Credit Where Credit is Due
Can you afford to have most of your
customers get to the cash register and find out they don't carry
a credit card that you'll accept? Store owners who take credit cards
online estimate that they would lose 80% of their online business
if they made customers use phone, fax or snail mail to complete
the transaction. Most buyers want the convenience of being able
to order quickly and the satisfaction of receiving their products
within a couple of days. To maximize your sales and profitability,
you need to be ready to ring up the sale when your customer is waiting,
credit card in hand, to place an order.
What do you need to know about
merchant accounts? These
accounts let your business establish a link between the bank that
offers the account and a credit card processor. That means that
they'll deposit your money directly into you bank account after
taking out their fees. Sounds like a good deal, right? Well, there
are some costs that you'll have to be prepared to pay bundled in
under that heading of "fees."
Banks see their relationships with
businesses as a risk of losing money as well as a chance to make
money. So what they charge you is going to be related to how big
a risk they think your business will be. That's going to depend
on a number of factors. They will consider how long you've been
in business, your credit history and even what your business is.
If you've been in business for a short time, your credit history
is spotty or you're in a high risk business for chargebacks, you'll
be paying a higher price than if you're in a business where few
returns are expected. That price might come in higher fees, higher
discount rates and a requirement that some of your funds be held
in reserve by the bank to resolve chargebacks.
Here are the questions you should
ask when you are applying for a merchant account:
How much can you expect to pay? Rates
can range from 1.5% for a sales situation where you scan or imprint
the card and get a signature to 2.5% and up for internet sales where
you can't physically verify the card and signature.
- Set up fees include your application
fee ($30 & up) and equipment and software fees. These can
carry hefty markups and are an area where you can actively reduce
your costs by shopping smart. Online, you'll have to use computer
software like PCAuthorize or ICVerify costing $350 and up or use
an internet gateway service. If you're entirely on the internet,
the gateway service is probably better for you.
- Find out what the minimum monthly
charge will be (it's often @ $30). If your business doesn't reach
this minimum with your monthly sales, you'll still have to pay
this fee.
- What is the discount rate for
each credit charge? This is the percentage of each sale collected
by the bank and processor for their processing service and to
cover risks. Rates are set after considering the average purchase
size, total number of credit card purchases each month, risk of
the business, credit history and age of the business. The normal
range of rates is from 2% - 4%.
- Does it depend on volume or type
of transaction?
- What is the transaction fee charged?
This is a price you pay for each charge made by a customer. Some
banks don't charge anything but others can charge up to $0.30
for each purchase.
- What will the bank charge you
if your customer claims not to have ordered your product or returns
it? Expect this to cost you $10 - $25 for each returned or refused
charge.
- Will the bank make you establish
a reserve fund? This can contain as much as 15% of your first
90 days worth of sales, so you'll want to shop around to see if
you can avoid it or reduce the total reserves.
- When will the bank deposit the
money in your account?
- Will you need a credit card terminal?
What will it cost you?
- Are there any other fees you will
be charged? What will it cost to receive a monthly report? It
may cost as much as $10.00 but some banks do not charge for this
service.
- Do they guarantee 99.9% availability
of their services or better? It's just like your site, if your
merchant account is busy, that will drive your customers away.
- Can your bank provide a "total
payment option?" That means they'll also process your checks
if a customer prefers to pay that way. Although you could use
two banks to handle this, it will be much simpler for you if you
only have to work with one financial services provider.
- How soon after you submit your
application should you be able to use it? (Longer than a month
is too long! Three weeks is about average.)
- What percentage of Internet and
mail order businesses that apply for merchant accounts at this
bank are approved?
The answers to these questions will
provide you with the information you need to make the choice that's
best for your business.
Who should you talk to about getting
a merchant account? We
suggest that you start with your local bank because you should already
know them. However, a lot of local banks still don't know what to
do with their online business opportunities. Or they may charge
too much because they're new at this. There are a lot of companies
listed in the major search engines that can provide these services.
Here, in no particular order, are some of them. VentureConsult.com
does not endorse any of these providers and the URLs are simply
provided as a service to save our readers time.
- Absolute Merchant Account Systems:
http://www.absolutemerchant.com/merchant.htm
- Want to try selling on the Internet
without making the upfront investment? CCNOW offers you the opportunity
to sell through them for a 9% commission. While expensive, it
is one way to test the waters and see if online credit card sales
make sense for your business. Find them at http://www.ccnow.com/
- EZ Merchant Accounts says that
they are designed for the small or home-based business and offer
services that don't lock you into long contracts. Find them at
http://www.ezmerchantaccounts.com/
