 Merchant Account Guide for New BusinessesPublished Date: 2005-02-26 14:14:34 WorkOnInternet.com
What is a Merchant Account Lets start with the basics. A merchant account, which is setup through a merchant account provider, will allow your business to accept credit cards. Merchant account providers also can provide electronic debit, check, and gift card services for retail and online businesses, but this article will focus on credit card acceptance. There are literally thousands of merchant account providers in the US. Many of these companies operate legitimate businesses that are looking to form a long-term relationship, or more appropriately a partnership with your business. But, there are also a lot of businesses that are only looking to make a quick dollar and are trying to scam unsuspecting businesses out of their money. When you process a credit card, the merchant account provider, gets a very small percentage of the transaction. The remainder of the transaction goes to the card issuing bank (Chase, Bank of America, etc) the card issuer (Visa, MasterCard, AMEX, etc), and the processing bank (FDMS, NOVA, VITAL, etc). The processing bank is the company with all of the electronics and software that processes the credit card transaction. The processing bank is not the merchant service provider, but the merchant service provider is an authorized distributor for the processing bank. The merchant service provider gets a very small percentage of each transaction, usually less than .20%. This means that on a $1000.00 sale the merchant account provider may only get $2.00 of the total transaction fee. For this reason, it is important to select a provider with a good reputation that is not going to try and scam you out of your money. Small undeveloped merchant account providers will try to get as much up front as possible, because they don't have a large enough client list to support their operation. There are two types of merchant account providers that you will come in contact with. The first is the actual provider. This company will be sponsored by a FDIC insured processing bank, or several banks. The second is an independent sales representative. This is a reseller for the merchant service provider. Since the reseller gets a price from the actual provider, the reseller has to mark up the fees, so his price will be slightly higher than the provider's. The reseller is also usually unable to provide technical support and your business will be referred to the main office for support. A merchant service provider should have 24-hour technical support, and a good warranty policy for their equipment. You should also never have any problem talking to a real person if you try and call them. If you cant get a human on the phone during normal business hours, then find another company. Where will they be if something goes wrong and your account needs immediate assistance? Credit Card Processing Equipment You will have several options for selecting processing equipment. The most common method for retail businesses is to use a credit card processing machine. Other methods are online virtual terminals, and PC based processing software. There are also wireless credit card machines for mobile businesses. Credit card machines are the easiest way for a small merchant service organization to gain money. They will offer you two options. The first option is to lease the credit card machine, and the second option is to purchase the machine. Unless absolutely necessary, do not lease a credit card machine. You will pay several times the value of the machine, and you will be stuck in a non-cancelable lease for 3 or more years. The small provider will also quote you an outrageous price for a very cheap terminal. Do some research for terminals on the Internet, especially if you know the model that you are looking for. Stay away from ebay terminals, although cheap, they often have service requirements associated with them. The average price for a simple terminal with an attached thermal printer is about $300 - $400, for a new terminal. For a model without a printer, expect to pay $200 - $250 for a new terminal. And, for a wireless model expect to pay $800 - $1000 for a new wireless terminal. If you have an online store, or are planning on processing over the internet, expect to pay an additional $10 - $15 per month, and a $40 - $100 setup fee. If the price for equipment seems excessive or the company keeps pushing a lease, take your business elsewhere. This is one of the first signs of a business you don't want to deal with. Look for a provider that will assign you an account manager, and make sure you have a second contact if your account manager is not available when you need them. No one can be available all the time, so have a backup person you can talk to. Once you have found what seems to be a good company that has good equipment prices and friendly helpful sales persons, ask for them to fax or email you an application. The sales person will send you the application for a processing bank that will underwrite your credit card processing. By this time they should have asked you a lot of questions about your business, and offered to answer any questions that you might have. The parts of the application: Part 1. General business information. Part 2. Specific business information and rate information. Part 3. 2-Signature blocks; Accept Account Terms and Personal Guarantee. Part 4. Additional Information about your business (varies by the processing bank) Part 5. Voided check form. Part 6. A large information guide from the specific processing bank. (varies by the processing bank) Checking the Application First look through the application and make sure everything is there. Then go to the fees section make sure that you understand every fee on the application. The fees that you will see on any application are the, statement fee, monthly minimum, processing fee, and transaction fee. There are more fees on the application but you want to be sure that these fees are acceptable, because these fees will determine how much you will pay each month for credit card processing. These fees vary with each provider but are usually close between different companies. If one company's fees are significantly lower than others, then they are probably making their money up somewhere else, so read all of the fine print. If they are significantly higher, then you should shop around some more. If you do not understand any fees, call the sales person whom you received the application from, and ask them to go over all of the listed fees with you. Also make sure you know what card you will be able to accept. Amex should not have a setup fee, while discover will charge a small setup fee. Amex and Discover will have different rates than Visa and Mastercard. If you feel that they are trying to hide fees or they aren't giving you a description to your liking, take your business elsewhere. Next look for the early termination fee. This is the fee that you will have to pay if you cancel your account before the contract is up. You will either find it in the small print before the signature line, or in the list of fees section. If you cant find one call who sent you the contract and clarify the length of the contract and any termination fee. There is usually a termination fee, which varies but is usually between $200 and $300 if you close your account early. Also check in the small print to see the length of the contract. Most will be 2 - 3 years. Not all service providers have a termination fee, but that does not make the contract any better. Unless you are planning on going out of business before you even start accepting credit cards, this should not be the deciding factor when choosing your service provider. Other fees that providers use to make an extra dollar are yearly fees, monthly fees, service fees, programming fees, reprogramming fees, setup fees, application fees, and miscellaneous fees. Unless your business type forces you into a high risk category, you shouldn't have any application, setup, programming, or reprogramming fees for the merchant account. Once you feel comfortable with the merchant service provider and the terms of the merchant account contract, send your application in for processing. It usually takes three to four days to get the account approved and then another one to two days to get the terminal to your door. It may take a few days more or less but it should be close to this amount of time. Occasionally merchant accounts pend due to the underwriting department wanting more information about this business or merchant account signer. This happens in one out of ten accounts so don't get worried. They will most likely just ask for some more information or ask you to call the processing bank to clarify something about your business. If your account gets declined, which should vary rarely happen if the provider got enough information about your business, you will probably have the option of signing with another processing bank. Your fees may be higher if the account is declined once, because your credit might not be high enough or your business is higher risk. Just follow the same steps and make sure your sales agent is being honest with you and your business. If you are ever unsure or you feel bad about the company, take your business elsewhere. Find another provider and start over. Finding the right service provider is as important as getting good rates for your account. Once your account is approved and you have your terminal or internet gateway information, you should call your technical support to learn how to properly process transactions. Once you process, the money should be deposited into your account in 24 - 48 hours. It is fairly common to have a problem at some point in your businesses credit card processing history. That is why it is important to process with a business that will work with you to make your credit card processing as smooth as possible. You may later find that you need to completely re-structure your account type, and with a good company this should not be a problem. Check your bank statements frequently, especially for the first three months to make sure you are getting all of your money. That about covers everything, at least all of the basics of what to look for. Note, that I did not cover any actual fees. The processing industry is so dynamic that listing the fees would by frivolous, because they would have probably changed by the time you read this article. Check out several providers, and you will most likely find that they are all very similar. There is so much more information that could be written on the subject, and this just scratched the surface. Here is a short list of key points to remember before you make your final decision. 1. Avoid companies with high equipment prices or if they are pushing an equipment lease. 2. Make sure you understand every fee on the application. 3. Make sure you understand the length and terms of the contract. 4. Make sure you know what cards you will be able to accept. 5. Make sure you sign with a company that will assign a personal account manager for your business, and have a backup contact. 6. Make sure that you feel comfortable with this company handling your processing. This is your money, so you need to be careful who handles it. 7. Watch you bank account well and call your service provider first if you ever have to make a very large transaction. If you ever feel unsure about a company stop, review, rethink, and make sure that you are going with the right company. If you have any questions about merchant accounts, fees, or anything related to credit card processing, please fee free to email me at jestep@enbs.com. I will be happy to give you unbiased consulting, and answer any further questions, and I'm sure that you probably have some. This article was written by Jamie Estep, who is the Internet sales director for National BankCard Systems(NBS Inc.) and its online division The Merchant Equipment Store. At NBS Inc. and The Merchant Equipment Store, we can provide nearly any business with a merchant account, internet merchant account, wireless merchant account, credit card machine or wireless credit card machine. We take pride giving the best merchant account service and lowest prices on credit card processing equipment. © 2004 Jamie Estep, All Rights Reserved.
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