Accepting Credit Cards
How to Accept Credit Cards
Want to accept credit cards? For small business owners, accepting credit cards makes sense. If your small business doesn't accept credit cards, customers may go to your competition instead.
Remember the scene in the movie "The Graduate" when a Los Angeles businessman takes Dustin Hoffman aside and declares, "I just want to say one word to you - just one word - plastic."
For you and your small business, plastic may be the key to future growth.
Here's the bad news. If your small business doesn't accept plastic - credit cards, that is - you've probably got more dissatisfied customers than you realize.
Whether for convenience, security, loyalty awards or just plain habit - today's consumer prefers to pay with plastic. In record numbers, they are ditching checks in favor of credit cards.
Not offering your customers the option to pay with plastic means fewer customers and less sales for your small business. If your competitors accept credit cards and you don't, your customers may soon start doing business with your competitors.
Here's what's driving the trend towards plastic:
Credit card company muscle
MasterCard and American Express are aggressively courting consumers and small businesses with corporate card programs that offer tremendous benefits like cash flow flexibility and bookkeeping support. Their goal - eliminate cash and checks from existence.
Skipping the credit application
Businesses paying with plastic avoid lengthy credit approval processes. A valid credit card carries instant credibility and a credit line and there is no need to fill out those annoying credit applications!
Credit card loyalty programs have become a big-time consumer addiction. Pay with a check and you get nothing. But put it on your card, and you can receive frequent flyer miles and other great rewards.
From the perspective of a small business, accepting credit cards increasingly makes as much sense as using them for purchases. True, you have to give up a transaction fee to the credit card companies so less money hits your bank account.
The average fee usually runs between 2.5 percent and 5.5 percent of your sales. But the risk of getting stiffed on a receivable goes away - once the credit card transaction is authorized you know you will get your money. And you don't have to wait thirty days to get it either!
If you're bummed out that you're losing customers because you don't accept credit cards, here is the good news - it's easier than ever to start accepting credit card payments.
The process of setting up your small business to accept card payments is neither mysterious nor costly.
Step 1: Get ready to apply for merchant status
First, you must establish merchant status with each of the credit card companies you want to accept. American Express and Discover issue their own cards, so you need to apply for merchant status directly with them. Simply visit their website for application details.
Visa and MasterCard are effectively brand names backed by an association. Their association membership consists of all the member banks that issue Visa and Mastercard credit cards. So, to start taking Visa or Mastercard, you must establish a merchant account with one of the several thousand banks that issue those cards, called "acquiring banks."
You can do this either by going directly to the bank or by working with an independent credit card processor - a company whose only service is processing credit card transactions for small businesses like yours.
Establishing a merchant account isn't always a slam-dunk. When you approach a bank or an independent credit card processor, their fundamental concern is that your company will go out of business before merchandise is shipped, in which case they will have to absorb the losses.
As such, they will thoroughly evaluate your product or service to determine the potential for "chargebacks' - credit card terminology for funds returned to customers. If they don't deem you worthy, sorry - no merchant account for you.
Alternatively, they may ask you to put down a security deposit - money in the bank that you won't touch that they can tap into just in case your chargebacks outpace your account balance.
Given that issuers are selective in allocating merchant accounts, it's important to approach your application as if you were applying for a loan. Be prepared to convince the bank you are a good risk.
You will need to provide trade references, estimate the credit card volume you expect and what you think average transaction size will be. Bring your business plan, financial statements and any marketing materials such as catalogs, web screen captures, and print advertisements. Be especially prepared to provide a reasonable estimate of how many chargebacks are likely. Satisfied customer testimonials and a demonstration that your product or service is priced at fair market value will help lessen their chargeback exposure concerns.
Step 2: Shop around and compare
To be sure, all merchant accounts are not created equal. Even though they may be the best for establishing a merchant account, don't limit your choices to the bank that you currently do business with.
Do your homework and shop around. Taking charge of this process by knowing what is expected and knowing your options will put you into position to recognize and negotiate a better deal.
If you find that nobody is offering you a merchant account, find companies that are similar to yours that accept credit cards and ask them how they do it. If they can do, you can too.
When an issuer's representative offers to set you up with a merchant account, compare the services, fees and terms they offer with those of other independent credit card processors and banks. Evaluate the hardware or software they provide - does it work for your business?
Always ask: Is this the best deal you can give me? Is there anything I can do to get a lower rate? You'd be surprised how willing some issuers are to negotiate.
In some cases, great terms are too good to be true. The Internet is littered with "Accept Credit Cards!" offers from questionable firms, so ask other small businesses and your accountant for referrals.
Step 3: Don't forget your backend accounting system
A very important aspect to consider is whether the transaction equipment or software you will use to accept credit cards will integrate with your company's computer system and accounting procedures.
Most card acceptance equipment is easily linked with small business accounting software. In some cases, software vendors will even set you up with a merchant account, usually via a third-party relationship they have in place.
For example, small business management software vendor MYOB offers a Merchant Account Service that makes it easy to process credit card sales directly from your MYOB software. Credit card transaction settlements are automatically and accurately reflected in daily cash flow and invoicing procedures.
Avoid a scenario in which you start accepting credit cards and then have to manually key in your credit card sales into your system. That's a recipe for disaster.
Step 4: Start accepting credit cards
Once you've established your merchant accounts and wired up the equipment and/or software that you'll use to process credit cards, you're ready to let your customers know. Inform them by putting credit card logos on your front door, your invoices, and your web site. You can get those logos from the processing companies.
Before you know it, you'll see your bank account start to rise as the credit card sales flow in.
The bottom line is that customers, both individuals and businesses, expect to pay by plastic. Focus on the core success of any business - giving the customer what they want - by letting them pay how they want.
Charlie Redmond owns and manages Avalon Computer, a small business-consulting firm specializing in financial management and accounting software. He has been involved in the accounting and computer industries for over 20 years and is an MYOB Certified Consultant. He can be reached at www.avalonmall.com. Article reprinted with permission.
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