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Authors: Inc The Staff of Entrepreneur Media

Start Your Own Business (51 page)

BOOK: Start Your Own Business
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Be especially cautious with new checks.
A large majority of bad checks are written on new accounts. Many businesses will not accept checks that don’t have a customer’s name preprinted on them. If the check is written on a brand-new account (one with a check number, say, below 300), protect yourself by asking to see two forms of ID.
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Establish a waiting period for refunds
. Merchants can easily be stiffed when a customer makes a purchase by check and returns the merchandise the next day for a cash refund. When the check bounces, the merchant is out the cash paid for the refund. To avoid this scenario, many entrepreneurs require a five-to-sevenbusiness-day grace period to allow checks to clear the bank before cash refunds are paid.
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Consider getting electronic help.
If you process a large volume of checks, you might benefit from the services of a check-verification company. By paying a monthly fee, which depends on your company’s size and volume of checks, you can tap into a company’s database of individuals who write bad, stolen or forged checks. This is done by passing a customer’s check through an electronic “check reader” at your checkout stand. If the check matches a name in the company’s database, the check is refused. Using a “check reader” from companies like TeleCheck, a check-verification and check-guarantee company, is quick and efficient. They can approve a check within seconds, which is generally as fast as, or faster than, a merchant getting acceptance for a credit card purchase.
“This is the nature of
genius, to be able to
grasp the knowable
even when no one else
recognizes that it is
present.”
—DEEPAK CHOPRA,
SELF-HELP GURU
 
 
Check-verification companies also offer a check-guarantee service. If a check is approved by a check-verification company and it later turns out to be a bad check, the merchant gets reimbursed for the value of the check. This guarantee service reduces the risk of accepting bad checks. Getting a handle on the bad checks that might pass through your business certainly has its benefits. For small merchants, one bad check can wipe out an entire day’s profits.
Another option is an electronic check conversion/acceptance system, which allows merchants to accept checks as easily and safely as credit cards. Here’s how it works: When a customer makes a payment with a check, the paper check is run through a check reader, converting it into an electronic item much like the credit card terminal does when swiping a card. Once the transaction is approved, funds are electronically debited from the customer’s account and deposited into the merchant’s account, usually within 24 to 48 hours. This same technology allows businesses to process checks over the phone or the internet.
Whatever check-acceptance policy you develop, make sure your employees clearly understand the procedure to follow. Also be sure to post your check-acceptance policy prominently where customers can see it. Specify any charges for bounced checks, what forms of ID are required, and what types of checks you will and will not accept. Posting signs helps prevent disgruntlement when customers wait in line, only to find at the register that you can’t accept their check.
 
AHA!
 
Require employees to sign their initials on checks they accept. No one wants to have their initials on a check that might bounce, so employees will be extra careful about following your check acceptance policy.
What if you do receive a bad check? In most cases, after a check bounces, the bank allows you another attempt to deposit it. After that, the responsibility for collecting the money falls on you.
Contact the customer, either by phone or mail. (Again, consult your local police on the proper procedure; some states require that a registered letter be sent and a specific amount of time elapse before other action can be taken.) Keep your cool; there’s nothing gained by being angry or hostile about the situation. Most people bounce checks by accident. Explain the situation, and request immediate payment plus reimbursement for any bank charges you have incurred.
If the person still refuses to pay, or you cannot reach them, you have several options. The first, and probably the easiest, is to hold the check for a short time (up to six months) from the date it was written. Although banks will not allow the check to be deposited a third time, they will cash the check if there are sufficient funds. Call the debtor’s bank periodically to see if the funds are there. When they are, cash the check immediately.
Another option is going to the police. Since, through your check-acceptance procedure, you collected all the information needed to prosecute, you should be able to complete the proper paperwork. However, the hassle of hiring a lawyer, identifying suspects and going to court may be more effort than you want to expend for a $200 check. In that case, your best bet is to use a collection agency. (For more details on this, see the “Payment Due” section starting on page 319).
Accepting Credit Cards
 
Why should a small-business owner accept credit cards? There are dozens of reasons. First and foremost, research shows that credit cards increase the probability, speed and size of customer purchases. Many people prefer not to carry cash, especially when traveling. Others prefer to pay with credit cards because they know that it will be easier to return or exchange the merchandise.
Accepting credit cards has several advantages for business owners as well. It gives you the chance to increase sales by enabling customers to make impulse buys even when they do not have enough cash in their wallets or sufficient funds in their checking accounts. Accepting credit cards can improve your cash flow, because in most cases you receive the money within a few days instead of waiting for a check to clear or an invoice to come due. Finally, credit cards provide a guarantee that you will be paid, without the risks involved in accepting personal checks.
A PRIVATE AFFAIR
 
M
asterCard, Visa and American Express all have their place. But there’s another option you may not have considered: issuing a private-label credit card with your company’s name on it.
 
 
In addition to all the usual advantages of credit cards, a private-label credit card program allows businesses to focus on who their customers are. For example, your program can gather data about customer purchases, buying patterns, income and demographics.
 
Small businesses can save money and eliminate hassles by using an outside administrator that specializes in private-label credit cards. A number of banks have entered this arena; ask your banker if he or she administers such programs. If not, the banker may be able to recommend a private-label credit card administration company.
 
Administration companies can do everything from setting up the operation to developing specialized marketing programs, designing the credit cards, training employees and developing lists of potential customers. Fees vary depending on the number of services provided and the size of your customer base.
 
Before choosing an administration company, talk to other business owners who use private-label credit card programs to see if they’re happy with the service and if the administration company does a good job handling customer applications, payments and the like. Weigh the cost of any program against the benefits you expect to get from it.
Merchant Status
 
To accept major credit cards from customers, your business must establish merchant status with each of the credit card companies whose cards you want to accept. You’ll probably want to start by applying for merchant status with American Express or Discover. For these cards, all you need to do is contact American Express or Discover directly and fill out an application.
 
WARNING
 
To prevent credit card fraud, follow these steps every time a credit purchase is made:
• Check the signature on the charge slip against the one on the back of the card. This may seem basic, but you’d be surprised at how often it is neglected.
• Verify the card’s expiration date.
• Check frequently the credit card companies’ updated bulletins listing canceled card numbers.
However, chances are you’ll want to accept Visa and MasterCard, too, since these are used more frequently. You cannot apply directly to Visa or MasterCard; because they are simply bank associations, you have to establish a merchant account through one of several thousand banks that set up such accounts, called “acquiring banks.”
The first thing you need to understand about accepting credit cards, explains Debra Rossi of Wells Fargo Bank, is that the bank views this as an extension of credit. “When we give you the ability to accept credit cards, we’re giving you the use of the funds before we get them. By the time the money arrives in the cardholder’s account, it could be another 30 days,” Rossi says. There’s also the real concern that if your company goes out of business before merchandise is shipped to customers, the bank will have to absorb losses.
While the requirements vary among banks, in general a business does not have to be a minimum size in terms of sales. However, some banks do have minimum requirements for how long you’ve been in business. This doesn’t mean a startup can’t get merchant status; it simply means you may have to look a little harder to find a bank that will work with you.
While being considered a “risky business”—typically a startup, mail order or homebased business—is one reason a bank may deny your merchant status request, the most common reason for denial is simply poor credit. Approaching a bank for a merchant account is like applying for a loan. You must be prepared with a solid presentation that will persuade the bank to open an account for you.
You will need to provide bank and trade references, estimate what kind of credit card volume you expect to have and what you think the average transaction size will be. Bring your business plan and financial statements, along with copies of advertisements, marketing pieces and your catalog, if you have one. If possible, invite your banker to visit your store or operation. Banks will evaluate your product or service to see if there might be potential for a lot of returns or customer disputes. Called “chargebacks,” these refunds are very expensive for banks to process. They are more common among mail order companies and are one reason why these businesses typically have a hard time securing merchant status.
 
WARNING
 
Don’t ask another merchant to deposit your sales slips for you, and never let another business deposit slips through your account. This practice is called “laundering” sales slips, and not only is it prohibited by Visa and MasterCard, but it is also illegal in some states. Honest business owners have been wiped out by scam artists who ask them to deposit their sales slips, then rack up thousands of dollars in phony sales, which later turn into chargebacks.
BOOK: Start Your Own Business
11.84Mb size Format: txt, pdf, ePub
ads

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