Give your Business an Update with Credit Card Processing

Have you ever wondered why most businesses require a minimum sale price for credit or debit card transactions?  As you may have guessed, accepting plastic is not free. Whether these payments are processed online or in person, the merchant is charged a fee for each transaction. Why, then, do most businesses accept credit and debit cards? That’s easy, because they are the most popular method of payment today.

More than sixty percent of retail purchases involve a credit or debit card, according to a recent survey. We also know that customers tend to spend more when they use plastic than when they have to hand over cash. The average credit or debit card sale is about twenty dollars higher than the average cash sale. In the end, merchants simply cannot compete if they do not accept plastic, especially on the Internet.

Merchant Service Accounts  

When a business owner makes the decision to accept credit or debit card payments, she must apply for a merchant service account. Issued by banks and other financial institutions, these accounts allow merchants to safely process transactions.

The primary responsibility of the service provider is to approve or decline each payment. If the payment has been approved, the service provider will send an electronic bill to the customer’s credit card company. Once the necessary funds have been received, the provider will send them to the merchant, less a variable transaction fee.

Understanding the Fees

The following is a list of the most common merchant service fees:
Startup fee: a one-time charge for setting up your account
Transaction fee: a flat charge for each transaction
Discount rate: a percentage fee of the final sale price
Statement fee: a flat, monthly charge
Minimum monthly fee: a fee or fine that the merchant must remit if he fails to meet a monthly minimum in sales
Chargeback fees: assessed when an item is returned
Cancellation fee: also called a termination fee, it is levied when you cancel your contract early

Understanding these basic charges can help you understand how the merchant service industry actually works. As we have seen, some of these fees are flat and some of them are variable. This variability is why certain merchants are charged a two percent fee on each transaction and why others are charged upwards of seven percent. The two fees that are most responsible for this discrepancy are the discount rate and chargeback fee.

The discount rate is a percentage of the final sale, and it is based mostly on the risk of a chargeback. A chargeback occurs when a customer requests a refund from his credit card company. The credit card company then passes this request on to the merchant service provider who must determine whether or not to issue a refund.

If the provider chooses to return the funds, he will automatically deduct the amount from the merchant’s account and assess a series of fines and rate increases. The chargeback is the bane of the industry because it costs the provider and the merchant time, money, and merchandise.

Because of the way they accept payments, some companies have a much higher risk of encountering a chargeback. This includes any business that does not process payments in person, like a mail order or Internet business.

When a customer demands a refund from these businesses, the service provider typically has to honor it, because there is no physical proof that the customer actually made the purchase. But a traditional business that accepts payments has physical proof in the form of a signed and dated receipt. Therefore, the provider can refuse these chargeback by simply faxing a copy of said receipt to the credit card company.

If you are considering selling goods on the Internet or over the phone, be aware that a service provider will charge you a much higher discount rate than they would if you were accepting payments in person. But with the exception of discount rates and industry specific risks, the other merchant service fees are fairly consistent.

Shop Around

As a general rule, only the larger, more established companies will have the leverage to negotiate better rates. Smaller companies and those that are new to accepting credit and debit card payments typically have to settle for rates that are above the industry average, especially if they plan to sell goods online. But that doesn’t mean you should take the first deal that comes down the pike.

Customer Service

Though they are more reliable than they have ever been, point-of-sale terminals or card readers do occasionally break down. And if you have ever been in a convenience store when this happens then you know what it can do to their business.

In fact, any business that has high volume sales relies on credit or debit card transactions for most of their monthly sales. That is why it is imperative to make certain that your provider has dependable customer service.

Take these important tips into consideration before finding the right merchant account provider for your business.

Oscar Alejo is a freelance writer who writes about a range of topics including credit card processing.

Article Source: http://www.marketingarticlelibrary.com

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