How to Choose the Most Effective Merchant Services Account for your Small Business

Global corporations play a large role in how America is seen overseas. Foreigners see companies like McDonalds and Coca-Cola in their own backyards and they assume the U.S. is run by the corporations. But that is simply not the case. Many first-time visitors are surprised to find that the overwhelming majority of businesses in America are small businesses, not massive corporations or familiar franchises. rnAmerica is home to more small businesses than any other country in the world. Defined as any firm that employs fewer than 500 workers, there are over 24 million small businesses in the United States, according to the Department of Labor. Another government agency, the U.S. Small Business Association (US SBA) keeps close track of these employer firms. What have they learned? For starters, they can prove that small businesses are the backbone of the American economy. They know, for instance, that 52 percent of workers in the private sector are employed by small businesses. These companies currently account for more than 99 percent of all employer firms in the United States. But perhaps the most astonishing statistic is that small businesses have created rnnearly two-thirds of all new jobs over the past fifteen years. About five hundred thousand small businesses open their doors each year in America. The process is seldom easy. New owners are forced to make thousands of important decisions in a relatively short period of time. But today, we are going to focus on only one of them. If they want to compete in the modern marketplace, most small businesses must accept credit and debit card payments. While it is true that some shops, like diners, car washes and barber shops, can get away with asking only for cash. However, most cannot. The consumer of today expects a retail establishment to accept his preferred method of payment, and more often than not, that method is plastic. Six out of every ten retail transactions involves a debit or credit card, which means that plastic is twice as popular as cash. Refusing these payments is quite possibly the worst decision any new business owner can make, since it effectively limits his pool of potential customers to those that only pay in cash or with personal checks. Fortunately, most small business owners make the decision to offer multiple payment options to their customers. To do this, they must obtain something called a merchant services account. Offered by banks and financial institutions, it is the job of these service providers to either approve or deny each electronic transaction. When approved, the provider will send a bill to the customer's bank and collect the funds owed. After a series of service fees are deducted from the balance, the provider will send the remainder to the merchant client. How to Find the Right Account Since most small businesses need them, the merchant services account industry is a profitable and growing one. Most banks offer the service to their business clients at competitive rates. Let us take a moment to review a few of the most common service fees. The Discount Rate The discount rate is a variable percentage of the total sales price that merchants are assessed for each transaction. This percentage typically ranges from about 1 percent of the total sales price to around 5 percent or higher. It is influenced by a number of different factors, the most important of which is how the company accepts payments. If a small business accepts credit and debit card payments in person and has access to the actual card, the discount rate is often quite low. On the other hand, if the card is not present, and the purchase is made on the internet, the discount rate may be closer to 5 percent, since the merchant has really no idea if he is doing business with the true cardholder. Not surprisingly, identity theft and fraud are much bigger problems for online sellers than they are for traditional sellers. A small business owner should always shop around for the best or lowest discount rate he can find, since the charge can have an enormous effect on the bottom line. Other Fees Though the discount fee is probably the most expensive one, there are several other charges merchant account holders will encounter. There is the transaction fee (a fixed fee for each purchase), the statement fee (a monthly account maintenance charge), and the chargeback fee (a fine for returned items). These fees are fairly standard and should come as no surprise to new business owners. Of course, there are also hidden fees that some service providers sneak into their contracts. All applicants should go over these contracts carefully and keep their eyes peeled for hidden fees before they agree to anything.Merchant services accounts can help most new business owners improve customer service and increase sales in a competitive marketplace.