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Merchant Accounts
   
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 account.

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 not you.

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 fee.

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 straightened out.

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.

ABOUT THIS GUIDE
About the Author
A Word About Our Membership Community
Frank Merchant knows how to get the best price
The Internet Marketplace
   
UNDERSTANDING IT ALL
What are the advantages (and disadvantages) of accepting credit cards for your business?
6 Benefits of Accepting Credit Cards
Disadvantages of Accepting Credit and Debit Cards
Who are the players? How does the money get in your bank account?
Credit Card Transactions Step By Step
Should I go visit my banker for my merchant account?
How can I tell if I will get good customer service?
Be on the Lookout for Deceptive Sales Practices
How to Avoid Your Money Being Held By Your Non-Cash Transaction Processing Company
Banking Terms You Need To Know
Benefits of Debit as a Payment Option
What You Need To Know About Leasing a Credit Card Terminal
Fraud Protection 101
Cardholder Security: Avoid Monthly Fees, Fines, and Penalties What Is PCI Compliance (PCI DSS)?
   
THE PROCESSES
Four Key Components to Conduct eCommerce Successfully: What They Are, and How They Work
Web Site
Your Merchant Account
Secure Payment Gateway / Payment Transaction Software
Shopping Cart and Catalog
Should I use a third party processor like PayPal?
   
ANALYZING IT ALL
Quick Summary of Costs
Detailed Summary of Setup Fees, Recurring Fees, and Risk Estimate
Total Risk Estimate (TRE)
Total Risk Estimate Worksheet (Low-Medium-High)
   
THE DETAILS
Are you being stung with "Non-Qual" fees for keyed orders?
Have You Ever Felt Betrayed By Your Credit Card Processing Company?
Your Customers' Credit Card Numbers at Risk
Visa: Heartland, RBS WorldPay no longer PCI compliant
PayPal
Marketing 101: Gift and Loyalty Smart Card Technology Ensures Customer Loyalty
Check Warranty and Check Acceptance Policies
How Can I Prevent Credit Card Fraud?
Identity Theft
Merchant Account Comparison Worksheet
Glossary
 
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