders
(non-swiped). What the salesman says on the phone may NOT be what the
application actually says. If there's a dispute, what will stand up is
what is on the printed contract you get, not what you say the salesman
told you.
Check to see under what
conditions the company can terminate your account, and, whether there are
monthly minimums or maximums.
The Application Process:
What to Expect
Some companies will want the right to send a representative to your
place of business (including your home if that's where you do business) to
take a photo of your office. This is to verify that you are at the
location you say you are. Some will accept a photo of your office instead
of the onsite visit.
Depending on which company you
are dealing with, you may have to provide any or all of the following:
copy of your business license or certificate of doing business (dba);
profit and loss statements; copies of previous years' tax returns; photo
of your office.
All will require two-way access
to a your bank account if you are accepted. This allows them to deposit
funds into your account and also allows them to withdraw them if there are
charge backs.
Business Know-How™ provides
general information only and should not be considered individual advice.
Consult your own attorney, accountant or other advisor before taking any
actions that might lead to adverse consequences for your business.
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The information compiled on this site is Copyright 1999-2010 by Attard Communications, Inc. and by the individual authors.
Business Know-How is a woman-owned business and a registered trademark of Attard Communications, Inc.
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