Today there are hundreds of thousands of small & medium size
businesses in this country that take orders via credit cards.
In addition, every day in this country, there are hundreds of
companies entering the world of e-commerce. They come from many
industries including retail, internet, mail order, home based
businesses, B2B, professional services, wholesale and mobile
businesses. In many cases they are "taking the plunge" to accept
credit and debit cards for the first time. Some are successful
and some are not. As with any other business venture, the
companies that do their homework typically have a better chance
at being successful.
To help you start your homework, let's look at the advantages of
accepting credit cards for your business.
6 Benefits of Accepting Credit Cards
1. Convenience - You probably already know that accepting
alternative forms of payment like credit and debit cards helps
make it more convenient for people to pay you. This will increase
your sales and profits. Some studies say by 30 -100% or more
(Visa International).
2. Increases Your Credibility - Did you also know that
advertising your acceptance of credit and debit cards increases
your credibility? It's true. The public knows that a Merchant
Account status is not always easy to get and will look at you as
more of a solid company -here to stay. "Hmmm... doesn't accept
credit cards? Is there some kind of credit problem I should know
about this company?"
3. Increases Your Average Sales Order - Were you aware that
you're AVERAGE SALE AMOUNT GOES UP when you accept credit cards?
Studies prove (and I am sure it's true of most of us) that when
we are ready to make a purchase and we are paying with a credit
card we are more inclined to purchase the "upgrade" product or
service. Human nature seems to cause most of us to be inclined
to purchase the "better model or service upgrade" when we can
finance the purchase with a credit card.
4. Impulse Purchases Go Up - Did you also know that your
willingness to accept credit cards also causes impulse purchases
to go up? Customers are more likely to purchase when they can use
a credit card versus paying with cash or a check. For some reason
human nature - especially in the US - causes us to think paying
on credit is easier.
5. Increases Cash Sales - I bet you didn't know that the mere
presence of credit card logos at your business location increases
CASH sales. A fascinating study was explained in the book
Influence by Robert Cialdini. This scientific experiment
documented that the mere presence of Master Card/ Visa logos will
increase cash sales by as much as 29% in controlled studies -
even though credit cards were not used! If your business accepts
cash, this is an extra bonus of accepting credit cards and
advertising that you do.
6. Cuts Back on Bad Checks and Collection Costs. -By accepting
credit and debit cards through a reputable Merchant Account
Provider, credit cards orders will be screened for fraudulent
transactions. Some providers, like Cardservice International,
will take extra steps on address verification, verifying the
extra four digits on the credit card, and blocking selected
credit card numbers, Internet protocols, names or addresses.
These are extra safety measures you can take to find peace of
mind that the orders you are receiving - particularly on the
Internet - are legitimate. When a customer is a "slow pay", a
common collection technique is to call the customer and suggest
they give you their credit card information over the phone right
then to clear up the default. Without this option you would
typically have to wait to see if the customer sends you a check
like they said they would.
Disadvantages of Accepting Credit and Debit Cards
Like anything else, the benefits of increasing sales and profits
by accepting credit and debit cards do not come without some
risks. Sure, one disadvantage is that you have to pay a
percentage of the sales that are paid to you with a credit or
debit card in rates and fees. You also have to wait from one to
three days for your money to post to your checking account. You
should be aware of other issues also.
1.) Chargeback Risk - The customer who paid you with a credit
card has up to six months to dispute the charge. Should they not
be happy with the product or service, they would typically call
you and negotiate a resolution. Should you decide to give the
customer a credit than you will typically pay your Merchant
Account Provider the same rates and fees that you paid when you
accepted the charge - even though the money is flowing OUT of
your account.
Worse yet, the customer may still be dissatisfied after calling
you because you felt a credit was not justified. The customer may
not call you at all.
In any event, the customer has the right to dispute the charge
and write a letter to the bank that issued them the credit card
they paid you with. The bank will contact the Merchant Account
Provider who will then contact you to "retrieve" the signed
receipt or possibly other evidence of the sale. This is called a
"retrieval request" and usually costs $10 or more. The Merchant
Account Provider may "charge back" the amount, which also has a
fee of $10 or more. Consumer Protection Law will usually side
with the consumer and not you.
Should the order be a Mail Order / Telephone Order (MOTO) or an
Internet order then your defense is very weak because you may not
have a signed receipt. Make sure your "Descriptor" includes your
phone number. This is the name of your business which the
customer sees on the credit card statement they get showing the
charge. If your phone number is included the customer will have a
greater likelihood of calling you first to resolve the dispute.
This could save you both a Retrieval Request fee and a potential
Charge Back fee.
2.) Your Money Can Be Held Back By the Merchant Account Provider.
An ounce of prevention may be worth a ton of headaches. When you
filled out your Merchant Account Application you were asked the
type of business you have, the monthly volume of sales you
anticipate, and the average order size you anticipate. The reason
Merchant Account Providers run a credit report on you and are
concerned about your business type and sales volume is because
ultimately the Merchant Account Provider has to make good your
charge backs if you are not able to.
Should you declare bankruptcy, not ship your product, provide
your service inadequately, or even be running fraudulent credit
card orders, the Merchant Account Provider could really be hurt.
Because of this, a "Loss Prevention" department will watch your
processing activities and has a good idea of the types of
businesses that have greater risk to the Merchant Account
Provider. A Merchant (or the sales rep) may describe the business
differently than it really is in order to get the Merchant
Account Application approved more quickly. Once the Merchant
Account Provider finds this out, they may hold your funds until
everything is straightened out.
Spikes in your processing above your average daily approved sales
volume estimate and much larger average order sizes than you were
approved for will also concern the Merchant Account Provider.
Trouble sometimes arises when a Merchant is stacking up credit
card orders waiting for their Merchant Account to both be
approved and setup properly. The Merchant finally goes live and
keys in a bunch of orders the very first day. Alarm bells go off.
The lesson learned is to make sure your business description,
monthly volume estimate, and average order size (or average
ticket) are all correct. If you have more than one business make
sure you set up each business properly and separately. The
expense to do this is not great compared to the risk. The right
kind of credit card terminal, as example, permits multiple
Merchant Accounts.
The Bottom Line
Make sure you keep your Merchant Account Provider informed. Are
your sales seasonal - which could cause a spike? Did you make a
large sale that you keyed into your terminal or software that is
well above your estimate of average order size? Are you getting
into another business all together? Save yourself some headaches
and call first for advice from your Merchant Account Provider.
You also may want to look at the cost of NOT accepting credit and
debit cards. Never mind all the hype about "My sales increased
500% because I started accepting credit cards." - Although in
some cases I have seen this to be true. DO think about the
likelihood of getting even just a few "extra" orders for your
product or service because you accept credit and debit cards.
Based on your average order size, how much profit will you make
on each of these "extra" orders. Add to that the savings on labor
by possibly not having to send out invoices. What about the labor
savings by converting to an electronic check service so you just
enter the check information on the Internet. Add to that using
credit and debit cards as a collection technique for your slow
pays. I know it sounds self serving because I am in the business
but it is hard for me to imagine ANY business not choosing to
offer as many payment methods as possible to their clients and
customers. The question becomes one of choosing the best method
of accepting credit and debit cards - not whether to accept debit
and credit cards for your business or not.
What this guide is all about is giving you the education to make
a decision on a Merchant Account Provider, a bank, or even a
third party processor based on a cost benefit analysis and your
service needs.
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