Businesses operate by taking in payment and rendering goods and services. A lot of the buzz in modern business publications focuses on online sales. This isn’t surprising. More people shop online every day. Online sales enable people to have access to goods and services that would otherwise be unavailable to them.
But that doesn’t mean that people don’t shop in brick-and-mortar stores anymore. In fact, there’s been a resurgence of brick-and-mortar small businesses that deal in specialty products and services. These businesses may or may not operate online. However, to do business in person, they need to be able to accept electronic payments.
In the past, businesses used cash registers to check out customers. Today the process is similar. However, there’s one important difference. Instead of using cash registers, modern businesses use point of sale systems.
This article covers the basics of what a point of sale system is. We’ll look at the hardware and the software that go into making these systems work. We’ll also help you answer the question of whether or not you need a point of sale system for your business. Finally, we’ll provide you with the questions you need to ask to get the best point of sale system.
What is a Point of Sale System?
A point of sale system is a combination of hardware and software. Businesses use point of sale, or POS, systems to conduct transactions with customers in their stores. But a modern point of sale system does much more than simply act as a cash register.
In order to get the best idea of how these systems work, it’s important to understand that there are two main parts. Point of sale hardware and point of sale software. Each of these parts plays a vital role in helping your business take in money for the goods or services you provide.
Point of Sale Hardware
The hardware for a point of sale system is the physical device or devices you use to conduct a sale. This could take the form of a specialized terminal, like you see at a grocery store. It might also come in the form of a tablet or smartphone, like you might see if you buy something from a boutique or food truck.
The hardware acts as an interface between the merchant and the point of sale software. It lets cashiers and clerks enter information about the products being purchased. It also displays important information about the transaction. This lets the clerk and the customer ensure that the transaction is rung up and totaled properly.
Point of Sale Software
Point of sale software is a very broad term. As we’ll see in a bit, there are many things that a point of sale system can do. The different capabilities of a given system depend on the software that it runs.
Some point of sale software is designed to be used with a specific, and usually specialized, terminal. Once again, grocery stores are a great example of this. The software in the point of sale system reads the bar codes on products and recalls their price. It adds that price to generate a subtotal before the customer finishes checking out.
That’s not all though. Grocery stores often sell things by weight. Point of sale software in most grocery stores take information from a scale and an item number entered by the clerk to determine how much to charge a customer. This shows only a fraction of the things that POS software can do.
Modern POS systems have lots of other functionality. They can help with things like scheduling, inventory management, real-time analytics, and more. Therefore, it’s important to understand what your business needs to grow before you purchase a POS system. Some businesses may not even need one.
Do I Need a Point of Sale System?
There are some businesses that won’t need a point of sale system. In fact, for some businesses, a POS is a waste of resources. Mostly, these are businesses that operate entirely online. That’s because your website, payment gateway, and digital shopping cart perform all the tasks of your point of sale system.
Another example of businesses that don’t need a point of sale system are those that invoice for their services. If your business sends invoices, then you don’t need a POS. This is because your customer isn’t paying when they get your goods or services, but when the invoice is due. That changes the way that you collect money, and thus changes the way that you process sales.
An example might be a lawncare business. This type of business sends workers to take care of a client’s lawn. Rather than directly paying the workers, the client receives a bill or invoice that they pay. In this situation, there’s no point of sale. That means there’s no need for a point of sale system.
However, most brick-and-mortar stores need a point of sale system. If your business has a physical location where customers come to buy goods or services, then a POS is probably a necessity. The alternatives are either to only accept cash or use archaic ways of processing card payments. Both of these options limit your sales and can make your business seem sketchy.
Finding the Best Point of Sale Systems
There are several things you need to consider when looking for the best point of sale system. First, you need to keep in mind that the cheapest point of sale might not be the one that saves you the most money.
The other thing you need to consider is your business’s particular needs. For example, if your business has a mobile aspect, like a food truck or exposition sales group, then you’ll need a mobile POS.
Another thing to consider is your other merchant service needs. Many merchant service companies offer a POS as part of a package deal. They want you to use them for payment processing, payment gateways, merchant accounts, and your POS. They’ll offer benefits for using their company for all of these services.
However, these benefits may or may not help your business. We’ll look more closely at this situation under the Needs section.
Finally, you should determine the best combination of merchant services based on the total number of transactions it will take you to pay for the services. There are a few reasons for this. First, companies price their services and POS systems differently. That can make it harder to do an apples-to-apples comparison.
Second, this method will allow you to evaluate whether different packages of services are better for your company than getting all of your merchant services from different sources. That’s because it lets you evaluate the total cost of merchant services. This lets you make a fair comparison as to how different options affect your bottom line.
That being said, there are three primary things you need to consider when selecting a POS. The terms, your needs, and the features offered. Getting a handle on these three things will go a long way towards helping you decide what the best POS is for your business.
The terms of your agreement are vitally important to figuring out the best option for your business. For example, some companies lease you the software and hardware. This can come with early termination fees. It can also prevent you from upgrading to a better option. Moreover, you might be forced to pay out the lease for a system you’re no longer using.
Other companies will stack in hidden fees. These fees dramatically increase the cost of your POS and merchant services. These companies don’t always list all of their fees on their websites. That means you’ll have to call or email them to get an exact description of what their services will cost your company.
The best POS agreements will have flexible terms. They’ll let you upgrade to newer systems and won’t have early termination fees. Moreover, for many companies it may be cheaper to buy your equipment rather than leasing it. A lot of this depends on your tax situation and the state of your books. Buying the equipment lets you write off the depreciation, whereas leasing it lets you write off the cost of the lease. Your accountant will be able to tell you which option is most advantageous for your tax situation.
The next thing you should consider is your needs. Are you the business’s only employee? Do you have other employees? How many sales do you do a day? What kind of image are you trying to cultivate for your store? After all, it’s hard to give the appearance of a sleek and modern design with a clunky POS terminal sitting on a desk.
You’ll also want to determine if you need mobile POS options. Some brands benefit from a look that doesn’t have a static POS in the store. Instead, customers talk to sales reps who can take payment directly through a mobile POS device.
One of the biggest reasons you need to determine what your needs are is so that you can pick a POS with the right set of features. For example, if you have other employees, then you might want a POS with scheduling and payroll functionality. These systems let employees clock in and clock out directly from the POS device. It records their time and exports it to yourself or your payroll service. This makes keeping track of payroll needs easier.
In the same way, many POS systems come with scheduling software. This lets you make sure your staffing needs are covered. It also helps you manage your employees’ hours and your business’s needs from a single, centralized location. This saves you time and energy, allowing you to focus on growing your business.
That’s not all modern POS systems can do. Many of them offer things like rewards programs. If your business model depends on repeat customers, then you might consider a rewards program. After all, studies show that these programs are effective at encouraging customer loyalty and repeat business. Tracking customer rewards points through the POS simplifies the process and helps prevent disputes.
Modern POS systems also give you a lot of options when it comes to managing and understanding your business. One way that they help you manage your business is through inventory tracking. They can help you know when certain products are running out so that you can order more. They can tell you when products aren’t selling so you can lower the price or cancel an order to get more of them.
POS systems help you understand your business by enabling powerful analytics. They act as a centralized point to collect information about your business and how it’s running. For example, your POS might generate a report that tells you only 3% of your sales happen between 9am and 10am. You can take that information and decide if you should open later so you can save money on labor and overhead.
Getting the right mix of POS features is essential to ensuring your business runs as efficiently as possible. However, you’ll have to decide what features work best for your business based on how it operates. For example, a used car dealer probably doesn’t need a rewards program. After all, most customers aren’t going to be buying a new car all that often. In the same way, if you run a store with your spouse and have no other employees, then you probably don’t need scheduling software.
Running a business is no easy thing. A point of sale system can help your business be as efficient as possible. However, you’ll need to determine your companies needs to pick the right POS. This guide should help you understand what questions to ask yourself when it comes to making the right choice. Use this information to help ensure that you’re getting the greatest value for your money. You should also use it to make sure that you’re not paying for systems or features that you don’t need.
Businesses are the backbone of society. However, in order for a business to function, it needs to get paid for its goods or services. In the past this was a fairly straightforward process. Merchants received cash or checks for payment.
Things are a bit different today. Cash and check transactions represent a smaller and smaller percentage of overall transactions. More people are using electronic means of payment than ever before. This includes things like credit cards and debit cards. It also includes things like eChecks, online sales, and payment apps that let people pay using their smartphone as a wallet.
This situation has dramatically increased the speed of commerce. It’s given consumers more ways to pay. It’s also given merchants more ways to sell their goods and services. But it’s also created a new challenge, how do you get paid for the goods and services you’re selling?
The answer is payment processing. This article will cover the basics of payment processing. It goes over the different types of payment processing. Finally, it walks you through the steps you should take to find the best payment processing service for your business. Use this information to boost your profit margin and grow your business.
What is Payment Processing?
Payment processing is the series of steps that allows you to get paid for your goods and services when someone uses a card. There are several steps to successfully process a payment. Even though there are many steps, and some of them are quite complex, modern payment processing services reduce the time needed to mere seconds.
Broadly speaking, there are 3 steps to payment processing. Authorization, settlement, and funding. Let’s look at each step so you can understand exactly what this service entails.
Step 1: Authorization
Authorization is an essential step to payment processing services. Without authorization you can’t accept credit card payments. This undermines your business and hurts your ability to make sales.
The authorization process confirms whether or not your customer has enough credit or funds to pay for the goods or services you’re selling. Authorization also ensures that the card the customer is using is valid. The authorization process can start in several different places, including a credit card machine, over the phone, or through your website.
The authorization steps are as follows:
- The customer gives you their credit card information to make a purchase. They can do this over the phone, in person at your store, or online on your website.
- You send the customer’s information to your payment processing service.
- Your payment processing service checks with the card payment brand, like Visa or Mastercard.
- The payment brand then sends your request to the organization that issued the card. This is usually the customer’s bank or credit union.
- The card issuer either approves or denies the transaction based on the funds in the customer’s account. They send this information back to the payment brand.
- The payment brand forwards the response to your payment processing service.
- The payment processing service sends the response back to you so you can either complete the sale or ask for another form of payment.
Step 2: Settlement
Once you’ve made the sale, the process isn’t over. Now the payment needs to be settled. Settlement refers to the act of clearing and funding electronic payments.
You present the approved transactions to your payment processing service. The payment processing service then submits the transactions to the payment brands to be cleared. Sometimes these transactions are called deposit transactions.
The steps in settlement are:
- You submit your transaction information to your payment processing service. You can do this a few different ways. One of the most common is to send the transactions as a “batch” at the end of the day. Most merchants do this through their point of sale station or credit card machine.
- The payment processing service forwards the settlement request to the payment brand.
- The payment brand confirms the transaction with the customer’s card-issuing bank.
- The payment brand then issues credit to your payment processing service so that you can get paid. The card issuer then pays your payment processing service.
- The customer’s card issuer puts the transaction on the card’s account. They send a list of all transactions to your customer at the end of the month in the form of a monthly statement.
Step 3: Funding
So far, the payment processing steps involve a lot of communication between banks and payment brands. However, this last step is where you finally get paid. Your payment processing service deposits money into your bank account for the transactions processed.
Sometimes people roll steps 2 and 3 together. When they do this, the entire process is called settlement. This information won’t affect your services, but it’s good to know that some companies use funding and settlement interchangeably so that you don’t get confused when you’re researching different payment processing services.
Are there Different Types of Payment Processing?
Different payment processing companies work with different types of payments. Some companies cover more payment types than others. It’s important to understand how your customers like to pay for your goods or services when you’re deciding on a payment processor.
For example, if most of your customers pay with an American Express card, you’ll want to be sure your payment processor works with American Express. The same is true for merchants who get paid with automated clearing house, or ACH payments, or those that take eChecks.
Credit Card Payment Processing
Credit card payment processing is the basic steps described above. The main differences between payment processors when it comes to credit card processing are the cards they work with. Nearly every payment processing service works with Visa and Master Card. However, not everyone works with other cards, like American Express or Discover.
Sometimes payment processing services will work with other payment brands. But they’ll charge a higher fee for working with those brands. That’s one of the reasons that every business doesn’t accept every card. A business owner or operator needs to be sure that the extra fees are worth the amount of revenue they’ll create by accepting another payment brand.
ACH Payment Processing
Automated Clearing House, or ACH, payment processing is similar to credit card payment processing. The main difference is that the transactions go through an automated clearing house instead of payment brands.
ACH is an increasingly popular way to transfer funds. The funds are usually made available quickly. It can also involve fewer fees for both the customer and the business. Moreover, it saves customers money because they can use cash directly from their bank accounts instead of using a credit card and incurring interest.
eCheck Payment Processing
Some companies accept payment via eCheck. This is similar to ACH payment processing. However, the payment processing company communicates directly with the bank instead of a clearing house or payment brand.
Businesses realize that not everyone has a credit or debit card. There are still some people who prefer to conduct business or buy goods and services using old-fashioned cash and checks. eCheck processing is an important aspect of getting paid for companies that have a wide customer base. Some examples include utility companies and doctors offices.
How Do I Get the Best Payment Processing Service?
Finding the best payment processing service can be tricky. After all, different businesses have different needs. Finding the best payment processor is a matter of getting the right combination of features and fees to maximize your business’s profit.
Moreover, payment processing services can set up their fee structure in different ways. This can make it difficult to do an apples-to-apples comparison of payment processing services. This situation also applies to merchant services generally.
One helpful way of approaching this problem is to calculate the total percentage of your transactions that will go toward covering payment processing fees for different providers. For example, one payment processing company might have nominally lower rates, but include fees that increase the overall cost of services. If you find that it will take 8% of your sales to pay for company A’s services, and 6% of your sales to cover company B’s services, then company B is a better choice for your business.
The first thing you should look for in a payment processing company is transparency. The best payment processing services offer interchange-plus pricing. That means they charge a fixed amount on top of the cost of conducting the transaction.
This pricing system creates predictability when it comes to your merchant services costs. And any business owner will tell you that predictability to essential when it comes to making plans to grow your business.
You should also check out what kinds of fees each company charges. Some companies don’t charge any additional fees. Others include a fee for starting up your payment processing service, fees for accepting specific payment brands, fees based on the volume of transactions, and more.
Many companies don’t advertise all of their fees on their website. Therefore, you’ll need to call or email customer services to get a complete list of fees. Have basic information about your business ready. That includes things like the number and value of your transactions. Ask them for a bottom line figure given the information you have. This will give you a clear idea of which payment processing service creates the most value for your business.
The next thing you should look for in the best payment processor is the value-added benefits they offer. Many companies that offer payment processing services also offer other merchant services. This includes things like a payment gateway and merchant accounts.
That means you can consolidate your merchant services into one account with one company. This can be good for some businesses, but it might not be the best option for everyone. The best way to determine this is using the total percentage of transactions method described above.
One of the reasons why you might consider using one company for your payment processing and other merchant services is that the company will usually waive some of the standard fees. They’ll also throw in extra benefits. For example, many companies will provide you with a point of sale system for your brick and mortar store. They might also include things like scheduling and payroll software or the ability to do a customer rewards program.
Whether or not these things are worth it depends on your specific business model. For example, if you don’t have a brick and mortar store, then you don’t get any value from a point of sale device. In the same way, if you don’t conduct business online, then a payment gateway doesn’t add any value to the service for you.
Payment Processing Reviews
The final thing you should do when looking for the best payment processing service is look at reviews for different payment processing companies. Payment processing reviews will give you a better idea of how the company treats its customers. You can find out important information, like how often there are network outages or what kinds of problems other people have had.
One thing that’s important to keep in mind when looking at reviews for payment processing companies is that payment processing is the kind of service that people will go out of their way to give good reviews for. When it’s working properly it’s easy to forget it exists. Therefore, don’t be put off when you find that almost every payment processor has more bad customer reviews than positive ones.
Instead, the way you should evaluate these reviews is by seeing how the company responds to them. Check for follow-ups and try to understand how responsive the payment processing service is to their customers.
In the end, you need to get paid for your business. The modern mode of commerce, online transactions, credit cards, debit cards, and eChecks, means that you’ll almost certainly need a payment processing service to make your business a success. Use the information in this guide to pick the best payment processing service for your business.
Online commerce is one of the fastest growing sectors of the economy. People love to shop online. It’s faster and more convenient that going to the store. It also gives them access to goods and services that might not be available to them otherwise. Therefore, it’s no surprise that so many people do their shopping online, and that so many merchants want to do business online.
However, none of that is possible without the ability to process debit and credit card transactions online. Merchants do business online to generate profit. In order to get paid for the goods and/or services you provide online, you’ll need a payment gateway.
This article covers the basics about payment gateways. It helps you understand what a payment gateway is, how they work, and how to find the best payment gateway. Use this information to help your online business grow above and beyond your expectations.
What is a Payment Gateway?
A payment gateway is a way to facilitate online transactions. The first step in any online transaction involves some kind of payment gateway. Online payments can be surprisingly complicated. After all, it’s hard to verify who is using the card at the other end. You also need to ensure that the customer’s account has sufficient funds to do the transaction. Finally, you need to actually receive the money your customer spends on your goods or services.
Payment gateways are the things that make that happen. They pass information about the payment to other services, like payment processing. Then, the payment gateway lets you know whether or not a purchase was approved or rejected.
They act as an interface between your payment processing service and your website or POS. Your customers won’t interact directly with your payment gateway. Instead, they’ll use things like online shopping carts or apps to select items to purchase. Once they’ve entered in all of their information, the payment gateway takes over.
The Online Purchasing Process
One of the most important things about online transactions is the speed at which they occur. When you think about it, there are actually a lot of steps involved in making a purchase. This is true anywhere. But it’s especially true online.
First, a customer finds your good or service and signals their intent to purchase it. This is usually done online by putting it in a digital shopping cart. The shopping cart is basically the payment gateway holding area. Payment gateways also allow purchases through hosted pages or an API.
It allows the customer to find all of the goods or services they want to buy. Then it lets them process the collection of items as one transaction, just like you would do in a real store. After all, the grocery store doesn’t make you swipe your card for each item you purchase. Why should online shopping be any different?
Once the customer has entered their card information and clicked the “check out” button, a complicated series of steps happens. First, your bank needs to ask the customer’s bank about the account they’re using. It checks to make sure the account information is valid. It also has protections to prevent others from using the card illegally.
Then the customer’s bank tells your bank if the purchase is approved or not. Your bank then sends that information back to you. It lets you know if the sale is rejected or approved. You can then execute the sale or request another form of payment from the customer.
If the sale is approved, then each bank needs to make arrangements to transfer funds. If the sale is rejected, then the merchant needs to know as soon as possible so they can ask the customer for another form of payment or turn down the sale.
People shop online because it’s faster and more convenient than going to a brick and mortar location. Payment gateways help maintain the speed of online transactions. They also help make sure that your customer’s data is kept safe. They encrypt the data so that the only computers that can understand it are the ones that are supposed to.
How does a Payment Gateway Work?
A payment gateway works by taking the customer’s information and information about the sale. It then encrypts that information and sends it to the customer’s bank. That bank talks to your bank and arranges the transfer of funds. They then send an answer back to the payment gateway. The gateway reports the answer to you and the customer. After that, the sale either goes through, or it is rejected.
This helps keep your customer’s information safe. It also helps protect you. This is because you can verify to a high degree of certainty that you will actually be paid for the good or service you’re providing. Any problems that do occur when it comes to your getting paid won’t be because of the payment gateway, but rather because of problems with credit approval and ACH transfers that will need to be resolved by your merchant account service.
How do I Find the Best Payment Gateway?
Every business is different. That means that every business has different needs. As a result, there’s no one best payment gateway. What’s important is knowing the right things to ask to find the best payment gateway for your particular business.
The most important thing to consider about payment gateways and your business is the type of business that you do online. Do you make lots of transactions or few transactions? Do you sell globally? What other merchant services do you need? Does your business have a brick-and-mortar location?
All of these questions will shape your needs when it comes to payment gateways. You might be tempted to go with the cheapest payment gateway you can find. However, that’s not always the best option. There are several factors you need to consider. These factors include things about the gateway service, as well as elements of your business.
PCI Compliance is Essential
The most important thing you can look for in any payment gateway is that it is PCI compliant. PCI, or PCI DSS, stands for the Payment Card Industry Data Security Standard. It’s the set of security standards that companies use to handle credit and debit card information in a safe and secure way.
There are different levels of PCI compliance. PCI compliance level 1 means that you’ll never have to worry about your customer’s data being stolen or privacy being violated because of your site. This also shows customers that you and your business are legitimate operations that they should want to buy from.
Transparency is Vital
Transparency is a key element in getting the right payment gateway for your business. Does the service charge a setup fee? How about a monthly fee? Is there a PCI compliance fee? Or a gateway processing charge?
Many business owners simply look at the per-month or per-transaction fee to compare services. Moreover, many companies don’t advertise all of the included fees on their sites. You need to call or email the company and ask for a list of all the fees their service would include for your business. That’s the only way to be sure of your actual cost for using the payment gateway service.
Another thing you need to be wary of are early termination fees. Most payment gateway contracts are month-to-month, and don’t have an ETF. However, if you’re getting your payment gateway as part of a bundle with other services, then your contract may include an ETF.
Finding the Best Payment Gateway Fees
There are a few things you should consider when you’re thinking about payment gateway fees. First, most companies provide payment gateways as part of other merchant services. For example, Stripe, Square, and other popular merchant services include a payment gateway as part of their monthly fee.
It can be difficult to determine what the most cost-effective model is for your business. The best way to think about it is to determine the total percentage of your monthly transactions that would go toward paying your merchant services fees and use that as a baseline comparison when looking at different providers.
This is because of the different types of services that these providers offer as packages. It’s also because the fees that you pay are usually volume-based. Businesses that do a high volume of transactions will pay a lower per-transaction fee. Businesses that do fewer transactions pay a higher per-transaction fee.
That means looking at the total percentage of your transactions that goes toward paying for merchant services on a given month will be the best way to objectively compare the different fee structures you’ll be offered, regardless of all the other variables. That means you’ll have found the best payment gateway fee for your specific business.
Customization is a big part of what sets one business apart from the rest. If your business relies on being innovative or unique, then you need the ability to customize the integration between your payment gateway and your site.
This is also true for companies that want to launch their own app if they want their customers to make purchases from the app. That means you’ll want a payment gateway that offers access to an API. This will let you ensure your app and your website work properly with your payment gateway. In turn, this ensures your customer’s data stays safe, and your reputation stays clean.
The Nature of Your Business
Another important thing to consider is the nature of your business. Like the last section pointed out, different businesses get different fee structures based on transactions. However, that’s only one thing you need to think about.
Another important consideration is whether or not you conduct business globally. Global payment gateways need to meet other standards for security. That means they charge higher fees. There’s also more steps involved in global transactions. Currency exchange may need to take place, and there may be other steps as well.
You also need to consider how you’re willing to take payment. For example, there are blockchain payment gateways that let customers use digital currency, like Bitcoin, for payment. Others, like ones that come standard with popular ecommerce platforms, like the Shopify payment gateway, might not be set up to take cryptocurrency as payment.
You’ll also want to see what kinds of payment your gateway needs to accept. For example, do you need to take American Express? How about lesser-used credit services like Diner’s Club? Understanding your specific customers and clientele is essential to knowing what you need out of a payment gateway service.
Most businesses use other merchant services in addition to payment gateways. These include things like merchant accounts, payment processing services, and more. It’s important to take all your options under consideration when making choices about these vital aspects of running a business. It’s generally easier to pay one company for all of your merchant services than to buy them individually from different companies.
The first reason it’s beneficial to consolidate your merchant services with one company is compatibility. Your payment gateway needs to be able to talk to your payment processing service and potentially to your merchant account. If you use different providers for all of these processes, then you may have compatibility issues.
Additionally, this simplifies your book-keeping. There’s only one provider to pay. Also, there’s only one company taking fees from your transaction, so it’s easier to figure out where your margins are. After all, given that most transaction fees are volume-based, different fee structures at different volumes with different companies make it a nightmare to understand how much it actually costs to do business.
Finally, merchant service providers will usually waive the more annoying fees that you get charged if you’re using them for multiple services. For example, most providers will waive any startup fees if you also use them for payment processing and a merchant account. That means that these services can have a leg up when it comes to cost competition.
In addition to the way people’s behavior has changed in stores, more and more transactions are conducted online. It’s not hard to see why. Online transactions offer a level of convenience and speed that most brick-and-mortar stores can’t match.
But with all of the innovation in the way that we do business, one thing hasn’t changed. Businesses still need to collect money for their goods and services to function. The way that merchants get paid today is through merchant processing services.
This article will cover merchant processing services. We’ll explain what that category includes. We’ll also cover the benefits of merchant processing. Finally, we’ll look at the things you need to know to find the best merchant processing service. Use this information to ensure that your business produces the best possible returns and runs as smoothly as possible.
What is Merchant Processing?
Broadly speaking, merchant processing is a term that is used to describe how merchants get paid for goods and services they sell. There are several different aspects of merchant processing services. Moreover, different companies offer different combinations of services. Some of them only offer one service. Others deal in total packages that cover all of the merchant processing needs your business might encounter.
We’ll take a look at the different elements of merchant processing. These are the different pieces that work together to help your business get paid for your hard work and effort.
The most common type of merchant processing is payment processing. This is the sequence of events that you use to get paid when someone uses their credit or debit card. As a result, it’s a vital component to any modern business.
Payment processing services take the information from your customer’s card and the transaction you’re trying to process. They send a request to do the transaction to the card’s payment brand, like Visa or Mastercard. The payment brand then forwards the request to the issuing bank. The bank approves or denies the request. This information goes back to the payment brand and then is forwarded back to your payment processing service.
That series of steps is what is known as authorization. It confirms that the customer has sufficient funds or credit to make the purchase. The next steps are known either collectively as settlement or as settlement and funding.
These steps are the process of transferring money from the cardholder’s bank or credit account to your account. Your payment processing service handles that as well.
The next element in merchant processing is a merchant account. This is a special type of credit account. It gives you access to the funds that you generate from credit card sales before the funds actually settle. As a result, you get access to your funds much faster.
The way that it works is that once the transaction is authorized and approved, your merchant account provider credits your account with the value of the sale. The account provider is then repaid by the payment brand or issuing bank.
Once the money is in your merchant account you can treat it like regular funds. You can transfer it to another bank account. You can also use it to cover things like inventory orders or payroll. The primary benefit you get from a merchant account is the speed at which the funds become available.
Merchant services providers will charge you a fee for payment processing and merchant accounts. Therefore, you’ll want to carefully compare all of your options to ensure you’re getting the best value for your money before you sign up with a merchant processing service. It’s important to keep in mind that the cheapest merchant processing service might not be the best merchant processing service.
Payment gateways are a special type of processing service. They’re used to conduct transactions online. They act as your point of sale system for your website. The payment gateway encrypts your customer’s information before sending it to your payment processing service. This helps protect your customer’s data. It also shields you from risk if your customer’s account information gets stolen.
Payment gateways aren’t used by every business. Some businesses do sales online and interface directly with their payment processing service. Other companies don’t bother with online sales, and thus don’t need a payment gateway. This example shows why it’s important to consider your business’s specific needs before signing up for merchant processing services.
What are the Benefits of Merchant Processing?
There are many benefits for merchant processing services. Different services include different features. Some offer things like payroll software, scheduling, clock in and clock out features, analytics, inventory tracking, and more.
However, we’re focusing on the benefits that all merchant processing services provide. Merchant processing solutions will be different for different businesses. However, all merchant processing agreements offer the benefits of speed, convenience, and savings.
The first benefit of merchant processing services is speed. They get you access to your funds much faster than other ways of getting paid for card transactions. Merchant account processing fees are usually well worth the cost for a business to get access to its money faster.
These services are also faster to set up. That means you can be up and running your business faster than if you tried to set up a payment processing system that didn’t use a merchant processing service. As a result, you can start turning a profit sooner, growing your business.
Finally, merchant processing services also make the transaction process faster. This helps your business in several ways. First, it reduces the amount of time a client is standing in line to pay for your goods or services. This makes visiting your location a better overall experience. It also gives you the information you need to know if you should go ahead with the sale or not. This allows you to quickly determine if the customer has the necessary funds and/or credit to pay for your services or goods.
Convenience and Savings
Merchant processing services also create benefits in terms of convenience and savings. You can set up a merchant credit card processing system that directly interfaces with payment brands yourself. However, this is hard to do. You need to meet specific security standards. You also need to negotiate agreements with the different payment brands.
All of those steps add up to a hassle. That means, for most businesses, it’s simply not worth it. It’s much easier to pay a merchant processing service to take care of those things for you.
You also save a lot of money compared to setting up a direct link to payment brands and clearing houses when you use merchant processing services. These set-ups require costly and specialized labor. You might need to hire programmers, engineers, and other services to get your connection set up. These skilled laborers demand premium payment for their services. Merchant processing services handle all of that for you, so there’s no need to spend your valuable money on this kind of labor.
How Do I Get the Best Merchant Processing Service?
Getting the best merchant processing service is a tricky proposition. After all, every business is different. That means every business has different needs. It also means that every business can benefit from different features that merchant processing services offer.
When you’re doing a merchant processing comparison, it’s easy to become overwhelmed. Different companies price their services according to different scales. That can make it hard to do an apples-to-apples comparison of different services.
The best way to determine the most cost-effective merchant processing service for your business is to look at the total percentage of your transactions that will go toward paying for processing services. This system is best for a few reasons. First, it lets you make an apples-to-apples comparison of the total cost of services.
Second, most merchant processing fees are determined based on the volume of transactions. That means looking at the percentage of transactions that go toward paying for services will give you a more accurate picture of how the processing service relates to your operating budget and overall bottom line.
Keep in mind that looking at the percentage of transactions to cover the cost of processing doesn’t include other things you may want to consider. For example, most merchant processing companies offer a wide range of services and software. Some might offer analytics software that helps you grow your business and make informed decisions. Others offer payroll and scheduling software to simplify operations. You should consider whether these features will add value to your business, and then consider that when you’re deciding what merchant processing service to use.
The first thing you should look for with any business you work with is transparency. There are lots of merchant processing companies. Some of these companies are better than others. Some of them have hidden fees and different ways of charging you money. Many don’t list these fees on their site.
That means you’ll need to collect some basic information about your business. This information should include the average number of monthly transactions you make, the value of those transactions, the payment brands those transactions occur through, and your current cost for processing services.
Use that information to inquire on the phone or through email with sales or customer service reps from the different companies. Get them to disclose a list of all the fees you should expect to pay. Is there are start-up fee? An early termination fee? A PCI compliance fee?
These vital questions will let you determine the total cost of the processing service. If you just look at the per-transaction fee structure to determine what company to use, then you might find yourself paying more than you have to.
You should make sure the fees your merchant processing company charges are reasonable. For example, fees like startup fees are mostly junk fees designed to leech money from your business.
Moreover, most companies charge a fee per transaction. You should look for companies that use interchange-plus pricing. That means the company charges you the cost of doing the transaction plus a set amount. This pricing model ensures predictability for your business. This, in turn, allows you to more effectively plan your growth, giving you the best chance at success as possible.
Also, you need to consider all of the different terms of the agreement. For example, some merchant processing services also provide point of sale systems. You need to ask if you’re leasing their hardware or software, or if you own it. This doesn’t just affect how much you’re paying, but it can have tax implications because of the difference between paying a lease and writing off depreciated value of equipment.
Finally, consider your needs. This will help you decide what company offers the greatest value. For example, a company that doesn’t operate a physical store won’t benefit from a free point of sale system. In the same way, a company with zero or only a few employees might not need scheduling and payroll software.
You should also figure out how much of your sales come from different payment brands. For example, if only 3% of your sales use an American Express card, then it might not be worth paying an extra fee to access that payment brand. However, if AmEx makes up 40% of your transactions, then the fee is certainly worth it.
In the end, only you can determine the best merchant processing service for your business. However, if you use the information in this article to ask the right questions, you’ll be well on your way to making the right choice. It’s your business, make sure it’s running at peak efficiency by choosing the right merchant processing service.
Getting paid for the goods and services you sell is an essential part of any business. However, things have progressed far beyond the past when merchants could get by on checks and cash. In the modern age, people have other options for payment.
More people use credit and debit cards than ever before. Also, people are using innovative ways to pay for the goods and services they consume. This includes things like wallets built in to smart phones as well as cryptocurrency like Bitcoin and Ethereum.
If your business wants to compete in the modern day, then you’ll need to be able to conduct transactions using these forms of payment. However, the ability to do the transactions is only half the battle. You also need access to the money you make from these transactions.
Merchant accounts are the answer to this problem. These accounts link with your payment processing, payment gateway, and other merchant services. As a result, you get fast access to the cash you make by running your business.
You can use this money to cover your basic operating costs. You can order more inventory, pay bills, cover payroll, and so on. You can also use it to plan for growing your business to make it stronger and more profitable.
However, it’s hard to do these things if you’re constantly waiting for money to show up. That’s where merchant accounts come in. These accounts deposit money from your credit card and other sales directly into an account where you can access it. This lets you get your money much faster than other possible payment methods.
This article covers the basic information about merchant accounts. It helps you determine if you need a merchant account. It also goes over the questions and things to consider when you’re looking for the best merchant account service. Use this information to help grow your business and earn the living you deserve.
What Are Merchant Accounts?
Merchant accounts are specialized types of bank accounts that link up with payment processing systems. They act as a special line of credit. The payment processing system or merchant account provider deposits money into the account for transactions you’ve done. It does this before the transactions are finished settling. As a result, you don’t have to wait days, weeks, or even an entire month to get access to the money you need to run your business.
In order to understand the service that a merchant account provides, you need to understand the electronic payment process that credit and debit cards use.
The first step in a card-based transaction is for your payment processor to contact the payment brand of the card. For example, American Express or Visa. The payment brand forwards the request to the issuing bank. After that, the bank informs the payment brand if the cardholder has enough credit or funds to cover the purchase. The payment brand then forwards this information to your payment processor, who tells you whether the sale is approved or not.
Once that process is complete, the various parties involved begin the process of settling funds. This is the process of transferring money through different parties to eventually wind up in your bank. Given the number of organizations involved and the complexity of modern bank rules, this can take some time.
A merchant account works like a special line of credit. The merchant account issuer credits your account with the funds from your transaction before they’re done settling. They charge you a small fee for this service. Usually, this fee is a percentage of the transaction plus a certain amount. However, we’ll talk more about fees later on.
Many merchant service companies provide merchant accounts as part of a package of products and services. They also over payment processing, payment gateways, and more. Therefore, it can be hard to determine if you need a merchant account. It can also be hard to figure out which merchant account provider offers the best value. We’ll look at each of these questions in order.
Do I Need a Merchant Account?
Most businesses benefit from having a merchant account. After all, there aren’t many business models that benefit from having delayed access to funds. However, there are times when a merchant account might not be in your best interest.
For example, if you do most of your business in cash and checks, then a merchant account might be more than you need. It can also be hard to get a merchant account depending on the type of business you do. High-risk businesses, that is, businesses where there’s a high-risk that the transaction will not ultimately be approved, will have to pay more for merchant account services. That can mean that these accounts don’t actually benefit your bottom line.
However, most brick-and-mortar and online businesses can get lots of value from a merchant account. It makes it easier to get your money. It also gives you access to your money faster. Moreover, if you get a merchant account as part of a package of merchant services, it can come with other benefits as well. These include things like payroll and scheduling software, point of sale systems, business analytic abilities, and more.
Businesses that operate on thin margins especially benefit from merchant accounts. Examples include retail stores, gas stations, and other businesses that rely on a low-margin/high-volume business model. These companies need fast access to their transactions so that they can cover their operating expenses. That means things like overhead, payroll, inventory, and other costs.
If you don’t have fast access to your transactions with this kind of business model, then you put your business at risk. Stores with empty shelves don’t draw customers. Employees that don’t get paid stop showing up. And it’s hard to do business if the power company shuts off your electricity.
This can be the death knell of a small business. You need to stay on top of your expenses in order to keep running. And you need access to the money you make in order to stay on top of those expenses. In an era where so many transactions are card-based, a huge sum of your funds can be tied up for days while your expenses go unpaid.
How Do I Get the Best Merchant Account?
It can be tricky to find the best merchant account. There are several reasons for this. First, each business is different. That means each business has different needs and goals. Therefore, every merchant account won’t be suited to every business.
Also, it can be difficult to do an apples-to-apples comparison of merchant account providers. This is because different providers set up their fee structure differently. Some only charge per-transaction fees. Others charge other fees that are usually hidden. This can include one-time charges like a startup fee. It can also include recurring charges like PCI compliance fees, monthly maintenance fees, and more.
Another thing that makes it difficult to compare merchant account service providers is the different benefits, features, and packages that each one offers. One provider might charge a bit more but will include a feature that can help your business run more efficiently. Others might charge less but lack features and services.
One good way to get an idea of how much the different merchant account providers stack up to each other is to determine what percentage of your total transactions each month will go toward paying your merchant services fees.
When you do this in conjunction with looking at the benefits each company offers, you’ll be able to have a better idea of what provider offers the greatest value for your business.
There are a few things you should take into account, regardless of what kind of business you operate. These criteria will help you weed out the bad merchant account providers and help you find the best merchant account for your business.
The most important thing when considering any merchant services is the level of transparency the provider offers. You want a company that is up-front and clear about its pricing and fees. That lets you create a more predictable operating environment for your business. Any business owner will tell you that predictability is essential when you’re trying to grow your business.
Many companies charge hidden fees for their merchant account services. These fees can include things like early termination fees and startup fees. However, they might include other things. For example, if you’re getting your merchant account and payment processing services from the same company, you might get charged more to process specific payment brands.
This can radically alter the amount of money you’re actually operating with. That’s why it’s important to pin a company down to an exact list of fees and pricing structures. A company may charge one rate to process Visa transactions, and a different rate to process American Express transactions.
Therefore, you’ll want to look at what percentage of your transactions happen through different payment brands so that you can get a better idea of what your actual cost will be. The best merchant account providers use interchange plus pricing. This pricing model means they charge you the cost of executing the transaction plus a fixed amount. This might look something like 2.5% + $0.30. That means that the fee for executing and depositing the transaction will be 2.5% the value of the transaction + $0.30. That means it would cost you $0.55 to run a $10 transaction.
You should also look at the different benefits that merchant account providers offer. Especially since most merchant account providers will also be providing you with other merchant services. A slightly higher rate is worth it if you can get payroll software that frees up more of your time to grow your business.
It’s important not to let these extra features and value-added benefits distract you though. While it’s always good to plan for growth, you shouldn’t get a service that offers a bunch of features you don’t need. For example, an online retail store doesn’t need a point of sale system. That means that benefit doesn’t add any value to the merchant.
Cheapest Merchant Account Isn’t Always the Best Merchant Account
Another thing to keep in mind is that the cheapest merchant account isn’t always the best merchant account. In fact, sometimes the cheapest merchant account isn’t even the cheapest option.
Many business owners look exclusively at the per-transaction rates their merchant services company offers to make a choice. However, these rates don’t take into account hidden fees and other intangible benefits. Therefore, they may wind up costing you more in the long run.
Another key element to consider is how quickly the merchant account makes funds available to you. You need to understand your business, it’s needs, model, and operating expenses, to determine how fast you need your money to be accessible. A low-overhead company with sufficient operating capital on hand doesn’t need to pay higher fees for slightly faster access to funds.
In the end, it takes careful planning, research, and consideration to pick the best merchant account service. You should research merchant account reviews. This will give you an idea of how each service provider deals with its customers. Something you should keep in mind is that this industry doesn’t lend itself to people going out of their way to give positive reviews. After all, when your merchant services operate effectively, you don’t notice them. Therefore, you shouldn’t be put off by a disproportionately large number of negative reviews to positive reviews.
Finding the right merchant account service is a great way to give your business the resources it needs to thrive and grow. It helps ensure that you can conduct all the transactions you need, and it provides you fast access to the funds you generate. This can be the difference between a successful business and one that never quite gets off the ground. Don’t let lack of access to your funds slow your business down. Find the right merchant account service provider for your business today!
It’s almost impossible to do business in the modern economy without interacting with credit cards. Credit cards are great for consumers. They provide bonuses and discounts, allow them to expand their purchasing power, and offer financial flexibility for emergencies.
However, credit cards can be something of a nightmare for merchants. They add another layer of complications to the already challenging task of operating your business. That’s why finding the right credit card processing service is an essential part of running a successful business today.
This article covers the basics about credit card processing. It explains how credit card processing works. It’ll also go over the things you should consider when looking for the best credit card processing service. Use this information to fuel your business and ensure that it grows at the rate that it should.
What is Credit Card Processing?
Credit card processing refers to the payment process that merchant services use to get you the funds from transactions made with credit cards. It’s possible to set these connections up directly with credit card payment brands. However, that can be complicated and expensive.
Credit card processing services take care of the difficult and complex job of negotiating with payment brands. They also design and implement specialized and complicated software to conduct financial transactions. They help verify that your customer has the funds to pay for their service. Finally, they help get money from the credit card company into your account.
As you can see, those are all vital steps to selling any good or service. This is especially true with the rise of online shopping and buying. After all, it’s hard or impossible to use cash to buy things online. That means if you want to compete with the world’s biggest stores and the other merchants in your home town, you’ll need a credit card processing service.
How Does Credit Card Processing Work?
Credit card processing services work by handling the series of complex steps that are needed to make a card-based transaction. They execute these steps in seconds. As a result, your customers get fast, reliable service, and you get more sales and profits. In order to appreciate the services that you get from credit card processing, it’s necessary to understand how a card-based transaction works.
Card Transaction Process
When a customer swipes or inserts their card at your location, or enters their card information to your site, a series of steps beings to start a financial transaction.
First, your credit card processing service takes the information from the card reader or online payment gateway. Next, it sends the information about the transaction to the card’s payment brand, such as Visa or Discover. The payment brand forwards that information to the issuing bank. After that, the issuing bank lets the payment brand know whether or not you have the funds or credit to make the transaction. This is called giving authorization or approval.
Once the payment brand receives an answer from the issuing bank, it tells your credit card processing service the answer. Your processing service then forwards that information to your point of sale or payment gateway. This allows you to proceed with the transaction if it’s approved. If the transaction is denied you can deny the sale or ask for another form of payment.
It’s easy to see how this process can be complex. It relies on multiple independent financial networks talking to each other at near instant speeds to make and transmit decisions about transactions. Credit card processing companies do this for you. They also deposit funds from the credit card transaction into your account.
How do I Find the Best Credit Card Processor?
Like other merchant and business services, credit card processors are tricky to compare. There are several reasons this is true. First, each company has their own pricing and fee structures. Most companies charge fees based on the volume of transactions you do each month. Companies with more transactions pay a lower fee per transaction. Companies with fewer transactions pay a higher fee per transaction.
Also, credit card processing services usually offer other merchant services as well. That means the cheapest credit card processor might not the be most cost-effective choice for your business. These services include things like POS hardware and software, merchant accounts, and payment gateways.
Moreover, credit card processors can charge different fees for interacting with different payment brands. One of the reasons why some stores don’t accept certain cards is that the monthly and/or transaction fees they’d have to pay to accept those cards isn’t worth it to them. If your business does a lot of transactions over a wide range of payment brands, then you’ll want to check and ensure that the overall cost of the service you’re considering is the best value for your business.
One of the best ways to create a comparison between the cost of two different credit card processing services is to calculate what total percentage of your transactions will go toward paying your processing fees. This will enable an apples-to-apples comparison across the different service options. That will help you pick out the best value.
One of the first things you should look for when you’re deciding on a credit card processing service is the credit processing fees they charge. Nearly every company charges a fee per transaction. For example, one company charges 2.9% + $0.30. That means for a $10 transaction, you’ll pay $0.59.
That model is also an example of interchange plus pricing. This is the best pricing model for the merchant. Interchange plus pricing means that you pay the cost of executing the transaction plus a fixed surcharge. That lets you know exactly how much money the credit processing company is making off of you. It also means you can predict how much your processing fees will be.
Other companies use a tiered pricing model. This model is less transparent because there’s no way to know what your fee per transaction will be until you know the total number of transactions you have at the end of the month.
You also need to compare other fees for your processing service. This will let you understand the actual total cost of the service. For example, one company might have lower transaction rates. However, it might also charge more fixe fees every month, making the total cost higher. Many of these fees are junk fees that are used to pad the profits of the credit processing company and disguise the true cost of their service.
For example, some companies charge a start-up fee. Others charge monthly fees like a PCI compliance fee, a maintenance fee, network access fees, and more. You might get charged a few if you want to accept certain payment brands. This fee can be in addition to a higher per-transaction rate for those payment brands.
Many credit card processing contracts are month-to-month. However, it’s increasingly common to get your credit card processing services as part of a package of merchant services. If that’s the case, you’ll want to see if there are any early termination fees. You’ll also want to see what kind of charges are attached to the other merchant services you’re getting.
One example of this situation is with point of sale systems. Credit card processing companies might offer point of sale systems with their service. However, you might not realize that you’re actually leasing these systems from the company. Moreover, there can be an early termination fee for this lease, even if there isn’t one for the card processing service itself.
This shows why it’s extremely important to read the fine print for any contract you sign for merchant services. It’s also essential to get a full breakdown of the costs and fees associated with a service. Sometimes companies don’t advertise those fees on their site. That means you’ll have to call or email customer service or the sales department to get a full breakdown.
You’ll also want to look into what other benefits the credit card processing company provides. As was mentioned earlier, it’s increasingly common to get credit card processing as part of a package of merchant services. If the package of merchant services provides value for your business, then it might be more cost effective to get a credit card processor with a higher cost.
For example, if you buy or lease software or services to manage your payroll, that’s an extra expense. If the credit card processing service offers a point of sale system that comes with payroll and scheduling software, then that might replace your need for your current system. That means that even if the credit card processing fees are higher with a certain company, you’ll still save more money using them.
Specialized Credit Card Processing
In addition to standard credit card processing services, there are some specialized services as well. These include merchant account processing and high-risk credit card processing services. Many businesses will be interested in merchant account processing. Fewer businesses will need to look into high-risk credit card processing.
Merchant Account Processing
Merchant account processing works just like normal credit card processing. The difference is that the processing service provides you with a merchant account. This account acts like a special line of credit. The processing company provides the funds from your card transactions immediately. It then gets repaid by your customer’s card issuer and bank.
This setup has the advantage of providing funds from your transactions very quickly. This can be essential for certain business models. It also helps you conduct your business more smoothly. You can ensure that you’ve always got payroll covered. You can also place new inventory orders when you need them, not when your money comes in.
Some credit card processors provide you with a merchant account as part of their services. You should carefully evaluate any fees associated with these accounts. Remember, when you’re talking to the company you need to get a bottom line figure for what the services will cost. Don’t let salespersons confuse you by breaking down every single transaction price and fee.
High Risk Credit Card Processing
Some businesses get classified as high-risk. Each credit card processing company has its own method of determining whether or not a business is high-risk. Some of them are very strict, while others are more relaxed. That means it’s worth your while to find out if a merchant services provider considers your business to be high risk before you go through the effort of trying to start services with them.
High-risk merchants get different treatments from different merchant services companies. Some won’t do business with high-risk merchants at all. Others will charge much higher rates and fees because they deem your business to be high risk. If there’s a chance your business is considered high-risk, you’ll want to take these higher fees into account. Some of the factors merchant services companies use to determine if you’re high-risk or not include:
- Business location – businesses headquartered overseas that operate in the US are more likely to be flagged as high-risk because of the potential for fraud.
- Industry – If the industry you’re in has lots of fraud or a high rate of chargebacks then you might be high risk.
- Sales and marketing practices – this is related to the industry you’re in, but if your business is thought of as a type of scam, then you’ll be considered high risk. Examples might include some debt services, psychics, and product-resale businesses.
As you can see, there’s a lot to consider when you’re thinking about credit card processing. Make sure you carefully weigh all of the variables when you’re shopping for merchant services. The lowest sticker price might not be the most cost-effective option. Remember that your business relies on credit card sales, so be sure to take factors like network reliability into account. Your business also relies on getting funds from transactions, so ask about disbursement and funding timeframes. With careful planning and solid research, you can find the best credit card processor for your business.
Revenue keeps a business afloat. Unless a small business is able to accept payments for goods and services, then the business is simply not going to maintain the necessary cash flow required for solvency. Turning away customers who cannot pay in cash is a bad idea. Accepting checks as payment is always a risk. Mercifully, the long and storied history of using credit cards for purchases remains an option. New small business owners may wonder if setting up a credit card merchant account is a wise plan. In truth, there are pros and cons associated with accepting credit cards. Thoughtful minds eventually realize the pros absolutely outweigh the cons.
The Major Benefits to Accepting Credit Cards
The primary benefits associated with accepting credit card payments are fairly obvious. All are connected to the aforementioned point that credit cards increase the odds of boosting revenue. How do credit cards boost revenue? There are a few ways:
The Customer Base is Widened
A certain segment of customers simply does not like to pay in cash. Many do not even like to carry cash on them. Such consumers could be dubbed “credit card exclusive buyers”. A shop that accepts credit cards surely can tap into these buyers. Stores that don’t accept credit cards cede these buyers to others.
Ability to Spend More
Cash on hand may be far more limited than the available credit line a person has on a credit card account. As a result, the buyer is able to spend via using the credit card. He or she may be very willing to spend more than would ever be possible when paying solely in cash. The more the customers are spending, the more revenue a store is receiving. To repeat, stores really do need consistent revenue streams in order to thrive and survive.
Numerous credit cards are backed with tons of consumer protections. The competition in the credit card industry has led to many different banks and financial institutions putting together rewards programs, travel miles, and other added features on accounts. Protections against fraud or “lemon purchases” are popular perks as well. Buyers may be more inclined to purchase when knowing the credit card company might refund a bad deal.
Drawbacks Do Exist
Not all is perfect with credit card acceptance, though. A few drawbacks do exist and they are worth noting.
Merchants are stuck with having to pay the fees on the transaction. Everything from processing fees to monthly statements come with a cost. While the expenses are not excessive, such costs do detract from the profit margin of a business.
Chargebacks on Disputes
Remember the aforementioned point about customers being able to get refunds on purchases through their credit card? The credit card issuer is not the one who ultimately takes the loss on the transaction. A chargeback ends up being issued and that means money is taken right from the merchant’s account. The small business owners ends up with a loss when a transaction turns out this way.
Credit card fraud is, sadly, a common problem all throughout the globe. Criminals compromise and use other people’s credit card accounts at an alarming rate. The credit card holder has the option of filing a fraud complaint with his or her credit card company. Things might not work out so easily for a small business owner.
Credit card companies may not pay merchants who are the victim of someone using a stolen credit card to make purchases. Even when the merchant has absolutely nothing to do with the fraud, a credit card company could simply refuse to compensate the merchant. Chargebacks ensue.
Merchants Have Little Choice
Small business owners are likely to look at both the positives and negatives of accepting credit cards and come up with one logical conclusion. Not accepting credit cards would be a big mistake for a business. Small businesses do not want to direct any customers away. Not accepting credit cards could lead to this exact situation. Even with the risk of certain costs, accepting credit cards is a must.
As a business owner, you might be reluctant to start accepting paperless payments from customers. After all, aside from purchasing terminals that facilitate physical credit cards, the credit card company will bill you for every purchase made using this method, which leads you to believe that it will substantially reduce your profit. However, let’s take a look at a scenario from an arbitrary consumer’s perspective.
Consider the Following Scenario
Imagine you’re in the mall. You walk past your favorite clothes store and notice that they’re having big sale on most of their items until today. However, the store is packed with customers and you decide it’s not worth the trouble. You go home, feeling a little disappointed, but reassure yourself that it’s better to save. Before going to bed, you decide to open up your phone. The official page of the store shows up on your news feed and alas — it says the sale lasts until midnight! Without further ado, you purchase a bunch of merchandise using your credit card and fall asleep, satisfied with your last-minute purchase.
In that scenario, the customer wouldn’t have made the purchase if that store didn’t accept online payments. The convenience of being able to make the purchase in the comfort of their homes and the availability of the discount to online transactions is what encouraged the consumer to go through with the purchase. That is the power of cashless payment methods, such as credit cards, and is one of the biggest reasons why businesses everywhere are opting to accept online payment methods despite the substantial recurring processing fees.
It’s as if the store is always open for countless customers, providing an efficient and convenient way to purchase items from anywhere. This kind of premise circumvents the limitations of the physical store and invites even more customers with purchasing power. And the credit card processing fees are worth the investment — whatever charges are incurred by processing each credit card transaction are far less significant than the additional revenue.
In order to help you decide, here are the advantages and drawbacks of accepting credit card payments in your business.
Pros of Accepting Credit Card Payments
- Fewer people nowadays carry cash; many shoppers prefer to transact using their credit cards because of how quick and convenient it is.
- Accepting credit card payments offers your customers additional convenient options of payment, which gives you an edge over your competitors.
- Credit card payments are automatically transferred to your bank accounts, saving you time that would otherwise be spent depositing cash and checks at the bank.
- People with credit cards generally have the tendency to spend more, because spending virtual cash feels less impactful on budget plans than spending actual cash.
- Newer payment options, such as Shopify offer incentives for availing their services, as well as other useful features such as inventory tracking and creating gift card promotions.
- There are different credit card payment options available to suit the needs of your business, from terminals able to read physical cards to online payment gateways such as PayPal. It’s just a matter of selecting which service options and provider is the most applicable to your business operations.
Cons of Accepting Credit Card Payments
- Depending on your service provider, you will be charged either a percentage-based fee or a flat transaction fee for every purchase, reducing the revenue per item sold.
- The payment services can also be subjected to other processing fees such as setup fees, transfer fees, monthly minimum fees, and compliance fees. Online payment gateways may also charge you whenever you transfer your balance to your bank account.
- Payments made via credit card take a few days before they are reflected on your bank account. This can be problematic for businesses that rely on immediate cash transfers.
Parts of the world are shifting toward cashless payments. In fact, India is taking steps towards cashless revolution and growth. As technology progresses, people are growing more accustomed to alternative methods of transferring money. Failure to get on board with this growing practice will cause your business to lose out on a large number of potential online customers. Don’t forget to conduct ample research on your consumer base before expanding your payment options.
If you are like most consumers, there is a good chance that the credit card in your wallet comes with a rewards program. Most cards limit the rewards to certain types of purchases, such as gas or groceries. What you may not realize is that you do not accrue points based on what you purchase but where you purchase. That is where understanding merchant category codes can help you get the most out of your rewards credit card.
What Is a Merchant Category Code?
When a merchant signs up to accept credit cards with MasterCard, Visa, American Express, or Discover, they are assigned a four-digit code that identifies the type of goods or services that the merchant provides. The code, sometimes referred to as an MCC, was originally meant to assist the Internal Revenue Service and businesses with certain tax reporting requirements. The major credit card networks also use the codes to determine how much they charge certain merchants for the privilege of accepting credit card payments.
MCCs and Rewards:
Merchant category codes allow credit card issuers to easily classify purchases for the purpose of providing rewards benefits. To maximize your rewards, you need to frequent merchants with the appropriate MCCs; however, this can be a little tricky. First of all, these codes are assigned storewide and have nothing to do with the items purchased. For example, your local Walmart may have an MCC classifying it as a grocery store. If you have a credit card issuer that includes groceries in its rewards program, you will earn points even if you purchase paint or a pair of jeans.
Unfortunately, determining a particular store’s merchant category can be somewhat confusing. For example, the local deli where you eat lunch every day may be categorized as a convenience store. This means that you are missing out if your card only awards dining rewards points for merchants listed as eating places or restaurants. To make the waters even murkier, different locations of the same merchant may be classified with a different code depending on that location’s primary line of business.
How to Find a Merchant’s Category Code:
There are several ways in which you can identify a store’s MCC:
- Most credit card statements will list the merchant’s industry or the spending category along with the purchase information. This lets you know at a glance how the issuer classifies a merchant.
- Some credit card issuers will only list the four-digit category number, such as 5251, with your purchase information. In this instance, you can use the code table that is available on the Internal Revenue Service website to look up the merchant category. For example, a merchant with an MCC of 5251 is considered a hardware store.
- You can also use the Visa supplier locator to identify the MCC of any merchant in your area that is signed up to accept Visa. All of the major credit card networks typically identify a particular merchant with the same code, so the MCC should be the same even if your card is not a Visa.
Maximizing Your Rewards Points:
Before signing up for a rewards card, be sure to review the cardholder agreement carefully. The agreement will specify the MCCs that the issuer is including in the rewards program. Review your spending habits to see if the businesses where you spend the most money are included in order to determine if the card is worthwhile. As a general rule, it is best to avoid rewards programs that change categories every few months as these force you to constantly check which merchants are included so that you can adapt your spending patterns.
If you are a small business owner that accepts credit cards, then there will be fees that you have to pay. Merchant account companies typically charge around five percent of company’s revenue from credit card sales. Statement fees, interchange costs and processing fees are examples of some of the fees that your business may be charged for credit cards.
Many consumers are opting to use credit cards over cash. Only 23 percent of point-of-sale purchases are made using cash. Credit card use will continue to increase. It may not be possible to avoid all credit card fees. However, there are some things that you can do in order to save money on credit card fees.
The key to getting the most out of any financial product is to shop around. Some providers will provide the same level of service but charge you more. Other companies may advertise a low rate and charge hidden fees. You can find a credit card processor by doing a Google Search. Make sure that you select a company that is accredited by the Better Business Bureau.
There are several questions that you should ask before choosing a credit card processing company. What is the total rate including all of the fees? Are there any application fees, cancellation fees or statement fees? Those are examples of some of the specific questions that you will need to ask.
You should also read the fine print before you choose a credit card processing company. Additionally, you may be able to negotiate the fees.
Swipe the Credit Card
You will pay more in credit card fees if you manually enter the credit card information instead of swiping it. The reason that companies charge more is because fraud is more likely to occur if the information is manually-entered. In order to prevent fraud, you will need to make sure that the name on the credit care matches the name on the ID. You can decline the sale if the information does not match.
Impose Minimum Credit Card Sales
If your customers make a lot of small transactions, then you may want to impose a minimum purchase requirement. Put up a note saying that you will not accept transactions that are under a certain amount. If customers have a problem with this, then you will need to let them know that it takes more to process credit card transactions.
Managing cash flow can be a true struggle for small business owners. Depending on the type of business activities you are involved in, your cash flow issues may be the result of slow sales, a regular down season or even a slow accounts receivable pipeline. While cash may be trickling in, bills may be pouring in, and expenses may be mounting. You may be wondering what you can do to get your hands on extra money to make ends meet. The idea of a merchant cash advance can sound enticing, and many small business owners jump at the chance to get their hands on quick cash without hassle. However, the reality is that a merchant cash advance can be expensive, and you should take a closer look at what a merchant account is and what some of the alternatives are before you make a decision about how to manage your business finances.
What Is a Merchant Cash Advance?
Understanding what a merchant cash advance is can help you to make the best overall decision about your business’s cash flow management. A merchant cash advance essentially is a loan against your future merchant account sales. To obtain a merchant cash advance, you typically need to locate a reputable provider to advance you the funds. There is an application process, and during this process, the provider may review your sales activity for the last few months or longer to determine reasonably how much money you can afford to borrow through your cash advance. Basically, you are borrowing money from your future proceeds, and this can create a financial shortfall down the road when you need to pay upcoming bills with that money.
What Is the Cost of a Merchant Cash Advance?
The bottom line is that you need access to extra cash. Your financial needs may be urgent, and you may not have time to wait for a traditional loan application to be processed. Nonetheless, it is important to understand the true cost of a merchant cash advance. Most cash advances are paid back through a daily holdback. Through a holdback, the provider recoups a portion of your daily sales until the loan proceeds plus interest charges and loan fees are paid back in full. A typical holdback amount may be approximately 15 percent of your sales proceeds, and the repayment amount may be between 30 to 40 percent in some cases. You may be more interested to learn what the interest rates charged on a merchant cash advance are. The rates typically vary between 10 to 20 percent, but some rates fall outside of this threshold.
Why Are Merchant Cash Advances a Bad Idea?
As you can see, the cost of a merchant cash advance can be significant. Paying back the proceeds over time can eat away at future profitability, and this can make a currently bad time even more challenging for you to deal with. In addition, there may be more affordable ways to borrow funds that are needed by your business that give you greater ability to manage your finances better without detracting from the daily profitability from your business. For example, with a merchant cash advance, any benefits from very profitable days are eroded because of the percentage-based payment system of a merchant cash advance. With a monthly repayment option from another source, you could enjoy a fixed monthly payment and could more successfully reap the rewards from a very profitable day, week or month.
What Are Alternatives to a Merchant Cash Advance?
There are several alternatives to merchant cash advances. It is important to consider the availability of loan proceeds, the time it takes to obtain the funds, the cost of the loan and other factors. A credit card cash advance is one idea. Some credit card companies offer exceptional advance offers that you can take advantage of. The payment is often a monthly payment that is based on the amount you borrow. You can also apply for a short-term business loan through a bank. While there is a loan application process for this, you may enjoy more reasonable and affordable repayment terms.
Keep in mind that many businesses that are dealing with a cash shortage must pay the bills as well as invest in marketing or advertising to boost sales. Thoroughly explore the options today to find the best financing option available.
If you are a small business owner that accepts credit cards and debit cards, then you will need to choose a credit card processing company. You will have to pay some upfront fees, but you will be able to boost your sales by accepting credit cards and debit cards. In fact, it is estimated that businesses lose $7,000 every year in revenue because they do not accept credit cards.
It can be difficult to choose a credit card processing company. There are five important factors that you need to take into consideration.
How Much are the Fees?
Credit card processing companies typically take about five percent of everything that a business earns in debit and credit card sales. However, there are some companies that will charge more or less than this. Monthly statement fees, set up fees, monthly minimum fees, early termination fees and monthly gateway access fees are examples of some of the fees that you may be charged.
It is important for you to understand all of the fees and the terms of service. If you need clarification, then you will need to contact a company representative.
How Long Does it Take to set Up?
You and your employees should have an easy time setting up the processing technology. If it will be difficult for you to set up the equipment, then you will need to make sure that the processor can come out and help.
What Payments are Accepted?
You should make sure that all major debit cards and credit cards are accepted. You do not want to have to turn away customers because their card type is not accepted. You should also make sure that other forms of payment are accepted such as gift cards and electronic benefits transfer.
Are new Payment Technologies Accepted?
Many of your customers may be tech-savvy. That is why you should choose a company that allows you to accept Google Wallet, Apple Pay and other digital wallets. These devices allow people to use their tablet or smartphone to make purchases.
Is Customer Support Helpful?
Finding Credit Card Processing Companies
You can find a list of accredited credit card companies on the Better Business Bureau. Citbank, Bank of America and Chase also offer merchant services. If you have a business that is constantly on the go, then you may want to consider getting a mobile credit card reader. This is a device that you can attach directly to your phone or tablet.
With more Americans choosing to use plastic and even their smartphones to conduct their purchases and make online payments, small business owners and entrepreneurs should pay close attention to this trend. Accepting credit and debit card payments has become a vital necessity for businesses that offer products and services, and the benefits of these payment methods are undeniable.
- Impulse purchases and larger checkout transactions are more likely to happen when shoppers are given the benefit of paying with their cards.
- Companies that have credit card terminals are more likely to enjoy returning shoppers than those that only accept cash.
- Credit card acceptance is similar to a marketing tool in the sense that customers actively look for the stickers that indicate the payment networks offered.
Understanding Merchant Accounts
Unlike commercial bank accounts that hold business transactions usually tied to a line of credit, merchant service accounts provide the connections needed to payment networks and processors. In some cases, commercial bank accounts also offer merchant services to accept credit cards as value-added services.
As a means to competing against banks, many merchant processors offer lower fees and convenient tools to small business owners. Merchant processor tend to offer modern terminals that can be set up to interact with point-of-sale (POS) systems and can also be upgraded to accept payments from digital wallets such as Google Pay.
Merchant processors often work with preferred banks that offer business accounts, which need to be established for the purpose of depositing payments made with credit and debit cards.
Understanding Terminals and Online Payment Portals
There was a time when merchant processors applied stringent criteria in terms of accepting new accounts. That started to change with the advent of companies such as PayPal and Square, which offer online payment solutions that are easy for small business owners to obtain.
When the Square credit card reader for the iPhone was introduced a few years ago, the company started a revolution in terms of credit card acceptance. The device itself was not as revolutionary as the business model behind it: Square offered the reader for free to just about any small business owner without having to complete long application forms, background checks and accounting reviews. The Square reader empowered entrepreneurs such as hot dog cart operators to start accepting credit and debit cards; this was a small business segment that had largely been ignored by the merchant processing industry.
PayPal followed Square with a method to accept card payments online by means of a few lines of code that could be embedded on a website or with invoices. Square and PayPal lowered the barriers to entry for small business owners; however, this ease comes at a higher cost. Square swipes or manual entry of card numbers are charged 2.75 percent while most merchant processors will charge 2 percent.
Square and PayPal are more adequate for micro companies and self-employed professionals. Proprietors of brick-and-mortar retail stores are better off with a merchant processor that provides card reading devices. Modern terminals accept traditional cards with the old stripe system as well as the new EVM chip and PIN cards that considerably reduce the likelihood of fraud. The lowest processing fees can be achieved by means of physically swiping or dipping credit and debit cards.
Another advantage of new credit card terminals is that merchant processors always have the most advanced models. This means that they can be integrated into POS systems; in fact, many processors offer free subscriptions to powerful, cloud-based POS solutions that feature employee scheduling, marketing and even accounting functions. Some terminals even include features to start accepting digital wallet payments directly from smartphones.
The bottom line of accepting credit and debit cards these days is that company owners should not ignore the numerous benefits from this business process. The merchant processing industry is highly competitive, which means that it pays to shop around for processors that can offer better rates and value-added services.
You will not be held responsible for credit card fraud. However, someone has to pay. There have been many concerns raised about credit card fraud after the Target security breach occurred in 2013. There are going to be costs associated with any security breach.
Banks Take Shots at Target
The security breach cost target millions of dollars. Federal law states that cardholders cannot be held responsible for fraudulent purchases. The charges were made by thieves who will obviously not pay for the purchases. The banks have gone after Target and expected them to foot the bill.
The reason that the banks expect Target to pay is because poor security is likely the culprit behind the breach. Target can potentially lose over one billion dollars. This is not the only issue. The people whose card information has been stolen will need to get new cards. They will again look to Target in order to make up for the costs.
Major Risks for Small Business Owners
This problem is even worse for small business owners. A small business can be destroyed by credit card fraud. If a company delivers a product to a fraudster, then that person will likely be out of a product. A credit card processing company may choose to terminate the relationship with the merchant if fraud occurs. If this occurs, then the business may be blacklisted by other merchants.
However, banks are the ones that will affected by fraud the most including regional banks. MasterCard and Visa typically put the reimbursement responsibility on the bank. A small bank may also be affected by the fraud. Additionally, the merchant may also be held responsible for credit card fraud. In many cases, it can be difficult to recover losses from the merchant.
Debit Card Fraud
Fraud is less common in the debit card world. In fact, debit card fraud is on the decline. Both the merchants and card issuers may be held responsible for debit card fraud. The issuer is typically responsible for about 60 percent of the loss whereas the issuer is responsible for the remaining loss.
It is rare for the cardholder to be held responsible for the fraud. This happens in less than two percent of the cases. In most cases, the issuer was usually held responsible if the card was present and fraudulently used. The merchants were typically held responsible if the card was not present.