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How to Set Up a Merchant Account
 One of the early decisions you will make as a new business owner concerns the matter of whether or not to accept credit and/or debit cards.
Business accounts set up to provide for acceptance of credit or debit cards are called merchant accounts.
Most businesses, including very small enterprises, decide to accept customer credit cards in order to grow their revenues.
If you don’t accept credit cards then your only other options are to accept checks, cash or money orders.
There are plenty of reasons to accept credit cards because statistics show consumers are more likely to buy if they can charge the purchase. And they will even buy more when able to use a credit card for payment.
Debit cards work like credit cards from the viewpoint of the customer. One of their biggest advantages is the fact your business will get instant immediate access to the money.
If you are planning on selling online it is even more likely you will want to accept credit cards since over-the-counter sales are not possible. Accepting credit cards in both online and offline businesses encourage people to buy even if they don’t have cash or checks handy.
Settling Quickly
 There is one more excellent reason to accept credit and debit cards. You don’t have to wait for checks to clear. You can settle your merchant account daily for credit card sales if you choose.
The cash will be in your bank account within a few days. There is no waiting 7 to 14 days for checks to clear.
Debit card sales are even faster and easier deposits.
With both credit and debit care, you get authorization for the purchase before it’s even made. That means there are no worries about accepting bad or stolen checks.
Setting up a merchant account is not difficult and involves just a few steps. Of course within each step it is necessary to make some decisions which will impact how you accept customer payments and how fast you will see the revenue in your business account.
- Decide on the vendors where you will establish a vendor account
- Submit applications for account approval
- Set-up credit card processing equipment or online processing features
Choose a Merchant Vendor
As mentioned, a merchant account is established so you can accept credit or debit cards. The major credit cards are Visa, Mastercard, American Express and Discover. American Express and Discover are independent companies you apply to directly to establish an account.
Visa and Mastercard, on the other hand, are companies that have distributors for their products and those distributors are banks. You can’t apply directly to Visa and Mastercard to setup merchant accounts. Instead you will have to apply at one or more banks.
It is generally advisable to set up a Visa merchant account at first. Almost everyone has a Visa credit card. In addition, the financial industry has been tightening up their credit policies and procedures making it harder for new businesses to establish merchant accounts with companies like American Express.
Setting up a Visa and Mastercard account first, and then American Express and Discover accounts later after some business revenue history has been created, is a good strategy for many new companies.
A Different Kind of Loan
Finding banks where you can apply for a merchant account is not difficult since most of them offer this service.
- Begin with bank where you plan on holding business checking, savings and loan accounts
- Check with other local banks to compare fees
- Look in the phone book for advertisements
- Check online for merchant account services
What many people don’t realize is that a merchant account is viewed by banks as a type of loan account. When you allow a customer to charge a purchase, it’s then possible to get the funds deposited into your bank account within several days. But the credit card company won’t see payment from the customer for up to 30 days.
If a bank refuses to let you set up a merchant account, you can then try one of the independent credit card processing companies.
There are also online merchant accounts that can be setup. Your business will apply to a service that will allow you accept online credit card transactions and payments.
These services either offer their own credit cards or act as an intermediary between a bank and your business. Popular online merchant services include the following.
Once you have set up a merchant account to accept credit cards, you can add options on your web-based store payment screens to enable customers to charge purchases online. Popular store builders offering shopping cart services that greatly simplify the process include the following.
Many new businesses choose to develop unique web-based stores instead of using store builders like Google or Yahoo. Some credit card companies offer both offline merchant accounts and internet merchant accounts so you can accept credit card payments no matter how the customer purchase is made.
Applying for a Merchant Account Services
A bank views a merchant account as a type of loan account. You are guaranteed payment after an authorized sale is made. The bank takes the risk a customer won’t pay the credit card amount due.
As mentioned, even when the customer does pay his credit card balance, it can take up to 30 days after the purchase before the bank collects the money. The bank is also taking the risk a new business could fail and not deliver the goods or services purchased to the customer.
Because the bank views a merchant account as a kind of loan account, start-up business sometimes have problems finding a bank that will allow a merchant account to be established. If you are starting a new business or have been in business only a short period of time, it will help if you are able to present the following to the bank.
- Well prepared business plan
- Personal and trade references
- Projections of credit card transactions by transaction size and estimated total charges by month
- Any financial statements available (if you are already in business)
- Previous business loan information
- Customer testimonial
Merchant Fees
There are fees associated with accepting credit card payments of course. When a customer uses a credit card to make a payment, the bank or credit card company will deduct a pre-set percentage of the sale. The balance is then deposited into your bank account.
The amount deducted is called a merchant discount fee. The discount fees vary between companies and it pays to shop around. Other fees associated with merchant accounts include the following.
- Application fee
- Terminal equipment purchase (if bought)
- Terminal monthly lease charge (if leased)
- Monthly statement fee
- Transaction fees
- Charge back fees
You will get a summary statement every month showing each transaction, summary totals, and the fees charged to the business account. Fees for online merchant accounts tend to be higher than offline accounts because there is a higher risk of fraudulent use of credit cards.
A word should be said about debit cards. Debit cards look and act like credit cards, but when a customer makes a purchase the money comes directly out of their bank account.
Banks that offer merchant credit card accounts probably offer debit systems also. The process is almost identical to the one just described for getting a merchant account. In fact, many terminals now sold or leased will accept both credit and debit cards.
Setting Up the Credit Card Terminal
When you set up your merchant account, you will have an option whether you want manual or electronic processing in your storefront business. Online transactions, of course, are processed through the internet and don’t require a terminal.
Most businesses today choose electronic processing because it costs less than manual processing. It is also much easier to complete a transaction. A manual system is the one where you get an imprinter for imprinting the credit card charge form. The transaction must be called in on a phone to get an authorization number.
An electronic system is one that will automatically connect with the credit card company to get instant authorization. The electronic system can be used with computers or programmable cash registers or simply connected to a telephone line.
The bank or credit card processing company will send you a pre-programmed terminal. This is the equipment used to do the following.
- Read swiped credit cards
- Accept manual input of the credit card number
- Dial the credit card company
- Provide an authorization number
- Record the transactions for fee charging and instant merchant account crediting
The terminal is connects to a telephone line or transmits through a computer software program and the internet. There are software packages available today that will automatically record the transaction at time of purchase and make entries into the accounting system.
Maximizing Sales
Merchant accounts enable your business to accept credit or debit card purchases. It is recommended that at least Visa or Mastercard accounts be established at first. These are the most common credit cards consumers carry. Once the business is established then you can apply to other vendors such as American Express or Discover.
Accepting credit cards has almost become mandatory if you want to maximize your revenue. Credit cards can be accepted both offline and online in a storefront business or online in your web based store. Though there are fees associated with merchant accounts, the net revenue realized will far exceed any fees.
The first step is to find a reliable credit card company or bank that will work with start-up businesses or small businesses. The important thing to remember is that, even if you are turned down by a bank or merchant account vendor, there are other ways to reach your goal.
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