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Build Your Business On A Plastic foundation!

Maybe you have just started a home business, or maybe you have been in business for years. Either way, if you are thinking about accepting credit cards from your customers, you are in good company. Merchants everywhere are seeing more of their sales on plastic.

Accepting Credit Cards Can Help Your Business Grow
By Penny L. Baker

Reprinted from Home Business Magazine

Electronic payments are increasing for many reasons. It's not just a matter of convenience anymore. Banks and credit card companies seem to be offering cardholders more benefits every year. Common perks include mileage points for travel, car rental, travel insurance, buyers' protection programs, detailed accounting reports, and year-end cash rebates as high as 2%. Cardholders expect much more from their credit card companies these days and they also expect the stores they frequent to honor their cards.

Although today's customers may be more demanding, businesses will profit by accommodating customers who expect to pay with credit cards. A company can sell more goods and services when their customers have the option to pay by card.

Opening a Merchant Account

When a business chooses to open a merchant account, it's opening its doors to trillions of dollars in purchasing power. First, a business must meet the underwriting requirements of each of the credit cards it will honor. Once the merchant account is approved, the products that business sells now have added value over their competitors that do not accept credit cards. Credit card rules are specifically designed to protect the consumer from misrepresentation and fraud. Many cards also have a built in Buyer's Protection Program giving customers one more reason to purchase from the business.

In years past, home-based entrepreneurs have had difficulty getting approval for merchant accounts because of banks' inability's to honor chargebacks and the greater potential for bankruptcy in home-based businesses. Most banks in the past also required that businesses be storefronts and show a minimum of two years in business to be considered.

But there are ways around such stipulations. Registered banks, Independent Sales Organizations (ISOs), Merchant Service Providers (MSPs), and third party processors provide Visa and MasterCard Merchant Services.

Most are members of the Electronic Transaction Association (ETA) (800-695-5509). With the rapid growth of Visa/MasterCard ISO and MSP marketing channels, the industry is experiencing more aggressive underwriting, affording almost all home-based businesses the ability to accept credit cards.

Applying For a Merchant Account

Submitting an application for a merchant account requires a business D.B.A.; address; personal and business checking account information; telephone numbers; length of time in business; products/services sold; average prices of these goods and services; monthly sales volume, and tax I.D.s. A business that is requesting more than $50,000 a month in Visa and MasterCard processing will generally also need to supply two year's of personal and /or business financial statements.

Processing Credit Card Transactions

When a "cardholder" decides to purchase from a merchant who honors his or her card, he or she is using a credit card that was received from a Visa or MasterCard "issuing bank."

The credit card merchant obtains a merchant account from a "sponsoring bank" or an "acquiring bank." Merchant banks "sponsor" the merchants as businesses and "clear" their bankcard transactions. A greater percentage of home-based merchant accounts are actually acquired and managed by ISOs and MSPs.

Registered banks, ISOs, MSPs, and third party processors are registered and licensed by Visa, MasterCard and American Express to provide merchant services on their behalf. These companies generally provide credit card processing equipment, software, and service to process Visa, MasterCard, and American Express transactions. Most of these companies also provide set-up of Discover/Novus and check verification systems. Home-based businesses in many cases will find out that local banks do not offer merchant services and have previously contracted with ISOs, MSPs, or third party processors for these services. The "discount rate" is the percentage of the sale that is deducted to cover interchange and processing fees. In a typical retail transaction, the majority of this fee goes to the issuing bank of the credit card, covering their interest during the 30-day billing cycle.

Credit cards are processed as "magnetic swiped" transaction or "keyed" transactions. If the magnetic stripe information of the back of the card is transmitted at the point of sale through an electronic terminal, this is considered the safest and least expensive method of processing. On the other hand, mail order, telephone order, and Internet transactions bring a higher rate because there is a greater frequency of chargebacks when the card is not present at the point of sale. Banks and processors charge higher rates to offset their risk in a "card not present" sales environment.

When a credit card is used for payment, the following process occurs (usually in a matter of seconds). The merchant submits an "authorization" through the processing network via a point-of-sale (POS) terminal (the "hardware" used to swipe customer cards, key in transactions amounts, etc.) or via a PC and Internet software. The credit card process electronically links to the Visa/MasterCard network and transmits the authorization request to the issuing bank. The bank verifies that the account number is valid and that the transaction amount does not exceed the customer's credit limit. The authorization also reserves these funds against the cardholder's limit, usually for seven to ten days. At the end of day, the merchant will make sure that all card authorization totals are correct, and he or she will then transmit or "close the batch." After the batch has been submitted, the funds are electronically deposited into the business' local checking account, usually within two to three business days.

A Universal Tool

Credit card acceptance is the one universal business tool that can launch your company into increased profits. Your business can capture more impulse purchases and enable your customers to finance big-ticket items without inhibiting cash flow. Merchants who honor credit cards will often see smoother sales cycles. Businesses that take cash only or checks can have a substantial drop-off in sales after paydays and holidays. Credit card acceptance smoothes out these periods because customers who use credit cards buy whenever the need, or whim, arises.

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Penny L Baker is founder and CEO of National Bankcard Systems, Inc. based in Austin, TX. NBS processes credit card transactions and checks for thousands of businesses all over the U.S. Pay Rush is an affiliate of NBS.