Clarifying Merchant Accounts

Accepting credit card payments for goods and services has become a huge business. Accepting Visa and MasterCard as well American Express and Discover can add hundreds if not thousands of dollars to your sales figures each month. The problem then becomes which company do you apply with and how much does it cost?

Because it’s a huge business more and more banks and merchant service firms are competing for your business. Here are some things you need to know about merchant services:

• Every bank and merchant provider charges a monthly fee. Some state it’s for your monthly statement, some just say it’s an additional fee for the account. Either way, it ranges from $5.00 to $25 per month. You will get separate statements for Visa/MasterCard (from your merchant provider), American Express (from AmEx directly) and Discover (from Discover directly).
  
• There is a discount fee. A discount fee is the percent of the transaction the merchant provider will take for doing business with them. Right now it ranges from 2% to 3%. Visa/MasterCard have one discount fee, American Express another and Discover yet another. (That’s the reason for having three separate statements). American Express and Discover tend to have higher discount fees than Visa/MasterCard.
  
• There is also a per transaction fee. This ranges from $0.15 to $0.25 per transaction. Again, American Express and Discover will have different transaction rates.

Be careful and read the small print before signing the application. Here are some questions to ask that have a major impact on your cash flow:

• How long from the date of the charge until the money is deposited into your checking account? Some are as quick as 24 hours (that’s business hours). Some hold funds for as much as 14 days before going into your checking account.
  
• At what amount will the order(s) be held for verification? Some hold funds right away until they get 10-20 batches verified. Some hold anything over a set amount. I have been told that only orders over $1000 will be held. I have also been told that nothing will be released until 10 batches, regardless of size, have been verified. One merchant provider held more than $10,000 until 12 batches were verified.
• Important Note: You must keep paper documentation for each order as well as tracking numbers and/or delivery receipts, if you ship merchandise. This is needed to verify orders for your provider as well as to settle any upcoming disputes.
  
• For many this isn't an issue but for others it's huge. What is the maximum amount (in dollars) that you can process each month? The standard is $20,000 to $25,000. Anything over that and the merchant provider will shut down your account. This risk is too high for them especially for unproven, unsecured accounts.
  
• They have the option of shutting down your credit card processing. What is their criteria? What would cause them to shut down your account? Do they have to give you notice? Common sense says they must inform you before taking such as drastic step but I have seen it happen. Accounts have been closed and bank accounts frozen without a phone call, email or fax.
  
• How are charge backs handled and what is the fee for a charge back? Do you get the chance to state your case or is the money immediately refunded to the customer without your approval? You will probably find that American Express and Discover will let you dispute the charge back and work with the customer. Visa/MasterCard don't always give you the option.
  
• Who is your point of contact? Get a name so you know who to go to with questions and issues after your application is approved. The person that processes your application through is not the person that will have answers for you later on.
  
• If you are using merchant services in conjunction with your web site, does the merchant work with the back-end of your site? Do you have to manually enter orders? For example, Yahoo!Stores only works with First Data linked merchant services. Innovative Merchant Services works with gateways such as Verisign and Authorize.net. QuickBooks and Chase Manhattan Merchant Services require manual entry but are processed online.

As far as merchant service providers go, it is better to go with a larger, well- established credit card merchant. Smaller firms have a tendency to have less customer service, more restrictions and less input from you.

Choose your merchant service provider wisely because credit card processing can have a impact on your bottom line.