Merchant Accounts and How to Accept Credit Cards at Your Business

What Is a Merchant Account?

A merchant account is where payments from credit card transactions get deposited before being transferred to a standard business account.

In order to accept credit card payments you would also need some sort of gateway or software to manage the transaction process.

Big businesses almost invariably have their own merchant accounts as this is the most flexible and economical option available. Smaller, low-volume businesses who simply want to accept payments over the Internet will usually be better off choosing one of the alternative options described further down this page.

How Can I Set up a Merchant Account?

There are two ways of getting one:

1) Go to your bank. This is the easiest option as they already know your credit history and details of your business. The disadvantage is that bank fees are quite expensive.

2) Shop around for a better deal. This can be a lot of hard work, but usually results in finding a deal with much lower costs. If you choose this option, there is a good list of merchant account providers at http://www.top-merchant-accounts.com/biglist.php

Can Anyone Get a Merchant Account?

In short, no. Upon application, an assessment will be made of your situation and many factors will be considered. The most important assessment is that of risk. Those with a poor credit history will find it particularly difficult. Also, new businesses without any credit history could have problems.

How Much Will It Cost?

How long is a piece of string?

Costs can vary tremendously, but are largely dependent on the size and number of transactions.

How are the Costs Calculated

First, there is usually a monthly administration fee. You will often also pay separately for statements and similar items.

Next is transaction fees. As the name suggests, you pay these for each transaction, and they are made up of several parts. This will usually be a fixed fee per transaction, plus an authorization fee, plus a small percentage of the amount being paid.

Finally, chargebacks and other less pleasant items also cost money. Some companies offer low standard rates, but make up for it with extortionate penalty charges. Make sure you read the small print!

No Such Thing As a Free Lunch

Although many merchant accounts are advertised as being free, don't think that means they will not cost you anything.

Providing merchant services is an expensive business, and those costs are always passed on.

What free usually means in this context is that they will waive the application fee and setup costs. This is worth having, but be careful don't get stung by above average transaction fees as the company will have to make money somehow.

What Should I Look out For

Customer service and reliability are the most important, so make sure you read some reviews. After that, it's down to cost.

High-volume businesses will be most affected by the transaction fees, so should try to minimize these.

Low-volume businesses will be more affected by the setup charges and administration costs, so should focus their efforts finding a good deal in that respect.

Extremely low-volume businesses should probably consider an alternative arrangement.

What Are the Alternatives?

The main alternative is to use a third-party processor. You can think of this like paying to use someone else's merchant account.

Obviously, if you are unable to get your own merchant account then you would naturally look to a third-party, but that's not the only reason to consider them. Although the transaction fees tend to be higher, for low-volume businesses a third-party processor can make good financial sense. Also, this tends to be an easier option with much less work and complexity for you to deal with.

Click Here to Read More about Accepting Credit Cards without Getting a Merchant Account

Further Information

Top Merchant Accounts: This site provides a useful introduction to the topic, has a list of good merchant account providers and also has pages about accepting credit cards at your web site and details of how to accept credit cards without even getting a merchant account.
How to Sell Software Online: Software is a classic example of a digital product that a lot of people want to sell in small volumes online. This is quite a specialist situation which is best catered for by companies that have chosen to specialize in this niche market.

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When you go to meet with merchant services hosts, make sure you ask about merchant cash advances and merchant financing as well. These are things that you may feel like are unnecessary at the time, but you never know when you're going to need a little extra financial help.

Posted May 28, 2008