Like anything else, the benefits
of increasing sales and profits by accepting credit and
debit cards do not come without some risks. Sure, one
disadvantage is that you have to pay a percentage of the
sales that are paid to you with a credit or debit card
in rates and fees. You also have to wait for your money
to post to your checking account. You should be aware
of other issues also.
1. Chargeback Risk - The customer who paid you with a
credit card has up to six months to dispute the charge.
Should they not be happy with the product or service,
they would typically call you and negotiate a resolution.
Should you decide to give the customer a credit than you
will typically pay your Merchant Account Provider the
same rates and fees that you paid when you accepted the
charge - even though the money is flowing OUT of your
Worse yet, the customer may still be dissatisfied after
calling you because you felt a credit was not justified.
The customer may not call you at all. In any event, the
customer has the right to dispute the charge and write
a letter to the bank that issued them the credit card
they paid you with. The bank will contact the Merchant
Account Provider who will then contact you to "retrieve"
the signed receipt or possibly other evidence of the sale.
This is called a "retrieval request" and usually costs
$10 or more. The Merchant Account Provider may "chargeback"
the amount which also has a fee of $10 or more. Consumer
Protection Law will usually side with the consumer and
Should the order be a Mail Order / Telephone Order (MOTO)
or an Internet order than your defense is very weak because
you may not have a signed receipt. Make sure your "Descriptor"
includes your phone number. This is the name of your business
which the customer sees on the credit card statement they
get showing the charge. If your phone number is included
the customer will have a greater likelihood of calling
you first to resolve the dispute. This could save you
both a Retrieval Request fee and a potential Chargeback
2. Your Money Can Be Held Back By the Merchant Account
Provider - An ounce of prevention may be worth a ton of
headaches. When you filled out your Merchant Account Application
you were asked the type of business you have, the monthly
volume of sales you anticipate, and the average order
size you anticipate. The reason Merchant Account Providers
run a credit report on you and are concerned about your
business type and sales volume is because ultimately the
Merchant Account Provider has to make good your chargebacks
if you are not able to.
Should you declare bankruptcy, not ship your product,
provide your service inadequately or even be running fraudulent
credit card orders the Merchant Account Provider could
really be hurt. Because of this, a "Loss Prevention" department
will watch your processing activities and has a good idea
of the types of businesses that have greater risk to the
Merchant Account Provider. A Merchant (or the sales rep)
may describe the business differently than it really is
in order to get the Merchant Account Application approved
more quickly. Once the Merchant Account Provider finds
this out, they may hold your funds until everything is
Spikes in your processing above your average daily approved
sales volume estimate and much larger average order sizes
than you were approved for will also concern the Merchant
Account Provider. Trouble sometimes arises when a Merchant
is stacking up credit card orders waiting for their Merchant
Account to both be approved and setup properly. The Merchant
finally goes live and keys in a bunch of orders the very
first day. Alarm bells go off...
The lesson learned is to make sure your business description,
monthly volume estimate, and average order size (or average
ticket), are all correct. If you have more than one business
make sure you set up each business properly and separately.
The expense to do this is not great compared to the risk.
The right kind of credit card terminal, as example, permits
multiple Merchant Accounts.
The Bottom Line
Make sure you keep your Merchant Account Provider informed.
Are your sales seasonal - which could cause a spike? Did
you make a large sale that you keyed into your terminal
or software that is well above your estimate of average
order size? Are you getting into another business all
together? Save yourself some headaches and call first
for advice from your Merchant Account Provider.
You also may want to look at the cost of NOT accepting
credit and debit cards. Never mind all the hype about
"My sales increased 500% because I started accepting credit
cards" (although in some cases I have seen this to be
true). DO think about the likelihood of getting even just
a few "extra" orders for your product or service because
you accept credit and debit cards. Based on your average
order size, how much profit will you make on each of these
"extra" orders. Add to that the savings on labor by possibly
not having to send out invoices. What about the labor
savings by converting to an electronic check service so
you just enter the check information on the internet.
Add to that using credit and debit cards as a collection
technique for your slow pays. I know it sounds self serving
because I am in the business but it is hard for me to
imagine ANY business not choosing to offer as many payment
methods as possible to their clients and customers. The
question becomes one of choosing the best method of accepting
credit and debit cards - not whether to accept debit and
credit cards for your business or not.
What this guide is all about is giving you the education
to make a decision on a Merchant Account Provider, a bank,
or even a third party processor based on a cost benefit
analysis and your service needs.