Small Business Owner's Guide to Merchant Accounts By Frank Lucer At Isnare.com Ezine Articles

If you operate a small business, being able to process payments for your customers is vital to your revenue. Whether your clients are using debit and credit cards in a retail store setting, or buying items directly from your website, having a merchant account can make the difference between success and failure. But, finding a payment processing solution that is cost-effective and fits your needs is challenging. The morass of fees, rates, and factors that can influence the amount you pay over the long-term can be intimidating.

In this article, we'll explore merchant accounts from the perspective of a small business owner. You'll learn about your various options as well as things to consider before completing your application. We'll also describe a few common mistakes that you should take care to avoid.

Investigating Your Options

If you're processing payments exclusively online, you can use third-party providers such as Paypal and 2Checkout. Both will let you process your customers' debit and credit card transactions. On the other hand, if you're managing a physical storefront, you'll need your own merchant account.

A lot of people are wary of long-term contracts, especially when those contracts enforce early cancellation fees. It's important to look more deeply under the surface. First, many merchant account providers offer month-to-month contracts to their clients; you can cancel the service at your discretion without paying a cancellation fee. Other providers may use an annual or multi-year contract, but can offer the swipe terminal and other equipment for free.

Also, you'll have the choice between leasing the equipment or buying it outright. For most small business owners, leasing is expensive. You can often purchase everything you need (i.e. terminal, printer, etc.) for less than a few hundred dollars.

Factors To Consider When Applying

The most important thing to remember is that every fee that a merchant account provider can charge is stipulated in the contract. Thousands of small business owners rail against "hidden fees" they claim were never revealed to them. It's a baseless claim. In most cases, the confusion is due to their not reading the agreement carefully before signing it.

When you're applying for a merchant account, you'll be asked to describe the volume of transactions you process each month and the amount of a customer's average purchase. Unless you've been operating your business for awhile, both figures will probably be difficult to estimate. Understand that a merchant account provider asks for these numbers as part of their risk management procedure.

If you claim on the application that your average monthly sales volume is $20,000, yet you process $100,000 in payments during the month, your provider may temporarily freeze your account to limit their exposure. Plan conservatively and add a 15% buffer for high-volume months.

Important Mistakes To Avoid

Downgraded transactions are one of the most costly payment processing factors for small business owners. A credit card transaction can be downgraded for a number of reasons. When that happens, the business owner is charged a higher rate. This occurs frequently as a result of late batch processing. If you fail to send a batch of credit card transactions to your processor within one day, the entire batch will be downgraded.

Another mistake is to manually enter credit card numbers when it is unnecessary to do so. Merchant account providers assume more risk is involved when a credit card number is manually input. As a result, they downgrade the transaction. Whenever possible, have your customers swipe their cards through your terminal.

Finding The Perfect Solution

You have plenty of payment processing options from which to choose. Shop around. Compare multiple providers' fees, rates, contract terms, and other criteria. When you're completing the application, be honest and plan your sales volume conservatively so your provider can accurately assess their risk. Finally, minimize your exposure to downgraded transactions. Process your batches in a timely manner and encourage your customers to swipe their cards. That's how to ensure your merchant account works for your business rather than against it.

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