A merchant account is an account that is established by a business with a credit card provider or processor that enables businesses to accept credit cards as a valid form of payment. While they are a helpful addition to any business, credit card payments are virtually an essential part of any successful online business venture, since the vast majority of online shoppers use credit cards to make purchases. Establishing a merchant account is a relatively simple process, although the terms and fees associated with the obtaining and maintaining an account can be confusing at first, especially to new business owners. The following tips will help define some of these account basics, and help new business owners gain an understanding of the basics involved in merchant accounts.
Application and Setup Fees
Most merchant account providers require a one-time application fee to cover the costs of processing and verification associated with the establishment of your account. This fee may be charged immediately, or may be delayed until after your account is established. In addition, you’ll encounter recurring lease fees or outright purchase fees for any credit card processing terminals your business requires. Some merchant account providers also charge one-time programming fees to install the software you’ll need to process transactions successfully.
Each time a customer purchases an item using a credit card, a small percentage of the purchase price is deducted and turned over to the merchant account provider. This fee covers the costs of verifying and processing the transaction, as well as any fees associated with transferring the finds from the customer’s account into the merchant’s account. Processing fees can vary based on the individual merchant account provider, so be sure to read your contract carefully to understand all the fees you may be subject to. Fees are also usually higher for online transactions, which are more subject to risks associated with credit card fraud than are brick-and-mortar storefronts.
What happens after a charge is made?
Once a customer swipes his or her card to enters their credit card information at your online business, the card information is transmitted to the merchant account provider, who initiates steps to validate the card and determine that the available credit is sufficient to cover the costs of the purchase. Once the card is validated and the funds are established, the transaction is approved. Following approval, the merchant account provider issues a charge against the customer’s credit balance, essentially reserving these funds to cover the costs of the sale, and issues a corresponding and unique transaction number. The customer and the business owner are informed that the charge has been processed, and the business owner can safely proceed with order fulfillment. Of course, in some cases the card issuer will indicate that a card has been declined. When a card is declined, both the customer and the business owner will be informed and the transaction will be halted.
Credit card charges are typically processed in batches, or groups that are transmitted to the card account issuer, usually at the end of a business day, or for 24-hour and online businesses, at a regularly assigned time each day. Once these batches are processed by the account issuers, the purchase funds will be transferred electronically from the credit issuer to your business checking account that you have linked with your merchant account provider.
Just as with a credit card account, you will receive a monthly statement reflecting all your charges and fees that were incurred for that month. In addition, your merchant account provider may also include information that is essential to the management of your account. Be sure to read all paperwork enclosed with your merchant account to determine if any changes are being made with regard to account processing, terms, or fees. If there are items which you do not understand, contact your merchant account provider immediately to discuss and resolve any concerns.
Your contract, often referred to as your merchant processing agreement, or MPA, spells out each and every aspect of the merchant account process, including fees and other essential terms and conditions. In most cases, you will be asked to agree to the terms of the MPA prior to application approval, while in other cases, you will agree to terms and conditions following approval of your account, but before your account is actually established and allowed to go “live.” Before signing your MPA, review it and make note of any items or terms which are confusing to you. Contact your provider to clear up any concerns or issues you may have prior to signing the agreement.
Although the merchant account process may sound confusing or even intimidating at first, don’t be discouraged. Merchant account providers value your business, and account specialists can help walk you through every step of the process required for establishing a credit card processing account. With their expert guidance and advice, you can have your merchant account system up and running in no time, and begin the much more interesting process of growing your customer base and your business.
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