To do internet billing the first thing you need is an internet merchant account.
Can you explain what a merchant account is and why I need one?
That is a great first question and a great place to start. A merchant account is a specialized account that allows a business to process credit card sales and have those funds deposited directly into a Merchants local business checking account usually within 48-72 hours.
A Merchant Account is set up with a bank that is a registered to offer credit card processing through Visa and MasterCard. Merchant Banks usually contract with a Merchant Service Provider (MSP) or an Independent Sales Organization (ISO) to market services on behalf of the Bank. You can also sign up directly with a Bank but this is not usually the best route to take since most banks have tougher requirements to get qualified for a Merchant Account. You will be charged a fee for this service called a discount rate. Rates vary depending on the type of business you have.
Are there other options I can consider?
There are 3rd Party Services that will process Credit Card Transactions on your behalf, however, I would advise against going one of these routes. Problems with 3rd Party Transaction Processors include higher discount rates sometimes as high as 15-20% of your sales prices. Typically you only get access to your funds twice or three times a month, thus hampering your cash flow. Also, many customers dispute items processed through 3rd Parties because they do not recognize the company name on their credit card statement when the bill arrives 30 days later. This can end up costing you a significant portion of your revenue. If you get your own merchant account, you can expect to receive your funds between 2-3 days from the time of the transaction directly deposited to your local business checking account and your Company Name and Phone Number will be printed on your customers Credit Card Bills. I strongly suggest setting up your own merchant account so that you can control your money and not rely on a 3rd Party.
Do I really need to accept credit cards?
YES, in today’s market I do not know too many successful businesses that do not accept credit cards. There have been numerous studies showing if a merchant accepts credit cards as a form of payment that the merchant can increase sales dramatically. Depending on the type of business, increases in sales can be anywhere from 15% to 100%.
Internet businesses have the largest increase because customers want to pay immediately and not have to call or wait for the merchant to contact them.
Some obvious reasons to accept credit cards are merchants will move more expensive merchandise, have an increase in impulse buying, and give your business credibility. Giving customers the ability to pay with a credit card allows impulse buying that will allow a merchant to move merchandise that a customer’s may not have funds available in their checking account. If you want to give your business every chance to be a great success, you must take credit cards. Here are some more good reasons to take credit cards:
COMPETITIVE WEAPON – Customers will buy from a merchant that offers payment by a credit card and will often look to see if a merchant accepts credit cards before shopping.
COMPETE WITH THE BIG GUYS – Accepting credit cards levels the playing field with larger retailers.
PEACE OF MIND – Customers feel secure in using their credit card. If the service or product is faulty, the use of credit card allows customers to dispute a charge that protects them.
CONVENIENCE – Making it easy for your customer to pay you is probably the biggest reason to accept credit cards.
CUSTOMER LOYALTY – Customers will often shop at merchants where they feel comfortable or have shopped before. One important thing to remember is to make sure to add credit card logos to any marketing you do. Many potential customers looking for a service or product will look at a merchant’s advertisement to identify and find the right merchant. If the customer has little cash often the deciding factor in determining which merchant to choose depends if the merchant accept credit cards. This allows the customer to finance the sale and make payments to their credit card company.
How do I get the money from a credit card sale?
Another good question and here is how it works. When you, the merchant, want to accept a credit card for payment, the following process occurs (this is a brief summary):
You submit a Transaction to your processor using your electronic terminal or Online Processing Software. Either option works almost the same way. The terminal or Online Processing Software communicates with the Visa/MasterCard Authorization to ensure that the Credit Card is valid and that the transaction amount does not exceed the cardholder’s credit limit. The authorization puts a “hold” for the transaction amount on the cardholder’s credit limit. That way, the funds are available to you when you complete the transaction. To complete the transaction you will simply close your batch at the end of the day with your terminal. By doing this, you are promising the merchant account provider, sponsoring bank, and issuing bank that you are prepared to deliver the goods and services expected by the cardholder.
With Online Software, you usually do not need to close your batch as transactions are processed Real Time. From the time you close your batch, funds are directly deposited into your bank account. This process usually takes 48-72 Hours.
Can I go to a bank to get my merchant account?
Yes, you can but banks have tougher requirements for approval and do not generally like new businesses. I suggest obtaining a merchant account with a company that specializes in offering merchant services. These organizations, known as Merchant Service Providers (MSP), specialize in providing merchant accounts for new businesses. MSP’s usually have less stringent approval requirements, lower fees, better understanding of risk issues and customer service departments that only handle inquiries about merchant accounts. You will probably not deal directly with a Merchant Service Provider, but rather an ISO that contracts with a MSP. These independent sales organizations specialize in marketing to new businesses soliciting merchant accounts. The ISO’s focus is selling you a terminal or software that will allow you to process credit card sales. The MSP also compensates ISO’s but the focus of the ISO is usually selling equipment or Software. There are many reputable ISO’s in the bankcard industry but a few bad apples. I will explain how to choose the right MSP and ISO shortly.
Risk is the main concern of any bank or merchant service provider. Banks are more conservative and are highly regulated which gives the MSP and ISO an edge. Internet, mail, telephone or any business that does not see the credit card usually must use a MSP or ISO because banks will usually not approve these types of businesses. In addition, many MSP’s and ISO’s offer a number of associated services, especially to online businesses, such as shopping cart capabilities and website design.
How do I find the right merchant service provider for my business?
Remember I said ISO’s were the marketing arm for merchant account providers. Well, they will find you. You only need to ask the right questions to ensure the merchant service provider fits your business needs.
Now here is where most problems start that could adversely effect your business. ISO’s employ sales people to sell their service and like all sales people make their living from making a sale to earn a commission. Most have no interest in your success and do not receive any additional money from the ISO. The industry is competitive and sales people will sometimes not identify fees, risk issues, and other important issues that can affect your ability to accept credit cards. I will not identify specific instances that I have witnessed and please do not think all ISO’s or sales people use deceitful tactics but it is worth saying to convince you to read and understand any contracts you sign and understand how the process works because ultimately you are responsible for your business. Therefore, all these ISO’s are trying to promote their service as the best including the lowest price on terminals, the lowest discount rate and the BEST service.
It is easy to get distracted in this whirlwind of who has the lowest price and the “best deal” and base your decision on cost alone. One problem with using the lowest cost as your deciding factor to determine who you choose to be your merchant account provider is and process your credit card transactions is that processor is also handling your money. That is right, your money. Price is important but should not be the only factor when choosing a credit card processor. Credit card processors are not all the same.
Processors may take all types of businesses but specialize in one specific field. For example, there are processors who specialize in Internet businesses while other have better expertise in retail businesses. Of course, you want to work with a processor who specializes in your type of business and will provide you the best service. Here are some good points to remember in choosing a merchant account provider.