Merchant accounts are contractual agreements between a participating bank who extends a line of credit to a merchant. This allows businesses to accept payment for goods and/or services from credit cards.
It should be known that customers are much more likely to buy from businesses that accept credit cards. Statistics show that businesses with merchant accounts will see sales numbers increase immediately. According to statistics, the average cash sale is $9, while the average credit card sale is approximately $40.
Regardless of the type of business, the availability of merchant accounts will definitely improve your cash flow in several ways. Below are some benefits for using merchant accounts:
- Having credit card facilities means customers can purchase right on the spot.
- Merchant account processing fees are often lower than check transaction fees.
- Issues about debt collection will become the bank’s problem, not yours.
There are obvious and clear benefits to having merchant account facilities in your business. There are also drawbacks that should be examined as well.
- Its important that you protect your business from credit card fraud.
- You may need to revise your policies and procedures surrounding charge-backs and refunds to minimize damages.
- If you accept credit cards on your website, make sure you’re using fraud protection measures to minimize fraud, theft and scams.
Setting Up Merchant Accounts
Setting up a merchant account can be relatively simple. You will need to set up a bank account for your company for the proceeds of any credit card purchases to be credited to. You will also need to lease processing equipment and software that will facilitate transactions.
If you’re going to be processing credit cards through your company’s website, you’ll need to register with a payment gateway like CyberCash or VirtualNet. Make sure that the merchant account software you’ll be using is compatible with your online payment gateway.
Comparing Merchant Accounts
Before calling your own bank to ask about merchant accounts, its a good idea to compare the offerings of several different banking institutions, as well as merchant account providers. Fees and charges can vary greatly, so its important to check what are the charges and fees likely per transaction.
For example, fees could include initial start-up costs, monthly lease fees for equipment, transaction fees…even sales volume costs and processing fees. Ask any potential provider for a written list of all the fees you’ll be charged so you can compare them accurately with other vendors.
Important Merchant Account Fees and Charges
Most providers will charge some form of application fee. This can vary from $0 up to $100 and sometimes more depending on your lender.
You may need to pay for your software, which can have an initial cost around $100 or more. Once installed, you may have to pay a monthly licensing lease, which can vary from $20-$50 a month. This, too, will vary and depend on your lender.
In addition, you will incur transaction fees that can range from $.20-$.50 per transaction. While this doesn’t sound necessarily high, this can really add up if you process a large number of transactions.
Other fees to query with your chosen merchant account provider are statement fees, charge back fees, close-out fees, minimum usage fees, annual fees and account keeping fees.
