Read Start Your Own Business Online
Authors: Inc The Staff of Entrepreneur Media
Start Your Own Business (52 page)
In your initial presentation, provide a reasonable estimate of how many chargebacks you will receive, then show your bank why you do not expect them to exceed your estimates. Testimonials from satisfied customers or product samples can help convince the bank your customers will be satisfied with their purchases. Another way to reduce the bank’s fear is to demonstrate that your product is priced at a fair market value.
Rossi at Wells Fargo says the bank’s goal is to find out if your business is profitable and if it will be around for a long time to come. “We approve a lot of startup businesses, and in those cases, we rely on the personal financial picture of the business principals,” she says. “We look at [their personal] tax returns and at where they got the money to start the business. We also look to see if you’re a customer at Wells Fargo and at your relationship with Wells.”
As Rossi’s comment suggests, the best place to begin when trying to get merchant status is by approaching the bank that already holds your business accounts. If your bank turns you down, ask around for recommendations from other business owners who accept plastic. You could look in the Yellow Pages for other businesses in the same category as yours (homebased, retail, mail order). Call them to ask where they have their merchant accounts and whether they are satisfied with the way their accounts are handled. When approaching a bank with which you have no relationship, you may be able to sweeten the deal by offering to switch your other accounts to that bank as well.
If banks turn you down for merchant status, another option is to consider independent credit card processing companies, which can be found in the Yellow Pages. While independents often give the best rates because they have lower overhead, their application process tends to be more time-consuming, and startup fees are sometimes higher.
You can also go through an independent sales organization (ISO). These are field representatives from out-of-town banks who, for a commission, help businesses find banks willing to grant them merchant status. Your bank may be able to recommend an ISO, or you can look in the Yellow Pages or online under “Credit Cards.” An ISO can match your needs with those of the banks he or she represents without requiring you to go through the application process with all of them.
Money MattersEnticing your bank with promising sales figures can also boost your case since the bank makes money when you do. Every time you accept a credit card for payment, the bank or card company deducts a percentage of the sale—called a “merchant discount fee”—and then credits your account with the rest of the sale amount.
Here are some other fees you can expect to pay. All of them are negotiable except for the discount fee:
• Equipment costs of $120 to $1,000
• Monthly statement fees of $10 or less
• Transaction fees of 20 to 70 cents per purchase
• The discount rate—the actual percentage you are charged per transaction based on projected card sales volume, the degree of risk and a few other factors (the percentage ranges from 2 to 4 percent; rates are usually higher for new, less established businesses)
• Chargeback fees around $25 per return transaction
There may also be some charges from the telephone company to set up a phone line for the authorization and processing equipment. Before you sign on with any bank, consider the costs carefully to make sure the anticipated sales are worth the costs.
SAVEEven after you have obtained merchant status, keep looking for ways to lower your fee. Your bank can suggest some options. Also ask other merchants who process transactions similar to yours how much they are paying. If you find a better deal, let your bank know, and see if it will match it.
Once your business has been approved for credit, you will receive a startup kit and personal instruction in how to use the system. You don’t need fancy equipment to process credit card sales. You can start with a phone and a simple imprinter that costs under $30. However, you’ll get a better discount rate (and get your money credited to your account faster) if you process credit card sales electronically.
Although it’s a little more expensive initially, purchasing or leasing a terminal that allows you to swipe the customer’s card through for an instant authorization of the sale (and immediate crediting of your merchant account) can save you money in the long run. Cash registers can also be adapted to process credit cards. Also, using your personal computer as opposed to a terminal to get authorization can cut costs per transaction even more.
Once you obtain merchant account status, make the most of it. The credit card and bank industries hold seminars and users’ conferences covering innovations in the industry, fraud detection techniques and other helpful subjects. You can ask a credit card company’s representatives for details…and keep on top of ways to get more from your customers’ credit cards.
Online PaymentsAre you selling on the web? If so, you’ll need an internet merchant account to accept payments online. An internet merchant account costs more than a regular merchant account because the risk of credit card fraud is greater in an online environment, where no card is physically presented at the point of sale. To cover this risk, your bank or account issuer may charge a higher discount rate (3 to 5 percent per transaction vs. 2 to 4 percent for regular merchant accounts). The service provider may also charge monthly statement and transaction fees on each pur chase. When you apply, you’ll likely need to estimate the average order size and the average monthly amount you expect to run through the account. You may be asked to keep a percentage of that amount in your account to cover fraud.
AHA!Chargebacks—those sale reversals issued by credit card companies when customers dispute a charge—can really hurt your bottom line. To reduce chargebacks, let your customers know exactly what they will see on their credit card statement, including your company name and sale amount. Also, if you are not sure an order is legitimate, trust your instincts and call the credit card company or issuing bank before finalizing the sale.
It’s possible to accept payments over the internet without establishing your own merchant account. Third-party payment processors like PayPal will accept credit card payments on your behalf in return for a percentage of the cost of the transaction. While this percentage is relatively higher than it would be if you had your own merchant account (often 7.5 to 15 percent), you only pay these fees if you sell your product. What’s more, you don’t have to pay the mandatory monthly fees charged by most merchant account providers. If your business has significant sales volume, it’s usually cheaper to process payments through a merchant account.
DON’T SKIMP ON SECURITYT
hanks to the internet, small businesses have an unprecedented opportunity to market their products and services to a larger consumer audience than ever before. However, an online presence means little if customers don’t feel safe making a transaction on your website. Because identity theft and credit card fraud are running rampant on the internet, many consumers will not buy from a site that doesn’t provide secure transactions.That’s where a Secure Sockets Layer (SSL) certificate comes into play. Understanding how SSL affects online security can help unlock your business’s e-commerce potential.SSL technology encrypts your customers’ payment information as it travels to you over the internet, protecting credit card data and other sensitive information from hackers during the transaction process. It also verifies to customers that you are who you say you are (a padlock icon is visible, indicating that a secure transaction is underway). This prevents a third party from accepting orders while disguised as your business.SSL certificates are issued by a Certificate Authority (such as VeriSign, Thawte, GeoTrust and others). The cost of a standard one-year certificate is $200 to $400.If you store your customers’ data or credit card numbers on your server, a firewall is another vital tool for protecting this information. Many companies expose their customers to hackers by neglecting to implement a proper firewall. If you are uncertain how to install a firewall on your site, consult your web hosting company.For more information, check out VeriSign’s “What Every E-Business Should Know about SSL Security and Consumer Trust.” You can request a free copy at
verisign.com
.
If you foresee a merchant account for accepting credit card payments in your future, then you will be perfectly positioned to accept debit cards, too. The same terminal you will use to process credit card payments can be used for debit card transactions, although you may wish to add a pin pad terminal to your transaction hardware so customers can type in their PIN. That gives you an extra layer of protection against fraud.
There are a lot of advantages to accepting debit cards. First, because funds are deducted directly from the customer’s bank account during a transaction, you will usually get paid faster with debit transactions than you do with credit card payments. Second, rates for PINBASED debit transactions are usually lower than credit card rates because you pay only a flat fee (credit card companies charge a transaction fee and a discount rate of around 2 percent). Finally, merchant account providers may debit the transaction fees at the end of the month rather than with every purchase, as is the case with credit cards. That gives your business extra cash or “float,” which is especially helpful for small businesses.
e-FYIThere are many business forms, contracts and letters available for free or for a nominal fee on the internet. While they can be great resources, caution must be used as to the legality of the business form for your particular situation. If in doubt, it’s always best to contact a professional to discuss your situation.
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