Advice on Choosing a Credit Card Processor for Your Small Business

by guerbla73

posted on 10/13/2009

Are you having problems finding and choosing a reputable bank or financial organization to process your credit and debit card sales?

While there are many financial services companies that offer merchant accounts to home-based, mail order, or Internet businesses, choosing the right one for your small business is still difficult task, with many obstacles, both before and after you are approved for an account.

For starters, many banks won't offer merchant accounts directly to small businesses. Instead, small businesses need to go through third party providers who secure the merchant account, for you. Each of these third parties may have different fee structures and somewhat different rules.

Complicating things further, if you are processing orders online, then you'll need a payment gateway as well. There are multiple online gateway systems that help you to process your customers' credit cards. In addition, the shopping cart software you use on your site needs to interface with your gateway, which isn't the case for all payment gateways. Therefore, you need to be sure the shopping cart software you plan on using will work with your merchant account.

What to Expect During The Application Process
Some processors will want the right to send a representative to your place of business to take a photo of your office in order to verify that you are at the location you say you are. Some will accept a photo of your office instead of the onsite visit.

Depending on which company you choose, you might need to provide a copy of your business license, financial statements, and/or copies of previous years' tax returns.

All credit card processors will require two-way access to a your bank account if you are accepted. This will allow them to deposit funds into your account and also allow them to withdraw funds if there are chargebacks.

Rates and Fees
No matter which credit card processor you choose, you will likely have to pay rates and fees for the privilege of accepting credit and debit card transactions. These factors include how long you've been in business, what percentage of your sales are made over the phone or on the Internet, what kind of business you run, your credit rating, the average price of each transaction, and total monthly sales. Service fees tacked on by third party providers or by their sales people can also add to your costs.

Typically, rates range from 2.25 to 3 percent for home and small businesses that accept mail order and phone orders. However, some processors have been known to charge as much as 5 percent per transaction. While poor personal credit or the type of business you run might possibly cause you to have to pay that much, you should not agree to such a high rate until you have researched at least 4 credit card processors and decided that no other company will agree to process your transactions at a lower rate. Although many large banks are now not dealing in new home and small business merchant accounts, the rise of the Internet has made it easy for new, home mail-order businesses to get merchant status.

When you see companies advertising rates of less than 2 percent know that usually these lower fees are only for in-person transactions where the customer's card is swiped through a credit card terminal.

When comparing processors, it is important to have all of the fees disclosed up front and also to make sure you understand all of these fees. Compare not only the application fees and the rates charged, but also the cost of terminals, transaction fees, monthly minimums, voice verification charges, address verification (if extra) fees, monthly statement fees, and any other costs you will incur. A difference of 5 cents on a transaction fee may not sound like much, but it is equivalent to a one-half percent on an average sale price of $10.

You will find that some companies make you maintain an account at their bank before they will process your transactions. Read all agreements closely and know under what circumstances the bank can put a hold on your account and how much of your account it can hold back. Check if there are restrictions on how often you can make withdrawals from your merchant account, and check with your current bank to find out how long it will take for checks from the merchant bank to clear.

Pay attention to equipment or software costs as well. Similar hardware and software can vary in price by more than $600.

If possible, don't lease equipment or software. Buy these things when you are setting up your merchant account. Leasing equipment will often lock you into three or more years of lease payments. And you will likely end up paying thousands more than you would have if you had bought the same equipment.

Again, be sure to read ALL applications and contracts carefully including all of the small print. Some companies will continue to charge you if you stop processing charges with them in less than two or three years (the length of time varies by company and contract). That cancellation fee is separate from any other lease clauses for equipment. If you are planning to sell via mail order, look for information on the application form and contract about what percentage of transactions you can process as non-swiped phone orders. Check to see under what conditions the company can terminate your account, and, whether there are monthly minimums or maximums.