Your business needs to set up a merchant account. If you’re still a cash-only business, you’re losing business.
The facts are clear. People want to shop online and pay with a credit card. That’s true whether you’re a restaurant, a coffee shop, or a retailer.
Restaurants and coffee shops can have people place orders online in advance with a card. That adds speed, convenience, and happier customers.
Are you ready to move your business forward and accept credit card payments? Read on to find out how you can set up a merchant account.
What is a Merchant Account?
A merchant account is simply a form of bank account. That allows you to accept credit card and debit card payments at your store.
PayPal, Square, and similar services are not merchant accounts. You’re essentially using their merchant account to accept credit card payments.
This may be a good solution for a very small business that only does a few transactions at a time. You’re paying extra fees to these services to use their merchant account. These fees can add up over time, so if you do a lot of transactions or high-ticket items, a merchant account would be a better fit for your business.
Types of Merchant Accounts
What type of business do you have? Do you only have a brick and mortar location like a clothing store, or do you accept payments online or off?
What is your industry? That’s important to note because there are specific standards you have to comply with, especially if you’re an ecommerce store. Some industries will be considered high risk, making it more challenging to get a merchant account. That will be addressed later in the article.
Those details will help you determine the type of account you need.
There’s the traditional account where you have equipment at your store location and physically run credit card transactions.
There are internet-based accounts for people who accept online payments and ecommerce stores. There are merchant accounts for MOTO, or mail order and telephone businesses, mobile and wireless merchant accounts, and high risk merchant accounts.
How to Set Up a Merchant Account
When you go to set up a payment account, it seems like you can’t be denied. It’s actually not as easy as you think it is.
From a bank’s perspective, applying for a merchant account is the same as applying for any other type of credit. They will weigh your ability to be responsible with credit by looking at your financial history and business history.
Shop Around for a Merchant Account
You also want to get the best deal out there. Not all merchant account companies are the same, and you want to make sure that your payment processor is reputable and works within your needs. Here’s what to look for in a payment processor.
The amount of transactions and dollar amount you process every month. Credit card processors will give you a discount rate based on how much volume you process every month. The more you process, the higher the discount.
On a similar note, payment processors may have a minimum amount that you need to process every month. Remember, they make money on a percentage that’s processed every month. If you don’t process enough payments, they lose money and that will have to be made up somewhere.
Fee per transaction, which is the additional fee that’s charged every time you run a credit card transaction.
Merchant account providers will also charge equipment and installation fees if you have a retail location. These fees would be for printers and merchant terminals in your store or restaurant.
They should also have a wide range of ecommerce solutions to help the online transaction process run smoothly. They might have shopping carts, payment gateways, shipping, and tax calculators.
What happens if there’s a chargeback on your account? Banks have to incur the costs of chargebacks and they’re typically passed down to you in the form of chargeback fees.
Merchant Accounts for High Risk Businesses
Not every business will be able to get a merchant account from a bank. There are businesses that are considered to be high risk businesses.
The high risk classification isn’t for fraudulent activity, but rather the number of chargebacks that can occur within the industry.
For industries like online gaming, casinos, adult entertainment, dating sites a high risk classification would make sense to most folks. They have a reputation for fraudulent activity.
Did you know that travel would be considered a high risk merchant? Same with a furniture store, international business, and some network marketing companies, and any activity where the card isn’t present for the transaction.
Remember, banks take on a significant amount of risk when they take on merchant accounts. Industries that have high-ticket amounts such as furniture increase that risk. Travel can have a high amount of chargebacks, which can increase the banks’ risk.
You may not know that your business is a high risk business until you apply for a merchant account and you’re denied. High Risk Solutions has this list of industries that are typically classified as high risk.
Items Required to Open a Merchant Account
Since banks want to minimize their risk as much as possible, you’re going to have to prove that you’re creditworthy.
This what you need to have in place to open a merchant account. Each bank will have more or less stringent requirements, so use this as a general guideline.
- How long you’ve been in business
- Monthly business income
- Your credit scores (business and/or personal)
- Profit and loss statements
These are some of the things that banks will ask about before you open a merchant account.
Start Taking Credit Cards Now
Some businesses shy away from accepting credit cards because they don’t want to deal with the hassle and fees.
The fact is that you’re losing business unless you accept credit cards. It’s easy to open a merchant account for your business, whether you’re a high risk merchant or not. Just be sure to shop around before you commit to a merchant account.
Want more tips for your business? Check out these tips to improve your accounts receivable process.
