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Accepting Credit Cards

Credit card transactions have become an everyday occurrence for most businesses. The benefit of electronic processing is that a business owner can be reimbursed for a credit transaction within 48 hours instead of the traditional 4 to 30 days. Credit card processing can be serviced by national processors, such as NOVUS or First USA, or may be processed by a local bank. When choosing a processor, the small business owner should shop for the overall best deal to meet the business' needs.

Start Up

Before a business will be allowed to process credit cards, it will need to attain 'merchant status.' The requirements for merchant status vary among processors. Merchants can choose to work with their local bank, so the bank can help the merchant with the application form and other services. Or, the business may work directly with the credit card processor. However, a business should only use well-known processors and be wary of little-known firms. Unfortunately, many con-artists exist in this field.
Among the greatest cost associated with accepting credit cards is the purchase of the equipment. The machinery can typically run from $600 to $1000, depending upon the complexity of the transactions. A merchant may consider purchasing used equipment to reduce costs. Another possibility is utilizing PC software which allows the transactions to be processed over the business' computers. However, installation and maintenance of these programs can be expensive.

Usage Fees

The most important rate to consider when deciding where to establish your credit card processing is the Discount Rate. A discount rate is the percentage that the processor will take from each sale; this will be a business' greatest monthly expense.Other fees to ask about when trying to find the best processor include:

  • Application Fees
  • Monthly Fees
  • Programming Fees
  • Transaction fees
  • Supply fees
  • Annual fees
  • Settlement fees

Extra cost to process other cards: some banks or companies charge extra to process any credit cards other than Visa or MasterCard (such as Discover, American Express, or Diners Club). Some processors will refuse to honor these credit cards and the business must establish service with the Discover or American Express processor for extra monthly fees. In addition, it is important to realize that even though a swipe machine at the store may process the transaction, a merchant will not be reimbursed for these sales if the processor does not honor the credit card.

These fees will vary among processors. It is suggested that a business owner contact at least three service providers in order to price shop before making a decision.

An example of Usage Fees

An average discount rate is around 2%. If monthly transactions total $1000, the processor will charge $20. The processor may then add transaction fees of $.09 to $.18 per transaction. If there were 50 transactions and the fee is $.09, the business would then be charged an extra $4.50. Most processors also charge a $5 monthly fee. Therefore, the total monthly bill for the merchant is about $29.50. In addition, the more transactions the business has, the higher the monthly bill will be. A business should seriously consider the effects of accepting credit cards for sales. If the credit card purchases don't amount to at least $500 per year, it most likely is not worth the cost.

Other Considerations

In addition to cost, the merchant should take into consideration customer service capabilities of the processor. A business needs repairs and supplies within minutes, not days. Sales will be lost if the machine doesn't work, or if a merchant runs out of paper or printing ribbon (especially on a holiday or peak sales period). The merchant's bank can be an important partner, if it can respond quickly with back-up supplies. Merchants should ask national processors about local repair services and the usual response time.

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