Credit Card Processing and its Bearing on your Bottom Line

What does a modern business need to succeed? A dedicated staff, quality products and a prime location are all obviously essential. But payment options are arguably just as important. The days when businesses could demand cash on the barrel head have come and gone. Accepting credit and debit card payments is absolutely essential to long-term business success. That is not to say that a business cannot profit if it does not process plastic. Diners, barbers and car washes rarely accept credit or debit cards. Many other traditionally small town businesses can get away with asking for cash. Cash only businesses survive because their customers understand that the products and services they offer are typically inexpensive and that accepting plastic would cut into their bottom line. You see, it costs money to process credit and debit cards. Every single time a card is swiped, a merchant is charged a series of variable fees. Business owners must weigh the potential profitability against the costs. For most retail establishments, the benefits far outweigh the costs. Merchant Service Accounts All merchants love cash. Cash is uncomplicated. The customer hands it over, the cashier makes change, and everyone is happy. But processing plastic is not nearly as easy. In order to accept these payments, business owners must obtain something called a merchant service account. These accounts are offered at banks and other authorized financial institutions. Merchant service providers perform several important tasks. First and most importantly, they check to see that the credit or debit card is valid. If the transaction is approved, the provider will send an electronic bill to the customer's bank. When the funds have been received, a series of fees are then deducted before the remainder is deposited in the merchant's bank account. The entire process takes between two and three days. What are the benefits? Most merchants report an increase in monthly sales and average purchase price shortly after they start accepting credit and debit card payments. There are many reasons for this. Customer surveys confirm that businesses that process plastic have a better reputation, on average, than those that do not. Shoppers generally see them as more dependable and more trustworthy. They also know that returns and exchanges are easier if you have a powerful bank backing you up. But that is really just the tip of the proverbial iceberg. Believe it or not, shoppers actually spend more when they pay with a credit card rather than cash. There is no easy answer for this. Perhaps it is because Americans have a penchant for spending money they don't have. Whatever the reason, shoppers spend an average of twenty dollars more when they pay with a credit card. As a result, many stores try to trap these consumers by putting especially eye-catching items near the register. These items increase the likelihood of an impulse buy, especially when plastic is involved. Because they clear much faster than personal checks, it is also true that electronic payment have a positive effect on current cash flow. Businesses that have trouble paying their monthly bills would be well advised to start accepting credit and debit cards. We need to also mention online sales. Well over 90 percent of all internet sales are completed electronically. Even if they own a traditional storefront, companies can benefit from selling their wares online. Whether books, toys or antiques, online sellers have lower overhead costs, and they can receive payments from shoppers anywhere in the world. With that said, selecting the right merchant service provider isn't always easy. What You Need to Know When a business accepts payments in person, their rates and fees are often much lower. After all, a traditional merchant can ask for ID and check to see if the signatures match. He can even call the card holder bank to make certain that the customer is who he says he is. But when payments are completed online, the merchant has really no way of knowing if he is doing business with the real card holder. He doesn't even have a signed and dated receipt. While the rates do vary, all merchants are charged the same basic fees. Let us take a moment to discuss them. Startup: Fee for setting up a new account. Transaction: Fixed fee assessed for each electronic payment. Discount Rate: Variable percentage fee of the total sales price. Statement: Fixed monthly charge. Chargeback: Fine assessed for a returned item. A Word of Advice The most common mistake most new merchants make is that they focus solely on the discount rate. While it is important, it really does depend what kind of business you are in. If, for instance, you own a convenience store, high volume sales are imperative. Since you sell inexpensive products, you have to sell a lot of them to stay afloat. As a result, most merchants who rely on high monthly sales volumes should pay more attention to the transaction fee, i.e., the fixed fee that is assessed on each and every purchase. A lower transaction fee will likely have a more dramatic effect on the bottom line if you sell low cost items. On the flip side, the discount rate is more important for merchants who offer expensive products and have low monthly sales volumes. Whatever your business, there is a merchant service account out there for you.