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Comparing Various Merchant Accounts

Written by Chris Martin for Gaebler Ventures

If an entrepreneur wishes to accept credit card payments, there are many different types of merchant services processing arrangements. Selecting the ideal provider and account are vital if the entrepreneur wishes to receive revenue in a timely manner. Here are some of the options available to entrepreneurs.

When an entrepreneur is ready to launch a business opportunity, they may have to consider engaging the services of a merchant services provider.

This agreement would allow the entrepreneur to accept credit card payments for products or services rendered.

However, there are many different types of merchant services processing arrangements. Selecting the ideal provider and account are vital if the entrepreneur wishes to receive revenue in a timely manner. Here are some of the options available to entrepreneurs (listed costs are for equipment and installation only and do not reflect any charges for usage):

Swipe terminal: This is the most popular choice among retail providers who deal mainly in face-to-face transactions. The merchant swipes the customer's credit card through a computer terminal, and the card is authorized and the payment amount transferred to the entrepreneur's account.

Cost: anywhere from $200 to $1,000 or more for equipment, depending on how many different swipe terminals are needed.

Wireless processing: This method works best for entrepreneurs who accept credit card payments at a customer's location (such as repairmen or landscapers). A swipe terminal is attached to a laptop computer, processing terminal, or other wireless device. Credit card payments can be authenticated and accepted on site, so the entrepreneur doesn't have to transport the information back to their base of operations.

Cost: between $100 and $200

Real-time Internet processing: As the name implies, this option is best-suited for businesses who primarily accept orders and payments over the Web. A customer enters their credit card number, expiration date, and other identifying information into fields on an online order form. The data is sent electronically and the transaction is authenticated within seconds.

Cost: up to $200

Point-of-Sale software: This choice is most appropriate for businesses which accept orders via U.S. mail, email, fax, or telephone. The entrepreneur can enter the credit card information into a computer, and the data is transferred to the merchant services provider using a modem and existing phone lines. Though this method can take longer than real-time Internet processing, these services often come with additional software which assist the entrepreneur with accounting, inventory, and other business functions.

Cost: from $150 to $800 or more

Interactive Voice Response: This system is targeted toward entrepreneurs who tend to accept a low number of payments in a wide variety of locations. Using any touch-tone phone, the business owner dials into a processing system through which he is guided by voice prompts. The customer's credit card data is entered into the system and is subsequently authenticated.

Cost: $30 to $500

Third-party processors: Like many services, credit card processing can be completely outsourced to another company, known as a third-party processor. This firm would handle all aspects of the entrepreneur's credit card payments and keep a portion of the revenue. This alternative is commonly chosen by companies who process very few (but very large) transactions or by entities that are located outside the United States (and are unable to obtain a traditional merchant account).

Cost: 3% to 15% of revenues

A compatible and properly-functioning merchant account can help make a business run more smoothly. Conversely, making the wrong choice can cost an entrepreneur money, productivity, and system downtime. Therefore, determining which type of merchant services account works best for a company is one of the most important decisions that an entrepreneur can make.

Chris Martin has been a professional writer for the last seven years. He is interested in franchises and equity acquisition.

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