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Topics
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Credit card processing introduction
Realizing that consumers needed another way to pay for goods and services other than cash on hand, credit cards were created as a way to charge to their accounts and where they could pay them off at a later date. As a global economy, credit cards are essential to charge and transfer monies to purchase goods. As online trade is ever increasing, credit cards are playing a significant role in expediting the process of business-to-business transactions.
While major companies and corporations have already accepted the idea of accepting and using credit card processing, smaller businesses have just started accepting credit cards. This guide is intended to help direct you to a merchant account provider for your business, while helping you avoid some tactics that could end up costing you more than you had intended to spend.
For businesses that are accepting credit cards for the first time, merchant services can be confusing and frustrating. With this comprehensive guide you will be able to understand the different providers of merchant services and how to educate yourself so you can make informed decisions that will benefit both you and your business.
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Accepting Credit card Payments
If your company has no problem with invoicing your customers and receiving prompt payment, you maybe hesitant about paying a percentage to the provider of the credit card processing service. Although you may have to pay a small percentage to the provider, you also receive quick payment, usually within a week. You will be able to save time an money but not having to prepare receipts and invoices for customers, as that is taken care of by the processing company.
Using a credit card processing provider is also advantageous if your company is experiencing a tight cash flow.
By using a credit card processing provider you are able to expand your business base in the sense that you will be able to accept a more convenient way of purchasing for you and your customers. Which is now essential for web based businesses.
There are new e-business based tools such as third party merchants to collect payments for your business. Paypal and cc:Bill are examples of these third party merchants. Although these online merchants may be able to be set up quickly and with ease they also have some major drawbacks.
These Merchants typically do not have a quick turnaround in regards to business to have access to their funds; rather they send you scheduled payments. Also, instead of paying a small percentage based on sales, their rates have been found to be larger than that of a regular credit card processing provider. These types of third party merchants are ideally for those who only have a couple transactions a month are not heavily reliant on receiving payments as soon as they are processed. Larger companies do not use these merchants due to the fact that they are not intended for a business that has many transactions daily.
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Types of credit card processors
Here are some examples of the different types of credit card processors you can use.
Bank
Your financial institution for your business is the first place to inquire about a credit card processing provider. This is one of the easiest options since banks usually have bundles and packages already designed for businesses that have merchant services in them. Although you can setup your business through a bank package, the bank itself does not process the credit card transactions, they hire a third party vendor to do this. Banks are more likely to look more closely at what your business is doing and your comprehensive business plan, which results in a more difficult and lengthened process of being approved.
Third Party Processor
Third Party credit card processor companies own merchant accounts with the additional rights to use that merchant account to accept credit card orders on behalf of other companies. A third party credit card processor is a company that can accept credit card orders for your business. This means that you do not need to get a merchant account for your company, although you could if you sell enough products to cover the cost.
Independent Sales Organization
Independent sales organizations (ISOs) are third-party organizations that partner with banks to find, open, and manage merchant accounts for businesses in exchange for a higher fee, or for a percentage of the merchant's sales. ISOs also are called merchant service providers (MSPs) when ISOs offer financial transaction processing services. ISOs can offer merchant accounts to riskier merchants, and charge higher fees, because they do not fall under the same laws and regulations that banks do. With the banks that they work with, ISOs also assume much of the liability and risk that comes with this service.
Financial Service Provider
MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them.
Association
Small business and trade associations offer credit card merchant processing at discounted rates. These are helpful if the field that your business operates in is historically hard to obtain credit card merchant status.
Offshore merchant accounts (or international merchant accounts) are an option for businesses that have problems with location, bad history with creditors or many other reasons. This type of account may have low processing fees, no taxes, and flexible guidelines and terms, although they are not required to follow the same regulations as US credit card processors and in some cases may not give you the necessary long relationship to keep your business stable.
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Qualifying for merchant accounts
You have to apply and qualify for a merchant account before one is given to you. You must be able to show that you are able to pay and not let the processor be liable if in any event you can't cover the cost. They will most likely administer a background check. This also includes a credit history review of the owners or officers listed on the application; also they will ask for credit references from suppliers.
The most likely and influential question that they will pose is that if your company has an unusually high amount of chargeback's. A chargeback is a reversal of a sale that was credited to your account, usually because of an error made by the cardholder's bank, a misunderstanding by the customer, or fraud.
Products are considered to be more reliable than services in respect to fraud and other liabilities. Businesses that deliver goods and are immediately compensated for their work are usually less risky for merchant accounts.
They will more often than not also look at the types of credit card transactions that your company typically uses. In most cases, card-present transactions where you swipe the credit card and receive a real time signature are found to be safer than card-absent transactions that happen over the phone, by mail or the Internet. A higher-risk merchant will not always stop you from obtaining a merchant account, although it has the potential for increasing your costs.
Some companies will try to lure you in with extremely high acceptance rates. Be wary of these advertisements because these companies will be more likely to not be able to address your needs in a timely or efficient fashion. Rather than looking at which company has the best acceptance rate, search for company's who look at any deficiencies in your credit score or can display working with businesses like yours.
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Credit Card Payment Systems Pricing
The main fee that occurs for usual providers is the single transaction fee that accrues on each transaction. Banks and larger businesses will establish this fee on certain aspects such as your company's evaluated risk, average sales ticket, transaction type, and total charge volume.
Usually most providers have two different rates because of the difference in risk involved. One of these rates is for card-present transactions and one for MOTO (mail order/telephone order, also includes Internet transactions) or card-absent transactions.
Card-present transactions carry a discount rate of 1.5% to 2%, but card-absent transactions are at 2.2% to 3.0%. Some credit card companies set a monthly minimum fee ranging from $20 to $35 per month.
There is also usually a fixed cost to use a credit card processing firm and it is usually around $10 per month.
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Negotiating with merchant providers
If your company were projected to only expect a few thousand dollars in revenue through credit card purchases, it would be advantageous to negotiate a low start up cost and low monthly fees for their services. Always remember to check with competitors before negotiating prices with a company.
However if you expect to have high volumes of credit card purchases, you should focus your negotiating on the per transaction fee, and the discounted rate.
Always be wary of some traps so you wont be left with major costs such as an early termination fee. Also watch for low introductory rates that rise after a few months. Many providers can raise their prices make sure to find ones that don't directly state it.
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Choosing a credit card transaction service
Although cost maybe the primary driver in your decision to choose a company, you also need to look at what kind of services you are getting from them as well.
Remember that the most important part of a credit card processing company is their customer service support. Many things can change such as cost and fees associated with their services. Remember that you may have to spend more but you will most likely receive better customer service, better fees, and the ability to talk with and negotiate your certain situation with a reliable person who can understand the needs of you and your business.
If you operate on the web as exclusively an e-business, see if your provider can offer security for you. They can secure transactions, purchases, and sensitive information on their servers so you can keep your information safe.
Always check the legitimacy of the provider you will use. There are many companies that will offer and promise great rates 99.9% acceptance rating and other claims. Remember to research all companies and compare to find the right fit for your business.
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