Guide to Accepting Credit Cards for Businesses

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Author: Chris Martin

Business owners have to wear many different hats to be successful. They have to become specialists not only in their chosen fields, but also in advertising, marketing, customer service and personnel management. Most of the time, these individuals are not experts in credit card processing, even though this directly impacts how their money is received. So for business owners who aren’t quite experts in merchant services, here is a helpful guide to accepting credit cards.

First, the business owner must go through an application process to accept credit cards. This starts with providing a valid checking account number and a voided check so that a credit card processor knows where to deposit funds received from the cardholders. The business owner must usually produce a copy of a business license, reseller license, articles of incorporation, or whatever other documentation is required to prove that the business legitimately exists (for sole proprietors, a driver’s license may suffice). For online businesses, proof of a business website must be demonstrated. Finally, the business owner must state his or her return policy, even if it as simple as “no returns.” This application process should begin at least two to three weeks before the business aims to start accepting credit cards.

The business owner must also determine if the company is a “high-risk” entity in the eyes of merchant account providers. These companies are engaged in industries that have high credit card chargeback rates. Some of the industries are: adult entertainment; multi-level marketing; telemarketing; timeshare or travel; collections; credit repair; structured dieting or online pharmacy. Businesses in these industries will probably have to endure higher rates and larger fees in accordance with the greater risk assumed by the merchant services providers.

The next step is to determine which type of merchant services account is most appropriate for the business. A traditional storefront generally requires a retail account, but a service provider like a contractor or tow truck company might need a mobile account, which enables employees to accept credit cards at the customer’s location. A web-based company usually needs an Internet account, while a business that receives payments via phone, fax, mail, or email should opt for a mail order-telephone order (MOTO) account â€" also called a card not present (CNP) account. Certain companies like snow-shoveling services or Halloween haunted houses may only require a seasonal business account.

The business owner must then decide which kind of processing solution will best facilitate credit card payments. Traditional storefront-type businesses can purchase various types of retail swipe terminals that are designed for cashier or customer use. Companies with mobile accounts may want to utilize a wireless merchant solution, which involves handheld swipe terminals or touchtone systems for processing credit cards by phone. Companies that don’t engage customers in face-to-face transactions will likely need a virtual terminal, which is usually a secure website where customer information is manually entered by the proprietor and then virtually processed by the provider. Internet-based entities should opt for a real-time processing solution, which automatically manages credit card transactions through the company’s merchant account.

Arguably the most vital aspect of credit card processing is the fee structure associated with each account. Business owners must be familiar with the discount rate on their account, which is the percentage of each transaction that will be paid to the processor (usually between 1 and 4 percent). Also, a transaction fee (usually no more than $1) is commonly assessed each time a credit card is processed, regardless of the amount of money being charged. Similarly, an address verification fee of a few pennies is a per-transaction charge required by Visa, Master Card, and American Express â€" this involves recording the three or four-digit code on the back of credit cards. If a cardholder disputes a transaction from a business that is listed on his or her billing statement, a chargeback fee of anywhere from $5 to $35 is often incurred by the merchant. Finally, a company may be charged varying amounts for annual, daily-closeout, and monthly minimum fees, access to a secure payment system, or generating a monthly statement.

It is vital to understand some major credit card transaction restrictions. First, a business cannot use the system for personal transactions of any kind. Also, a company is not to engage in factoring â€" allowing another business to use the credit card processing system (even if the other business is owned by the same individual or corporate entity). In addition, a business is not allowed to offset merchant services costs by charging customers more for credit card transactions than for cash, checks and other payment types. Finally, businesses cannot set a minimum amount for their customers’ credit card charges. A violation of any one of these rules can not only terminate a merchant services arrangement, but can also result in the company being placed on the Match File, a database used by credit card companies. This database acts as a blacklist of companies that have violated merchant services agreements. Blacklisted companies may lose their credit card processing privileges permanently.

Once a business has established a merchant services account, a test must be run to ensure that the system is working correctly. This usually involves charging a small amount of money to see if the transaction is properly processed and eventually placed into the company account. Then the business is ready to accept credit card payments from customers. Though the process is somewhat lengthy and there is a substantial amount of information that must be digested, the payoff from accepting credit card payments will be significant, and the effect on the company’s bottom line will be considerable.

Chris Martin is a freelance writer who offers information for businesses about credit card processing.