New Merchant Account Quick-start Guide for Small
The process of applying for a
new merchant account can be pretty intimidating. There's a lot of information out there about merchant accounts and
most businesses don't have time to wade through all of it before setting up a new account. If this
describes your business, this tutorial is designed for you.
If you're pressed for time, here's the
vital information that you need to know before, during and after you get a new merchant
Merchant accounts are very important and we suggest investing the
time to learn all about them. But for now - this tutorial will get you started down the right path and help you
avoid some of the traps that can be found out there and how to avoid them.
Laying the Ground-work:
There is a lot of competition
around. Use this fact to your advantage.
The market for new merchant accounts is very competitive and
account providers are willing to do whatever they can to get your business. Use this competition to your advantage
and get quotes from at least three different providers. Most importantly, don't be afraid to let each provider know
what their competitor is offering. Processing rates and fees aren't set in stone. Providers can move things around
to try and best their competition. Let each provider know what the other guy is offering and you'll see rates and
fees drop across the board as they try to beat out the other guys quote. In the end, you are the
The website CardFellow.com is a great resource for getting quotes for
a new merchant account. All you need to do is create a free account and providers will give you quotes right
online. CardFellow will also help you select the best quote by working with you and the provider through their
on-site Merchant Message Board. It's great service definitely worth checking out.
For the lowest overall cost of any merchant account provider,
just click below to apply online and get a completely risk free, no obligation
Not all contracts have a
Technically, all new merchant accounts
have a contract - it's the contract term and the cancellation fee that you should watch out for. A contract term is
the period in which if you cancel a merchant account, you will have to pay a cancellation or termination fee.
Month-to-month merchant accounts without a term can be cancelled at any time without any fees, this is what you
should focus on when comparing accounts..
Don't disqualify a merchant account just because it has a contract
term. Sometimes imposing a contract term will make it possible for a provider to lower rates and fees or lend a
piece of equipment free of charge for the length of the term.
If you do end up considering a merchant account with a contract term,
here are a couple of things you should be sure to ask about.
•Term Auto-Renewal - Some merchant accounts have language in the
contract that automatically renews the contract term if the account isn't cancelled within a certain timeframe. The
cancellation period is usually about thirty day, but all accounts are different.
•There's no guarantee - Merchant account contracts with or without
a term don't guarantee that rates and fees will remain the same. Merchant account agreements have out-clauses that
make it possible for providers to change rates and fees so long as they give notice of the changes. The notice of
any changes will be posted on your monthly merchant account statement - that's why it's so important to read them
every single month.
You have to pay all rates and
Even though discount and transaction
fees account for the majority of credit card processing expense, you still have to pay all the other fees that go
along with a merchant account. Keep this in mind when you're comparing new merchant accounts and compare all
fees and what they total when doing your final comparison.
Providers know that discount and transaction fees are scrutinize the
most by prospective providers and you may not find there's much of a difference in these fees between providers.
However, fees like monthly minimums, statement fees, and other important but less visible fees may vary greatly.
When you're looking for a new merchant account, compare all aspects and fees of the accounts, not just discount and
Equipment doesn't cost a
One of the biggest misconceptions about
credit card processing is that credit card machines cost a fortune to purchase. That's just not the case. Very good
terminals with thermal printers and other bells and whistles can be purchased new for $400 or less. Wireless
terminals and other specialty equipment may be slightly more expensive, but it's still very reasonable if you find
the right provider.
Before jumping into an expensive leasing agreement, shop around for
different equipment prices and deals. Many providers even give terminals away with a new merchant account. Sure,
you'll have to give it back if you close the account - but you didn't have to pay for it in the first
When you're applying for a new account:
There are no hidden
I know it goes against all of the
horror stories you've heard - believe it or not - merchant accounts don't have hidden fees. With that said, they do
have hard to see, often overlooked fees. Merchant account providers can't charge you anything that you haven't
agreed to in the merchant service agreement that you have to sign when opening a new
When you're opening a new merchant account, the provider will give
you a couple documents to review.
The first document is called the merchant service agreement and it's
usually between fifteen and twentyfive pages long. The second document is called the schedule of fees and it's
usually two or three pages long.
Be sure that you receive and review both of these documents very
carefully before signing anything. It won't be the most interesting read that you've ever had, but it will be one
of the most important. If you've unsure of anything in either document, ask the provider for a thorough
Give thought to your processing
volume and average ticket.
When you're filling-out your new
merchant account application, you'll have to declare a monthly processing volume and an average ticket. The term
processing volume refers to the gross credit card
sales in a monthly period and average ticket refers to the average
dollar value of a credit card sale.
The underwriter at the processor uses these two figures to access the
risk associate with your new account. Basically, that means they take these numbers pretty seriously. If you
grossly exceed either of these figures once you begin processing, your account may be frozen or even
Declaring processing volume and average ticket is especially
difficult if you're starting a new business and you don't have prior processing history to look at. In this case,
work with your provider to arrive upon realistic numbers and then pad those by 10 or 20 percent to be on the safe
side. But again, every business is different so be sure to ask your representative for assistance if you're
Once you start accepting
How much you're charged is determined
by how you process transactions and the types of cards that you accept.
It's a bit of backward terminology, but when a credit card
transaction charges at a higher rate - it's said to have downgraded. The way a transaction is processed and the
type of card that's being processed are the two main reasons why transactions downgrade.
The main types of credit cards that downgrade are:
•Business or corporate cards
•Rewards credit cards
There's not much you can do to limit downgrades due to card type
because card issuers have strict regulations that bar merchants from discriminating against cardholders because of
the type of card that they're using.
The good news is that you can limit downgrades that are a result of
processing errors. Two common and easily corrected processing errors that cause downgrades are:
Failing to clear your credit card
Credit card batches must be sent to the
processor within 24-hours or every transaction in the batch will downgrade. Failing to clear your batch every day
can be a very costly mistake. For example, imagine that you've processed $8,000 worth of credit card transactions
and you forget to clear batch. The next day you send the batch to the processor, but instead of being charged the
qualified rate of 1.7%, the transactions downgrade to 2.5%. That's a difference of $64 just for not clearing your
batch in the allotted time.
Providers offer something called auto-batch close. As the name
implies, this feature will automatically close credit card batches when there are transactions that need to be
settled. There's no charge for this service and it will help you avoid expensive downgrades.
Punching-in transactions on a
card-present merchant account
If your merchant account was issued
under the assumption that you'll be processing transaction when the credit card and the customer are present, you
were given what's called a card-present account. Cardpresent accounts have lower rates when you're swiping credit
cards, but all transactions that are manually entered will automatically downgrade.
This is a common problem for retail businesses that also process
catalog of Internet orders through the same machine. All keyed-in transactions will downgrade to a higher rate. The
solution to this problem is to open a card-not-present merchant account.
Chargebacks are serious business and
need to be avoided
A chargeback occurs when a cardholder
contacts the issuer of their credit card to dispute a transaction.
When this happens the merchant that made the charge will get a notice
regarding the dispute. If and when a chargeback happens to you, it's very important to deal with them quickly.
Merchants are given a limited amount of time to respond to a chargeback dispute. If the window of opportunity
passes, the cardholder automatically wins the dispute.
Ignoring the fact that chargebacks are very costly, excessive
chargebacks may result in your merchant account being terminated.
The best way to protect you business from chargebacks is to stop them
before they happen. To do this, create a chargeback prevention plan and be sure to follow it for every transaction.
When you do receive a chargeback notification, deal with it immediately.
Scrutinize your merchant account
For many businesses, credit card
processing charges account for a significant portion of monthly operating expenses. This is reason enough to read
your processing statements every month. Statements are confusing and it takes time and effort to learn to read
properly - but you can't afford not to!
If you throw your processing statements in a pile each month - stop!
Open the statement every month and scrutinize the charges. If you're not sure how to decipher the statement, call
you're provider and ask them to explain everything in detail.
Don't forget your processing volume
and average ticket
This can't be stressed enough. Grossly
exceeding the processing volume of average ticket amount that you declared on your merchant account application can
result in your account being close and your funds being frozen. If you need to, write these figures down and post
them where you can see them when charging credit cards.