Q: I've been accepting all my payments by cash and check, and I know I'm missing out on valuable business by turning away credit and debit cards. Can you tell me how to make this change?
A : You have recognized an important move that most small businesses should make. Today, credit and debit card acceptance is no longer an option for most businesses — it is mission critical. As such, accepting credit-card payments should increase your sales, speed up the checkout process and improve theft security. Overall, you will likely boost customer satisfaction and see an impact on your bottom line.
Getting started is not as difficult as it might seem, but you should become familiar with the basic steps of — and the entities required in — the transaction process. To apply for a merchant account with any credit card company, you have to contact an acquirer, also known as a merchant service provider or card processor. When a card is swiped on a purchase, the acquirer pays you the amount of the sale less a payment for their services.
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Acquirers charge merchants fees, including a monthly rent or lease of the card processing terminal (if it's not owned by the merchant) and a percentage fee on each transaction, often called the "discount rate." This is usually a markup on the "interchange fee" the cardholder's bank charges the acquirer when it pays for the transaction.
According to Bob Carr, founder and CEO of merchant acquirer Heartland Payment Systems, the fees acquirers charge are the major variables in the cost equation for determining the cost of accepting credit. He urges small businesses to be aware of these fees, especially the discount rate, transaction fee, monthly fee — and any number of additional "junk" fees. Whereas a large merchant may pay as little as 1 cent, 2 cents or 5 cents over interchange, many small and mid-sized merchants pay as much as $1 per transaction over interchange when all of the fees are added up.
"While every transaction requires just four entities — a bank, the card company, a telephone or Internet connection, and a processor — many merchant acquirers employ as many as 12 additional middlemen. If each of these middlemen profits from every merchant transaction, the cost adds up very quickly," says Carr.
Another money-saving tip: Carr advises businesses to purchase a card-processing terminal rather than pay a monthly fee to lease it from an acquirer. The typical terminal costs less than $400 and can be bought from a wide variety of consumer electronics retailers including big-box retailers, warehouse clubs and online auction sites.
There is a lot to consider when implementing a card acceptance program, and Heartland provides a great educational source to help you get started. MerchantBillOfRights.com provides valuable information and promotes fair credit and debit card processing practices on behalf of small and mid-sized business owners.
For further information, visit the www.heartlandpaymentsystems.com Web site.