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Merchant Account Basics
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By: OneCore
Boost
Your Business With A Merchant Account
It's a fact.
Companies who accept credit card payments for
goods and services tend to generate higher
revenues than those who only accept cash.
According to industry statistics, the average
credit card sale is $40 versus just $9 for the
average cash sale.* If that isn't enticement
enough, consider the disadvantage you may face if
competitors offer credit card payment options and
you do not.
"These
days, the credit card payment option is a must,
whether you have a physical retail outlet, take
telephone orders or sell products over the
Internet," says Diann Joblonski, a
relationship manager, at Michigan Bankard
Services, a leading merchant card processor
serving over 30,000 businesses nationwide.
Besides the potential revenue boost, credit cards
may well be a cheaper alternative to cash and
checks. In a case study prepared by Coopers &
Lybrand, credit card processing costs average
2.7% of any transaction, checks 4.0% and cash
4.8%.** These figures make sense when you
consider how many times paper money and coins
must be counted and recounted by different
individuals. While each business would vary in
that respect, cash and checks still require more
handling than plastic alternatives.
Establishing
A Merchant Account
To
offer the credit card payment option, you need to
set up a merchant account-a bank account
established by your company to receive the
proceeds of credit card purchases. Typically,
along with the account, you will also need to
lease equipment and software to facilitate the
transactions and ensure payments flow to your
operating account. The process is slightly more
complicated if you wish to accept credit cards
online. In particular, you will need to sign-up
with a payment gateway such as CyberCash or
VirtualNet. These services allow for real-time
credit card authorization for online
transactions. It is essential that the payment
gateway you choose is compatible with your
software and financial institution so
transactions flow properly.
Any
number of financial institutions offer merchant
accounts, but you should look for a provider who
has demonstrated expertise in working
specifically with small and growing businesses.
These organizations can often structure accounts
faster and at better rates than those who cater
to larger companies. As you shop around, you
should also look for institutions that work with
customers to combat fraud and reduce chargebacks.
And if you are conducting online transactions,
you will want to work with a provider who has
expertise in setting up and processing Internet
merchant accounts.
The
next step is the application process which can
take anywhere from 48 hours to two weeks or more.
Your chances of being approved relate to the
nature of your business and the credit rating of
your business and/or its principal owner(s).
While existing retail establishments are the
easiest to be approved, mail order and Internet
businesses, with their higher rates of
chargebacks and fraud, pose more of a challenge.
"We look at the merchant, the nature of the
business or the product, the refund policy, and
the business financials or a sole proprietor's
own credit history," states Joblonski. The
cost of a merchant account will vary based on the
perceived risk a business poses.
A
Word About Costs
As you shop for
a merchant account provider, you should be
mindful of the costs involved with establishing
and processing a merchant account. "You can
expect to pay between $190 to $300 in start-up
costs which includes the application, setup and
equipment and rental lease deposits," notes
Joblonski. Processing fees can range from around
2.0% of annual sales volume for a retail
establishment to 2.75% of annual sales volume for
online transactions. Additional fees may also
apply. Ask your merchant account provider for a
complete list of fees so there are no surprises.
Putting
It All Together
Congratulations,
you can now accept credit card transactions. But
are you maximizing the benefits of those
proceeds? Maybe not, if those funds are being
routed to a bank account that pays no interest on
that money. Worse yet, you may have to wait a
full month to get details on those credit card
transactions, and have to pay for the privilege.
Is
there a better way? Yes. Some financial
institutions specialize in providing value-added
merchant account services. For example, OneCore, a
leading provider of online financial services for
small business, pays money market rates on credit
card proceeds. You can also view batch
transactions (and transaction details) online by
the next business day, free of charge.
*Source:
"Jumping Through the Merchant Account
Hoops," Khera Communications.
** Source: United States Postal Service, Coopers
& Lybrand as quoted in Credit Card
Management, August 1997.
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