Starting a business? Don't forget a merchant account

By Meg C.

If you are starting a business, you need to realize that merchant accounts help you collect receipts from your customers -- whether they're paying in person, over the phone or even online via an iPhone app.

Credit card processing is an integral part of any start-up business, dramatically increases your customer base and makes individuals and businesses much more likely to do business with you. But where do you get started?

Getting started with accepting credit cards
If you are truly an entrepreneur, you realize that accepting credit cards is essential to the success of your start-up business. It is much easier to begin accepting credit cards than it is starting a business. The first step in accepting credit cards is to set up a merchant account. If you are an entrepreneur with great personal credit and are starting a business that is a low-risk business, setting up a merchant account should be a breeze. Simply fill out an application and wait for an approval.

The benefits of having a merchant account and accepting credit cards include obtaining money directly from customers at the point-of-sale. The credit card company will wire you money to your merchant account daily. This eliminates the need to worry about collecting bad checks from customers. In addition, consumers can often be more willing to do business with a business that accepts credit cards than one that does not. If you are a good entrepreneur, you will realize that you need to accept credit cards in order to run a successful business.

There are a couple of distinct drawbacks to accepting credit cards. First, the credit card company will deduct a small percentage of your sale. This fee ranges from 1 to 3 percent and will be deducted from the amount that is deposited into your merchant account. Entrepreneurs should consider these costs when selecting the price point for the goods or services you have for sale.

In addition to being charged a fee on your merchant account, credit card companies offer a good deal of consumer protection. If a consumer is not satisfied with your product, he or she can issue a charge-back. Once a charge-back request is made by a consumer, the credit card company will contact you and let you know the details of the dispute. You, the entrepreneur, will have to provide the credit card company with details that show that the claim by the customer is not valid. If too many charge-back requests are successful, a credit card company can suspend your merchant account.

If you are an entrepreneur that is concerned about the financial impact that charge-back claims could have on your start-up, you can purchase charge-back insurance. Under certain circumstances, this insurance policy will reimburse you for the sale and also any charge-back fees you incur as a result of the transaction. This type of insurance may make you feel more at ease when beginning to accept credit cards while starting a business.

Starting a business can be mind-boggling, but it is vital to your start-up that you begin accepting credit cards immediately. Although there are some detriments, such as transaction fees and possible charge-back claims, the pros outweigh the cons. Many more businesses and individuals are likely to transact with your start-up if you accept credit cards.

Article by Meg C.

Updated: May 20, 2010