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Demystifying Merchant Accounts
By: Suzette Flemming, Thu Nov 24th, 2005
Accepting credit card payments for goods and services has become
a huge business. Accepting Visa and MasterCard as well American
Express and Discover can add hundreds if not thousands of
dollars to your sales figures each month. The problem then
becomes which company do you apply with and how much does it
Because itís a huge business more and more banks and merchant
service firms are competing for your business. Here are some
things you need to know about merchant services.
A) Every bank and merchant provider charges a monthly fee. Some
state itís for your monthly statement, some just say itís an
additional fee for the account. Either way, it ranges from $5.00
to $25 per month. You will get separate statements for
Visa/MasterCard (from your merchant provider), American Express
(from AmEx directly) and Discover (from Discover directly).
B) There is a discount fee. A discount fee is the percent of the
transaction the merchant provider will take for doing business
with them. Right now it ranges from 2% to 3%. Visa/MasterCard
have one discount fee, American Express another and Discover yet
another. (Thatís the reason for having three separate
statements). American Express and Discover tend to have higher
discount fees than Visa/MasterCard.
C) There is also a per transaction fee. This ranges from $0.15
to $0.25 per transaction. Again, American Express and Discover
will have different transaction rates.
Be careful and read the small print before signing the
application. Here are some questions to ask that have a major
impact on your cash flow ~
1) How long from the date of the charge until the money is
deposited into your checking account? Some are as quick as 24
hours (thatís business hours). Some hold funds for as much as 14
days before going into your checking account.
2) At what amount will the order(s) be held for verification?
Some hold funds right away until they get 10-20 batches
verified. Some hold anything over a set amount. I have been told
that only orders over $1000 will be held. I have also been told
that nothing will be released until 10 batches, regardless of
size, have been verified. One merchant provider held more than
$10,000 until 12 batches were verified.
Important Note: You must keep paper documentation for each order
as well as tracking numbers and/or delivery receipts, if you
ship merchandise. This is needed to verify orders for your
provider as well as to settle disputes down the road.
3) For many this isn't an issue but for others it's huge. What
is the maximum amount (in dollars) that you can process each
month? The standard is $20,000 to $25,000. Anything over that
and the merchant provider will shut down your account. This risk
is too high for them especially for unproven, unsecured accounts.
4) They have the option of shutting down your credit card
processing. What is their criteria? What would cause them to
shut down your account? Do they have to give you notice? Common
sense says they must inform you before taking such as drastic
step but I have seen it happen. Accounts have been closed and
bank accounts frozen without a phone call, email or fax.
5) How are charge backs handled and what is the fee for a charge
back? Do you get the chance to state your case or is the money
immediately refunded to the customer without your approval? You
will probably find that American Express and Discover will let
you dispute the charge back and work with the customer.
Visa/MasterCard don't always give you the option.
6) Who is your point of contact? Get a name so you know who to
go to with questions and issues after your application is
approved. The person that processes your application through is
not the person that will have answers for you later on.
7) If you are using merchant services in conjunction with your
web site, does the merchant work with the back-end of your site?
Do you have to manually enter orders? For example, Yahoo!Stores
only works with First Data linked merchant services. Innovative
Merchant Services works with gateways such as Verisign and
Authorize.net. QuickBooks and Chase Manhattan Merchant Services
require manual entry but are processed online.
As far as merchant service providers go, I like Card Services
International (http://www.cardservice.com) and Innovative
Merchant Solutions (http://www.innovativemerchant.com). Both
have good rates and have ecommerce as well as offline
(traditional) processing options. In my opinion, it is better to
go with a larger, well- established credit card merchant.
Smaller firms have a tendency to have less customer service,
more restrictions and less input from you.
Choose your merchant service provider wisely. Credit processing
can have a huge impact on your bottom line.
About the author:
Suzette Flemming is the CEO / CFO of Flemming Business Services.
Providing financial direction to businesses since 1994. Learn
how to save money and increase your bottom line by subscribing
to our free newsletter ~ Make the Most of Your Money at
www.FlemmingBusinessServices.com or give us a call with
questions at (425) 432-5870.