How Can I Evaluate Credit Card Processing Companies?

Are you confused by the array of merchant service providers offering to process your business' credit cards? That's understandable; it's a very competitive business these days! This article will help to familiarize you with some of the industry terminology and practices and help you better evaluate which company may be the right fit for your business model.

If you operate a small business based out of your home, or do mail order or sales via the Internet, there are some things to be aware of and questions you will want to ask.

First be aware that many banks will not provide a merchant account to a home-based business or even a start-up business. Second, if you are not selling a product or service directly face-to-face to your customer, banks are wary, because by paying you today for a product or service the customer has not yet received, they are essentially extending you a line of credit and if you do not fulfill the sale there will be a chargeback and they will want to know that there is money in your business checking account for them to access and debit back. Otherwise, they still will have to issue a refund to the dissatisfied customer but will be unable to recoup those funds from you, the merchant.

If you are running a website and taking sales online, you will want to have set up a secure shopping cart for your customers. There are a number of shopping cart software packages out there so you want to be sure that the package you choose is going to be compatible with your credit card processor's "payment gateway." Usually the best way to ensure this is to purchase your shopping cart software directly from your credit card processor. That way they will usually assist you in setting up the software to function properly, saving you the additional expense of hiring an outside web programmer to do the installation.

Transaction rates and fees

There are a lot of factors your processor will use to determine the rates you are charged to accept and process credit cards. There is not a set rate they offer to everyone. They are going to look at what type of business you are in - certain business categories are considered "high risk" such as telemarketing, adult, overseas, etc. How long you have been in business. If you ever had a merchant account before, did that relationship end satisfactorily or were you terminated? How much of your sales are not face-to-face: mail, telephone and Internet. What is the average dollar sales ticket, what is your monthly sales volume. And your personal credit rating.

Rates can range from about 1.5% up to 3% depending upon the processor's assessment of their risk in extending you a merchant account. Be sure to also ask about other service fees that may be added on every month, such as a statement fee, cost to process transactions with a hand held wireless terminal if you have one, annual fees, etc. The account executive should sit down with you at the time you apply and go over each and every fee you will be paying.

Don't think of these fees as necessarily being unwarranted, unfair or a rip-off. Accepting credit cards has really become a necessity in today's increasingly cashless society and your costs for doing so are something you just have to factor in to your cost of doing business and the prices you charge your customers.

Be comforted as well that the fee and rate schedule you start off with is something that can be renegotiated down the road when you have established more of a track record with your processor.

Another issue to visit is the cost of any equipment you will need to process cards. Will you have customers present with you, handing you their card? If so, you will need either a credit terminal or a credit card swipe block connected to your PC so you can run the sales through a "virtual terminal". If your sales are going to be done remotely by phone or mail, you will not need a terminal, just the ability to have that Virtual Terminal on your PC. If your business is strictly Internet-based all you will need is shopping cart software for your website and most processors sell that and will set it up for you.

If you can afford to but your equipment outright, do so. Leases are usually for 48 months and non-cancellable and in the end you spend a lot more money to acquire your equipment, although these lease payments are tax deductible.

An advantage to using a PC virtual terminal is that the transactions are all stored and can be downloaded in formats for your particular accounting software. Additionally, you can set up recurring transactions, such as monthly membership payments, to occur automatically, or if a customer does repeat business, pull them up and run their card for them without again having to ask them for that information.

Be sure to ask your processor when you will have funds available. 24 to 72 hours is normal, usually the longer waiting period is for start-up businesses, non-face-to-face transactions or less than perfect personal credit ratings. Some processors will even require you to have your business checking account at their bank. All processors will require that they have 2-way access to credit and debit from your account.

When you finally decide upon a processor and apply, you will need to provide your business license, a voided business check and perhaps financial statement such as Profit & Loss with Balance Sheet for at least one year, and also severl months

James Hussher is a national Account Executive for a major bankcard processor, a registered merchant services provider (MSP) for Wells Fargo and JPMorgan Chase banks. Contact James at http://creditcardmerchantnews.com, a site James maintains to inform his credit card merchant clients.

Wherever you are in the USA, I offer a free analysis of your current merchant account statement. I will provide a report showing you exactly how much you are paying to accept cards in each tier, plus monthly fees; I will also propose the rates we can give you, for a clear side-by-side comparison.

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