Accepting Credit Cards

If you decide to accept credit cards, you'll have to decide first which ones you want to accept: Visa, MasterCard, Discover, or American Express, for example. The charge you'll pay will vary, depending upon the volume of your sales and the size of your transactions. The average fee usually runs between 2.5 percent and 5.5 percent of your sales, although American Express runs a bit higher.

Your first step is to obtain a credit card account, which will allow you to accept credit cards. To obtain a credit card account, also called a merchant account, you need to go to a bank or other lending institution. If you have an established business reputation or you have a long-standing relationship with your banker, you probably won't have any trouble opening up an account.

Home and mail order businesses. If, however, you're just starting out, you have a mail order business, or you work out of your home, you may have some trouble. The reason is that banks and credit card companies are scared to death of fraud, and so they've become much more cautious in recent years about opening up new accounts. In fact, some larger banks won't even deal with you unless you have a storefront. It's a business decision that they've made. They tend to figure that home and mail order businesses won't do that much business, and so the credit hassles aren't worth the trouble.

If you operate a home or mail order business, start with a medium- or small-sized bank. If possible, find out from other home or mail order businesses where they have their merchant account. In any larger metropolitan area, you should be able to find a medium- or small-sized bank that will do business with you.

Basic rules. Here are some basic concepts for opening up a new account

• How credit card transactions work: here's a basic overview of how the system works.
• What banks want from you: banks will require you to supply them with financial information about yourself and your business. What you will have to supply may differ from one lending institution to the next.
• Shop around for the best rates: the banks and credit card companies will charge you between 2.5 percent and 5.5 percent of your credit sales, depending upon your sales volume and the average size of your sales. The higher your sales volume and the larger the average size of your sales, the lower the percentage you'll have to pay. In any case, not every bank will charge you the same rates.
• Risky business: If your business falls into the category of those deemed to be particularly risky businesses, you may not have as many options as other businesses.
• Equipment needed: also, don't forget to add in the cost of the equipment you'll have to use to handle the credit card transactions.
• Chargebacks: if a dispute between the customer and the credit card company results in the customer not paying the bill, that's called a chargeback in the credit card industry. The credit card companies keep track of who these chargebacks come from, and, if you get too many, they'll cancel your account.
• Credit agreements and policies: take good care of your merchant account. Don't, under any circumstances, doing anything foolish that will cause you to lose your account. If you lose it because you've violated credit card policy, you probably won't ever get another one.