Credit Cards & Merchant Accounts for Small Business: Pros & Cons

People rarely use cash anymore. Most purchases are made with credit cards, check cards or debit cards. Accepting credit cards makes sense for any company with an online presence. Online shopping is beginning to outsell retail suppliers because of the convenience and ease of online purchases. Considering the prevalence of credit cards in society, it makes sense for small business owners to closely examine the advantages and disadvantages of credit cards and merchant accounts.

The Advantages

The main benefit of credit cards to small businesses is the ability to increase sales. Studies indicate that merchant accounts can increase sales by at least 30 percent. An increase in impulse buys is part of the reason for an increase in profits. The convenience of credit cards means that impulse purchases go up. Paying with cash or coming back with another form of payment makes customers think over their purchases more carefully. This limits the chances for small businesses to profit from the impulse buy.

Other benefits of merchant accounts include higher average sale orders as well as an increase in cash transactions. Customers are more likely to add on to their purchases or upgrade their items if they have the option of paying with a credit card. The fact that cash transactions increase with merchant accounts may seem counterintuitive, but numerous studies prove that it is true. One study explains that simply offering to accept Visa or MasterCard serves to increase cash payments by up to 29 percent. Increased cash sales are an unexpected surprise of simply advertising a merchant account.

Advertising merchant accounts will also increase the credibility of the company in the minds of customers. People question the stability of an organization that they assume is unable to obtain a merchant credit card account, even if credit cards are not accepted simply because the small business owner does not want to pay the credit card fees. Many customers assume that not accepting credit cards has something to do with poor credit on the part of the company.

Merchant accounts can save time and money by limiting bad checks and collection costs. Some companies that take credit cards no longer accept checks. There are different credit card services that verify information and available funds in an account and make sure that credit cards are legitimate. The merchant provider will screen for fraud and will go so far as to block certain credit card numbers. Accepting credit cards also helps collect outstanding balances from customers who do not have to wait until they have the cash to pay their bill.

The Disadvantages

Accepting credit cards does have a few drawbacks, such as the risk of charge backs and merchant account holds. Unlike cash payments, refunds given to customers on credit cards come with an additional cost to the small business. If a customer is given a charge back, the small business still has to pay the fees to the merchant account. This means a small loss for the company.

Hopefully customers come directly to the place of business to dispute a charge, but they do not have to contact the business. They are able to write to the bank issuing the payment to dispute a charge. The merchant account examines the receipt and may issue a refund, an action that costs $10. It is difficult for businesses to prove the legitimacy of transactions that are done over the phone or online because the receipts usually do not have signatures.

Merchant account providers are responsible for paying the charge backs that their clients cannot pay. This means that merchant accounts monitor their customers closely and pay close attention to discrepancies between business information submitted and actual sales. Contracts with merchant accounts have to list projected sales, and the merchant account services expect the sales to be close to what is projected. This means that business owners need to provide the best information that they can, and they should explain if the bulk of their sales are seasonal. For example, some companies make roughly half of their profits for the year during the holidays.

Merchant accounts have to pay for any charges that incur from company bankruptcies, products that are not shipped or fraudulent charges. The Loss Prevention department monitors clients to prevent major losses for the company. If the Loss Prevention department sees anything suspicious, they will hold funds until the matter is made clear.

Consider whether or not refusing to accept credit cards has an impact on your business. Can you afford not to take credit cards? If you believe you need a merchant account, do your homework. Stay informed and do all the necessary research before choosing a merchant account provider.

When setting up a merchant account, it is essential to question the representative thoroughly. Many sales representatives will mention the major fees attached to the service, but they might overlook some of the smaller fees. The reason is simple; customers who hear the word "fee" too often are less likely to sign an agreement. To be safe, it is important to ask questions and demand a direct answer.

Small businesses that research merchant accounts online need to be particularly careful when examining websites. Check the website for too many affiliate links and little concrete information. This is a sign that the website is devoted to promoting a merchant account provider that pays for advertising. Websites that attempt to make sales or seem to overly promote a single service provider should not be trusted. Ignore these websites and look for more reputable information. Checking up on different providers and discovering as much information as possible will help you make an informed decision to best serve your small business.

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