Last Updated: April 27, 2023

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If you own a business, chances are you’ve at least considered accepting credit cards. As with any other business decision, there are pros and cons to doing so. However, most business owners find that the positives outweigh the negatives.

In order to accept plastic, you’ll need to set up a merchant account with a bank or provider. Essentially, a merchant account is a bank account that allows you to accept credit and debit cards. It also serves as a binding agreement between the merchant, bank and payment processor for the settlement of card transactions. You will also need to purchase credit card terminals. Below are some common questions asked when setting up a merchant account:

1. How Much Does it Cost to Accept Credit Cards?

A merchant account comes with a variety of fees, both periodic and recurring. Very generally, the average processing cost for an in-store transaction is around 2 percent of the sale price, while the average cost for an online transaction is up to 2.5 percent. Merchant account providers charge more for online transactions because they are perceived as riskier.

In addition to transaction fees, you may be asked to pay application fees, statement fees, fees for failing to meet monthly minimums, termination fees and the like. These fees are always negotiable. Ask to have them reduced or waived altogether.

Credit card terminals are fairly inexpensive. Basic terminals cost about $200 and wireless terminals go for about $1,000. In some cases, you can lease credit card terminals from your merchant account provider. Leasing allows merchants to get top-of-the-line terminals for a low monthly fee. However, keep in mind that you may be paying more than the cost of the equipment in the long run. Be sure to read the fine print and inquire about the length of the lease.

2. Can I Use Someone Else’s Account to Process My Payments?

Never. This is known as credit card laundering or factoring, and it is expressly prohibited by banks and credit card companies. You could face hefty fines or, in some states, criminal charges if caught. The person processing payments for you is likely to lose his or her merchant account, and you’re likely to be banned from getting one in the future.

Companies that are tempted to do this usually have had trouble getting a merchant account, whether they have a history of bad credit or excessive charge-backs. Banks and credit card companies evaluate credit history before approving merchant accounts, and sometimes they say no. As frustrating as it might be if you’re having trouble opening a merchant account, credit card laundering or factoring is never worth the risk.

If you’re having trouble getting a merchant account, there are several options. Invest some time and energy into cleaning up your credit. Pay off old debt, pay your bills on time and dispute any incorrect information in your credit report. Or, look for a bank or credit card company that will approve your merchant account in an exchange for a large opening balance. Banks just want to minimize risk, and a willingness to put up cash provides them some comfort. If the answer is still no, wait it out. Waiting several years for a merchant account is better than accepting credit cards illegally and losing your ability to have a merchant account for life.

3. How Do I Apply for a Merchant Account?

In order to accept credit cards, you have to apply for a merchant account. The process usually takes anywhere from a few days to a few weeks, but you should do your homework before choosing a company to make sure you find a reputable service with reasonable rates.

Submitting applications to banks, credit card companies and/or third-party providers is the first step. Many will allow you to do this online. Apply for several merchant accounts in order to compare fees and services. If one bank asks for huge upfront fees, you can choose someone else. This also allows you to pit one bank or provider against another to get the best deal. If company X wants money upfront, let them know that company Y does not. Chances are, company X will offer you a better deal to get your business.

In order to approve you, banks want to see that your financial house is in order. So clean up your finances before submitting applications. This will expedite the process. Make sure you pay down as much debt as possible and are making payments on time. If your credit history is shaky or banks detect similar red flags, the approval process could take months.

Once you’re approved, the merchant account is typically up and running within days. You can start accepting online payments almost immediately. However, if you have to order and setup equipment such as card readers and pin pads, allow a couple extra weeks.

4. How Long Does It Take to Set Up a Credit Card Processing Solution?

In the modern world, you’re losing out on major business if you don’t accept credit cards. Setting up a merchant account is usually pretty quick and painless. The process usually takes anywhere between three business days and a few weeks.

The first step to setting up a merchant account is submitting an application. Most vendors allow you to do this online. The approval process can be as fast as one day or it can take a week or more, depending on the vendor - that’s the biggest variable. Once you have approval, you can begin accepting credit cards online right away in most cases.

If you need to accept credit cards in a physical storefront, not just online, the process takes longer. Ordering equipment such as card readers and pin pads can take one to three weeks. The shipment won’t be processed until the application is approved.

Most credit card systems are very easy to use, but you can opt for training if it makes you feel more comfortable. Most vendors offer telephone and/or online training that takes no longer than an hour. Some vendors charge extra for training and support; others don’t.

Accepting Credit Cards Pros

  • Increased sales - Accepting credit and debit cards greatly increases your customer base. Many consumers no longer carry cash, so they won’t shop at places that do not accept credit cards. Also, customers are likely to spend more at each visit when they use credit cards because they’re not constrained by the amount of cash they have on hand. In most cases, the increase in sales from accepting credit cards more than makes up for the fees.
  • Internet sales - When you decide to accept credit cards, your customer base is expanded to the world. You can sell products to people who have never stepped foot in your store and never will.
  • Fewer errors - Credit card transactions tend to be more accurate than cash transactions. When you swipe a credit card, there’s a reduced risk of charging the wrong amount and no risk of giving a customer the wrong change.
  • Happier customers - Customers will appreciate the convenience that comes with paying by credit card. If you don’t accept credit cards, don’t expect a lot of repeat business.

Accepting Credit Cards Cons

  • Cost - Accepting credit cards comes at a cost. You’ll have to pay fees for each transaction, and those fees are complex and difficult to understand. However, as we mentioned earlier, the increase in sales after from accepting credit cards usually more than covers the cost of credit card fees.
  • Fraud/security issues - Credit card transactions are susceptible to fraud, and you may be stuck with the bill if you process a stolen card. Also, merchants must be extremely careful about how they store customer credit card information in order to avoid data breaches that can lead to widespread fraud.
  • Accounting issues - Accepting another form of payment will make your accounting more complicated and time consuming. It adds another layer of detail to the books.

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