4. 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.

5. 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.

6. 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 affect 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 and to process your credit card transactions is that the 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.

1. Educate yourself on how the entire process works. Understanding how it works will allow you to ask the right questions.

2. Every business is unique. The credit card processor only receives information on your business that you supply. Be sure that the processor understands what you are selling, where you are selling and how you sell. Seems simple but some merchant’s have discovered the hard way that the processor did not understand their business.

3. Find a bankcard professional. Someone who asks questions about your business explains fees, how the service works, what equipment best fits your needs and why.

4. ASK QUESTIONS. There are no dumb questions when it comes to your money.

5. Read your Merchant Agreement. If you do not understand something, ask to have it explained.

6. Asked to have all fees identified and explained. Read the contract to identify all cost involved.

7. Do not decide on a processor based on the “best deal” on fees or equipment cost. All processors are very close in fees. For example, the difference between a discount rate of 1.79% and 1.89% on $10,000 in credit card sales is $10. Saving a few bucks and picking a processor that does not fit your needs could cost more in the long run.

8. When you decide that a terminal or online software program fits your needs understand that they all do one thing, verify credit cards. Do not be sold on bells or whistles that you may not need. Never lease equipment. Low cost or even free credit card terminals are available.

9. Customer Service. A professional bankcard person will provide good service and be there to help you when you need it. You will eventually need assistance with some type of issue. When you call your sales representative, will he answer the phone - or ignore your need for help?

10. Processors use guidelines in approving accounts. Sales representatives know this and will sometimes not disclose information about your business if he or she believes this may affect whether your account is approved or not. Some representatives are only concerned with making a commission and not the success of your business. Understand you are not usually dealing directly with the credit card processor. The processor only receives an application you sign filled out by a sales representative. The processor assumes the information supplied about your business is accurate. The processor uses this information in approving and managing your account. If there is information that is not correct there is a high probability your merchant account will be suspended or terminated.

11. Understand fraud and security issues. Your processor has material on these two issues. This will save you money, guaranteed. Although very important, do not be too critical in evaluating processors. You will know which one is right based on your instinct and what feels right. Aside from logic, your intuition - that voice within you - may just lead you to the right vendor.

The only requirements to open a merchant account are the following - unless your business falls into a high-risk category. I will explain high risk in a moment but here are the basic requirements to have a merchant application approved. A. Business checking account B. A web site or physical location C. No open bankruptcy D. A product or service that is not on a restricted merchant list. Many processors will work with you if you are willing to submit to special conditions if you have less than perfect credit or a risky type of business.

8. What makes a business risky to the processor?
There are a few reasons why a processor would consider a business risky and possibly decline the application. I have listed reasons below that would lead a MSP to consider a business high risk.

High monthly sales volume - Merchants who process large ticket items (those over $500) and/or have a High Monthly Sales Volume (usually over 25K per month) pose a special problem to merchant service providers and to the merchants themselves. Merchants that fall into this category need to be aware that Merchant Service Providers will be more thorough on reviewing Merchant Applications because of the high potential for fraud and potential losses. They usually ask for more documentation up front including copies of Tax Returns and Financial Statements. This additional documentation helps legitimize your business.

Derogatory credit - In the not too distant past, it was virtually impossible for a person with a poor credit history - or no credit history at all - to receive a merchant account. Heavily regulated banks are subject to strict controls over their activities; they rarely saw fit to grant merchant accounts to those without a sterling credit history. Today, it is much easier to find a company willing to give a merchant account to a merchant with a poor personal credit history or even no credit history. The requirements and terms of service may vary a little from ISO to ISO. If you fall into this category, expect to pay a slightly higher Discount Rate and be prepared for Reserve Account.

Type of business – Each merchant service provider restricts certain types of business that they have had problems with in the past. There are too many types to list here but your ISO will know if your business is restricted. Some types of businesses that may be on a MSP’s list are adult related businesses, international merchants, higher ticket items that are not sold in a retail environment, business opportunities, credit repair and multi-level organizations. MSP’s consider these types of business risky due to the high possibility of chargebacks. There are some MSP’s specialize in higher risk accounts but will charge higher rates, require a reserve and or delay fund deposits for 2-3 additional days.