Merchant accounts are contracts between an acquiring bank that extends lines of credit to a merchant, and that allow businesses to accept payment for goods or services via credit cards.
Did you know that customers are more likely to purchase from businesses that offer credit card facilities? Statistics show that businesses using merchant accounts can see an immediate increase in the number of sales. These statistics are based on the average cash sale being only $9, while the average credit card sale is approximately $40.
No matter the type of business, the availability of merchant accounts will improve your cash flow in a number of ways. Here are some benefits for using merchant accounts:
- Offering the option to pay with credit cards gives customers the chance to purchase on the spot.
- Merchant account processing fees are frequently lower than check transaction fees.
- Debt Collection issues become the banks problem, not yours.
While there are some definite benefits to having a merchant account facility for your business transactional needs, there are also some drawbacks to think about.
- You will have to institute measures to protect your business from credit card fraud.
- Your policies about charge-backs and refunds may need revising in order to minimize damages.
- If your business accepts credit cards on your website, be sure to use fraud protection measures to lower the risk of fraud, theft and scams.
Instituting 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 you call up your own bank and ask them for a merchant account, take a little time to compare the facilities offered by several different banking institutions, in addition to merchant account vendors. The fees and charges associated with accounts can vary drastically, so always check what youre being charged and what fees are likely to come into effect per transaction as well.
For instance, fees might include initial start-up costs, equipment monthly lease fees, sales volume costs, transaction and processing fees. When looking at potential merchant account providers, be sure to ask for a written list of all the fees you’re likely to incur so that you can accurately compare them with other vendors.
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 also need to purchase your software, which can range in cost around $100, or more. Once this software is installed, its possible you may have to pay a licensing lease on the software, which can range from $20-$50/month. Again, this depends on your lender or merchant account provider.
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 ask about with any potential merchant account provider are charge back fees, minimum usage fees, statement fees, annual fees, close-out fees and account keeping fees.
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