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Online Payment Guide
 Introduction
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Depending on your situation, there is no question more welcome or frustrating than 'Do you accept credit cards' If your company does accept credit cards, you've got a paying customer. If not, you have a customer who is interested in ordering what you have to offer, but who may never get around to sending off a check. This buying guide is designed to help you choose a credit cards merchant provider for your company.
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Are Cards Worth It |
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| Accepting credit cards can sound like a good idea, but some businesses hesitate to do so because of the expense. Yet while it does cost money, it may well be worth it when you take into account the potential loss incurred from non-payment and late payment due to invoicing customers--not to mention the lost revenue from customers who simply decide to go elsewhere. Moreover, instead of having to wait 30, 60 or even 90 days for invoices to be paid, credit cards allow funds to be transferred to your bank account in less than a week. This can be a welcome relief for businesses that experience a tight cash flow. Not every company should or needs to accept credit cards, though. If your per order cost is typically in the thousands of dollars and your customer base is stable or subject to credit checks, you may find it cheaper to continue to invoice your customers. |
Types of Providers |
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| One of the most difficult aspects of accepting credit cards is finding a merchant services that will handle your account. Complicating matters is the fact that there are several types of companies you can turn to. |
Bank |
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In a continuing effort to be a one-stop shop, banks can be an easy source to turn to for credit card services. Most banks do not process credit cards transactions themselves, though. Instead, the majority finds it cheaper to outsource credit cards processing to a third party processor.
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Third Party Processor |
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| Third party processors dedicate themselves to handling credit cards processing. As such, they take care of different aspects of the transaction process such as authorization, billing, reporting, and settlement. |
Independent Sales Organization (ISO) |
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| An ISO buster is essentially a registered credit cards merchant broker. They set up and service credit cards merchants, but do not do the actual processing. Most ISOs represent at least two companies that handle the credit cards transactions, although some have relationships with as many as five or six credit cards processors and banks. Independent agents known as merchant services representatives (MSRs) may also resell the ISO's offerings. |
Financial Service Provider |
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| Unlike MasterCard and Visa that require you to establish a merchant account providers through an intermediary, AmericanExpress (800/445-2639) and Discover card (800/347-2000) give you the option of applying directly to them. |
Association |
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| Small business and trade associations often offer credit cards merchant processing at discount prices. They are a particularly good resource if companies in your industry historically have trouble attaining credit cards merchant status. |
How To Qualify |
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| The most important question that providers want to answer is whether your business is likely to have a high incidence of fraud or chargebacks. A chargeback is a reversal against a sale that was credited to the merchant's account. Chargebacks are usually the result of an error made by the cardholder's bank, a misunderstanding by the customer, or fraud. The merchant must provide proof that the goods and services in question were provided to the customer. For the most part, tangible products are considered to be much safer than services. Also, offerings that deliver purchased goods immediately in exchange for payment are viewed as being less risky. Providers will also consider the type of credit cards transactions that your company performs. As a general rule, 'card present' transactions that allow you to swipe the credit cards and obtain a signature are considered to be much safer than 'card absent transactions' that take place by phone, by mail or over the Internet. Basic background checks are also a must. They include a thorough credit history review of the owners or officers listed on the application, in addition to credit references from two to three suppliers. Finally, if you have accepted credit cards in the past, providers will require previous merchant statements to better gauge your charge and chargeback volume. |
Set-up Fees |
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| If you have never accepted credit cards before, you will need to purchase credit card processing equipment or software. Expect to pay between $300-$1500 to purchase a terminal or between $300-$800 to purchase software. If you choose not to buy a terminal upfront, you can lease one instead. The typical lease runs $35/month for 48 months, although prices can vary depending on the sophistication of the terminal and the length of the lease. |
Pricing |
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| Besides set-up fees, there are several ongoing costs related to credit card processing. Costs are determined in part by your company's evaluated risk, average sales ticket, transaction type, and total charge volume. The primary charge that you'll encounter is the discount rate. This fee amounts to a small percentage of each transaction and ranges from 1.5% to 3%. Retail 'card present internet businesses always have much lower rates than Internet-based companies and MOTO (Stands for mail order/telephone order. Typically, businesses that conduct credit cards transactions over the phone or by mail are considered to be riskier than retail businesses that swipe credit cards.) Another processing fee charged by the merchant bank is the per transaction fee. The per transaction fee is generally $0.20 for card present transactions and $0.30 for card absent transactions. The third fee covers the cost of issuing monthly credit cards transaction summaries. On average, statements cost $10. Some companies will also charge you a monthly minimum fee ranging from $20-$35 per month. This fee is incurred if the total amount paid in discount rate fees does not meet the preset monthly minimum. For instance, if your discount rate is 2% and your monthly minimum is $20, you will need to charge at least $1000 per month to avoid paying the monthly minimum fee. |
Negotiating Tips |
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| Focus on lowering your set-up and monthly fees if you don't expect to charge more than a few thousand dollars each month. At this low volume, these fees can significantly boost your effective discount rate. Reducing per-transaction costs is a priority for larger credit cards merchants. A particularly good area to focus on is the discount rate. Since your average sales ticket helps to determine your discount rate, you should be aggressive in estimating your average sales ticket. It can also be helpful to learn what average ticket sizes you need to qualify for even lower discount rates. |
Buying Tips |
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| Learn how long it takes for funds to be transferred Providers differ on how long it takes for funds to be deposited to your account. You'll want to specify whether it is a retail or MOTO transaction, since MOTO transactions usually take substantially longer to clear. |
Find out about reserve funds |
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| If you are a start-up or high risk company, ask whether you will need to build a minimum reserve prior to being accepted. |
Compare variable fees |
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| Check on fees that tend to vary between providers and may be negotiable. Such fees include set-up, cancellation, and monthly minimum. |
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