03 Nov How Accounting Changes When You Start Accepting Credit Cards
Despite what some people might believe, accepting credit cards for a business requires a couple things before the individual can get one. For example, business owners will need to register a credit card account, also referred to as merchant accounts, at a financial institution to accept credit cards. People who have established a long-term relationship with their financial professional should have no issues creating an account.
The Basics of Merchant Accounts
Before actively hunting for a merchant account, an individual should familiarize themselves with the basics of merchant accounts. First, business owners must show proper documentation. Banks want an ample supply of financial information about the individual and their business. However, what people need to provide varies from institution to institution. Those who operate high-risk businesses may have less options.
Once the documentation has been prepared, people will need to look for lower rates. Banks and credit card companies usually charge 2.5 percent to 5.5 percent of their credit card sales. This, however, depends on the two factors: Sales volume and average size of sales. Those with a higher sales volume and larger average size of sales will pay a lower percentage. Nonetheless, keep in mind that each bank charges different, so check with multiple financial institutions.
Credit Card Chargebacks
Credit card processing sometimes leads to chargebacks, and a chargeback occurs when a customer disputes charges made to his or her credit card. Entrepreneurs with too many chargebacks can lose their merchant account. Additionally, few financial institutions will jump at the chance to provide a merchant account to a business who lost it.
People can receive chargebacks through no fault of their own. However, individuals want to reduce the frequency of procedural chargebacks. To do this, consider the following:
- Take the Credit Card from the Customer
- Examine the Expiration Date
- Swipe It Through the Electronic Terminal
- Ensure the Signature on the Receipt Matches the Signature on the Credit Card
Only the person with the name and signature that appears on the card has the authority to use it. However, some business owners accept credit cards that name the owner’s spouse. Another element to avoid is factoring. This is the process of running the charges of another business through an individual’s merchant account. In some cases, factoring is illegal, but additionally, all it takes is a single customer to initiate a chargeback to get caught. This leads to the loss of a merchant account forever.