Posted by Jeff Shavitz on Tue, Dec 15, 2009 @ 09:07 AM
When it comes to merchant accounts and credit card processing, knowledge and tools translate directly to valuable money saved. Take the time to educate yourself about different rates and fees, work with prospective providers and ask questions.
Personal Credit & Merchant Accounts
A merchant account is essentially an open line of credit that is issued to a merchant by an acquiring bank.
Bankruptcy - If you are in active bankruptcy a processor will likely decline your application. If you've had a bankruptcy that has discharged you should be able to obtain a merchant account assuming that you have re-established your credit since the bankruptcy has been discharged.
Collection Accounts - If you have debt that has gone to collections a processor will likely deny your application for a merchant account. You should be able to get an account after the collection reports are reconciled and the notifications have fallen off of your credit.
Lack of Credit History - A processing bank does not need to see multiple satisfactory lines of credit or a ten-year credit history to approve a merchant account application. However, they do need something on which to base credit-worthiness. If you don't have any credit history whatsoever a processor will likely deny your application for a merchant account.
If you fall into one of the categories above, don't give up. Some providers specialize in helping merchants with less than perfect credit. The most important thing is to be honest about your credit standing with providers up front. This will save time and energy in the long run because you won't waste time working with providers that can't get you approved.
Declaring the Correct Credit Card Processing Limits & Tickets
Failing to declare the correct processing volume, average ticket amount, and transaction percentages on your merchant processing agreement can cause significant headaches and may result in your merchant account being terminated or worse. Even if you guessed at these numbers there's no need to worry.
Processing Volume - Processing volume is the amount of funds that the processor will allow you to charge in Visa and MasterCard sales in a monthly period. Think of the processing volume as the limit on the line of credit. If you exceed your declared processing volume the processor may impose surcharges, penalties, or they may take action to stop the violation.
While moderately exceeding declared processing volume may not lead to any recourse from the processing bank, grossly exceeding processing volumes can be a serious issue. On the bright side, it's not difficult to declare the correct processing volume and providers are usually very helpful. The first important point to make is that there are no penalties for not meeting the processing volume that you declare on your merchant processing agreement. This means that you can declare a processing volume of $5,000 a month, not process a single penny, and you will not be penalized. Granted, this wouldn't be good for cash flow, but you would not face penalties or rate changes from the processor.
Average Ticket - The term average ticket is used to refer to the dollar amount of an average MasterCard or Visa sale. When applying for a merchant account some merchant service providers ask that you declare an average ticket limit instead of an average ticket amount. This means that instead of declaring your mid-range sale amount, you should declare the highest sale amount that you expect. Some providers will even ask for both of these pieces of information. In this situation you will be asked to declare your average ticket amount and also the highest overall ticket amount that you expect to process. This is usually done to accommodate businesses that have a relatively low average ticket but process a large sale every now and then. Processors pay close attention to the average ticket amount. If you process a transaction that is in gross excess of the declared average ticket amount you may be subject to penalties such as having the funds from the transaction held for as long as 6 months, having your account closed, or both.
Declaring an Incorrect Average Ticket or Processing Limit - Don't forget about these two figures once you begin to process credit cards. If after you begin processing you realize that you underestimated one or both of these figures, contact your provider as soon as possible to discuss your options. Providers can often have the limits on your account raised, or they can take others actions to avoid any service delays or penalties.
Increasing Your Average Ticket and Processing Limit - For most businesses the average ticket amount will not change over time because the business continues to sell the same products and services. However, the processing limit usually needs to be raised as a business grows and sales increase. Most processors will allow the processing limit to increase naturally over time. Processors understand that as a business grows the gross sales will increase and credit card sales will increase as well.
Contact your provider to request an increase in your processing limit. Depending on the amount of the increase that you're requesting, getting your processing limit increased may be as simple as filling out a quick change form. In some cases the provider may suggest that you open a new merchant account.
Declaring the Correct Transaction Percentages
Processor need to know how you will be transacting your credit card sales. It's a good idea to declare whatever processing method percentages that will afford you the most flexibility with your merchant account. This is especially important if you think that you will be processing a somewhat diverse array of transaction types. For example, it may be fine for a retail store to declare a 90% swipe rate and a 10% key-entered rate, but a pizza restaurant would run into problems if they were to declare the same percentages. The pizza restaurant may have to declare 50% swiped transactions, and 50% key-entered transactions, making them ineligible for a retail merchant account.
Processor Recourse and Merchant Account Penalties
The merchant processing Agreement (MPA) that you sign when opening a merchant account is a legal document that gives the processor many rights over your processing relationship.
Most of the time the processor is well within the guidelines set forth in the MPA and it's the merchant's fault for violating these regulations. It's absolutely crucial to know the boundaries and regulations described in your processor's MPA and to take them very seriously. Violation of processing limits, average tickets, and general misuse of merchant processing abilities are the most common issues, and many of these circumstances can be avoided by reading your MPA and asking your provider to clarify anything that you're unsure of.
For more information about applying for a merchant account or to find out if you are paying the lowest possible rate on your current merchant account, click here for a free rate analysis.
Posted by Jeff Cohen on Mon, Oct 12, 2009 @ 03:08 PM
A proactive and thorough plan to prevent and deal with
chargeback fraud is a must-have for any business that accepts credit cards. Without an effective plan, chargebacks can become costly and a high chargeback ratio can even prompt a processor to close a
merchant account.
There are various reasons why cardholders issue chargebacks. Some of the most common reasons for chargebacks are failure to receive a product in the specified time, or products being misrepresented by marketing (leading to customer dissatisfaction). Whatever the reason, the loss associated with a chargeback is magnified if a customer issues a chargeback after they've already received products or services.
If a customer disputes a charge for a product or service that they've already received, the merchant stands to lose capital, profit and product. If the product or service is expensive this combination can amount to a substantial loss. An effective chargeback plan lessens the frequency of chargebacks and increases the likelihood of winning disputes when they are issued.
Chargeback fraud is difficult to combat with even the most comprehensive chargeback plan. Chargeback fraud occurs when a cardholder issues a chargeback with the intention of extorting products or services from a merchant. In a fraudulent chargeback scenario, a cardholder has no basis for issuing a chargeback. The cardholder's motivation for issuing the chargeback is to steal products or services from a merchant by taking advantage of the chargeback system.
Unfortunately, banks often unwittingly facilitate chargeback fraud by immediately reversing disputed transactions prior to contacting the merchant involved. By simply issuing a chargeback the cardholder has the battle half won. When a cardholder issue a fraudulent chargeback, they've received the product or service from the merchant, the bank has given their money back and they haven't even had to supply proof to support their chargeback claim. If the merchant doesn't respond to the bank's chargeback notice within a specified time frame (which usually doesn't exceed 10 days), the cardholder will succeed in abusing the chargeback system for personal gain at the expense of the merchant.
Merchants have taken issue with the inherent problems and bias in the chargeback system for a long time but it doesn't look like banks will be changing their policies any time soon. In the meantime, it's imperative to include methods for preventing and winning fraudulent chargebacks in your chargeback plan.
The best weapon against fraudulent chargebacks is thorough sales documentation including sales receipts, signatures and proof of delivery (if applicable). Customers that issue fraudulent chargebacks have no substantial proof to support their claim. By maintaining complete sales records you greatly increase your chances of winning these potentially costly chargebacks.
If your business doesn't have a chargeback plan, make one. If you need some pointers to get started, there's helpful information available on chargebacks at merchantcouncil.org. Of course, even the greatest chargeback plan is ineffective if it's not followed for every credit card sale. Once you create a solid chargeback plan, be sure that everyone who deals with customers is familiar with it.
To learn more about our Merchant Account Services or to find out if you're getting the best rates on your current merchant account, click here for a free rate analysis.
Posted by Jeff Shavitz on Tue, Sep 01, 2009 @ 08:36 AM
When shopping for a merchant account, the most diligent business people will do their homework. They'll get multiple processing quotes from different providers and negotiate the lowest rates to get what seems to be the least expensive processing solution. Here's the kicker - merchant accounts with very low discount rates are not always less expensive than accounts with higher rates. In fact, more often than not, they're substantially more expensive. Here's why:
The merchant discount rate that businesses pay to process credit cards is based on VISA and MasterCard's interchange fees. Basically, interchange rates are the wholesale processing rates paid to the issuing bank of a customer's credit card. If your merchant account is set-up in a tiered rate structure (the most common type of set-up for a merchant account), your merchant account provider will take the hundreds of VISA and MasterCard interchange fees and group them into three categories. The first rate category is called the qualified rate, and the second and third categories (called the mid-qualified and non-qualified rates) represent surcharges that are applied to the qualified rate. For example, a typical three-tiered merchant account pricing schedule mak look like this:
Qualified rate: 1.79%
Mid-Qualified Surcharge: 0.25%
Non-Qualified Surcharge: 0.60%
Simply put, merchant account providers have the ability to control which fee category interchange rates will be charged to - meaning they can conceivably offer a merchant account quote with a qualified discount rate of 1.50% and still make a profit by routing the majority of the charges to the mid and non-qualified rate categories. Rates as low as this are very appealing at first, but once it becomes apparerent how interchange fees are being routed, they're essentially worthless because they are virtually unattainable. This practice allows shifty merchant account providers to win business over honest providers that are actually offering a better merchant account.
In order to find the best merchant account rate, ask your provider how they will be routing interchange fees, as this can be more important than the rates and fees that you're quoted - again, a low rate is worthless if very few of your transactions will every qualify for it.
If you're already processing credit cards, now is a good time to call your provider and ask them to explain how they are routing interchange fees on your account - you may be surprised by the answer.
If you're in the market for a new merchant account, make sure to ask each provider how they'll be qualifying the different interchange fees. Don't get caught up in selecting the quote with the lowest rate, make sure to pick the quote with the lowest rate that will apply to the majority of your transactions.
Courtesy of: MerchantCouncil.org
Posted by Jeff Shavitz on Wed, Aug 19, 2009 @ 08:42 AM
In order to figure out which type of merchant account is best for your business, and which rates and fees will matter the most you, you must create a quick profile for your business. Answering these 6 simple questions can point you in the right direction:
1. How will I be processing credit card transactions? Envision how you see a transaction taking place - will you be accepting credit cards via your website and/or in a retail store? Perhaps you will require some degree of portability in order to process credit card transactions - in which case you may need a wireless merchant account.
2. Does my business have seasonal swings? If your business is dormant for certain months, you should try to have monthly fees such as the merchant account statement fee and monthly minimum fee lowered. You may need to give a little in other areas (like discount rate and transaction fee) but it will save you money in the long run.
3. What is my average dollar volume (or ticket size) of each sale? If you have a high dollar volume per sale, you should try to find the lowest discount rate possible, even if you have a higher transaction fee. If you have a smaller average ticket size, then the opposite is true - you are better off with a lower transaction fee and higher discount rate. To get a better understanding of these terms, click here.
4. What will my processing volume be? How many Visa and MasterCard transactions do you expect to process in a monthly period? If the transaction volume is higher, then monthly fees are less important to your business and you should focus on trying to get lower transaction and discount fees.
5. Does my business require multiple merchant accounts? If your business will be processing credit card transactions in different ways (i.e., retail businesses that also have an online presence), you may be better off having separate merchant accounts - often times you can work with your provider to have monthly fees lowered or even waived on one of the accounts.
6. Will my business benefit from the ability to accept credit cards? This is probably the most important - and overlooked - business profile question. Make sure to compare the cost of credit card processing to the expected increase in sales it will generate, and also look what your competitors are doing. Retail stores and e-commerce websites may not have much of a choice, but smaller businesses and niche business types need to give this question some serious thought.