If you’re still not sure this is the right path for you, or how to go about finding a payment processor, here’s what you need to know to move forward…
What is a merchant account?
A merchant account is a bank account that allows your business to accept credit card and/or debit card payments. Every time you process a credit card payment, you pay a small fee to the merchant account provider.
There are two types of merchant accounts that you can apply for as a business owner:
“Over the Counter” (OTC) merchant account – This type is for brick and mortar businesses, where credit cards are swiped on site in the establishment.
“Money-Order/Telephone-Order” (MOTO) merchant account – For online businesses. Customers enter credit card information into a form on a website, the data is verified, and the card is charged immediately, or when the product ships.
There are tons of payment processing services to choose from. Many large banks offer merchant accounts, but after the credit crisis, they are hard to obtain and usually come with annual fees on top of per-transaction charges. That’s why most small business owners work with third party credit card processing companies.
These companies obtain the merchant account on your behalf, and charge you fees in line with their own payment structure. The fees and features vary with each company, and will depend on a number of factors. The more you understand how YOUR specific business measures up against these factors, the easier it will be to decide if and who you should partner up with. Below are FIVE key factors you should consider before making your decision:
Factor 1: Shopping Cart Compatibility – If you run an online business, you’ll need a shopping cart program of some kind that works with your online credit-card processing system. Not all third party payment processing companies are compatible with all shopping cart programs, so the first thing you need to do is make sure that these match up to your liking. I started out using 1ShoppingCart and now use InfusionSoft, and they both work great with my merchant account provider PowerPay.
Factor 2: Set Up/Application/Annual Fees – It’s not uncommon for a merchant account provider to charge a set up fee, an annual fee, and/or an application fee, and this will vary from company to company. Is there equipment you need to buy or lease to set up credit card processing? Is there an application fee? An annual fee? Is the software for processing online credit card payments included in the service, or is that an additional fee? You’ll need to factor in all these potential set up costs when researching companies.
Factor 3: Per-Sale Fees – Typically, a small business owner will pay 2-3% per transaction to the merchant account provider. If you have a poor credit score, you might be charged more, so it’s a good idea to ask around and see if you can negotiate a lower rate before you sign on with anyone.
Factor 4: Monthly Credit Card Sales – Some providers require that you maintain a monthly minimum of sales volume, so you need to determine whether you meet that requirement. To calculate this, use your current level of sales and estimate UP, since people tend to spend more with credit card purchases versus cash. Be reasonable, but realistic. (This exercise is also a great way to estimate your monthly transaction fees.)
Factor 5: Fund Availability – Some providers allow you to withdraw your money whenever you want—others have specific times of the month or year you must follow. You want to find out these dates, and also find out how long it will take to receive your funds once you’ve requested a withdrawal or transfer. Also, how does the provider handle refunds?
If you’re an online entrepreneur, there’s simply no question that you should set up payment processing for your business. I’ve been a satisfied partner of Powerpay for a while now, and recommend them to anyone who’s ready to take this next step.
© 2013 Ali International, LLC
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