Merchant Account

Almost half a million new businesses are created every month in the US. The rate has been accelerating since the advent of ecommerce because of the relatively low financial risks. Even so, over the lifetime of any new startup, the rule of success still applies: 40% make money, 30% break even, and a final 30% are losers. One of the critical differences between these groups is the ability of a business to grow – to maintain the momentum that moves it from a hobby into the realm of a real, functioning business.

Getting over the hurdle of what it takes to be a “real” business is more than establishing a limited liability company, printing business cards or getting listed in the Yellow Pages. It’s more than putting up a sign or a website. Serious businesses have the internal structure needed to function as a commercial entity. There are also risk levels associated with merchant accounts similar to insurance risk pools. One merchant who accepts credit cards in person for example will be labeled low risk, where as the merchant who deals with customers with credit problems of their own, bad credit clients, merchants who deal with customers that have bad fico scores, for example a startup or newly formed business or company, they have their own unique high risk business types associated with them.

Another interesting statistic is that fully two-thirds of new businesses begin in someone’s home with 80% having no employees other than the owner. The concern for many is how to make the move into becoming a respectable operation. Part of this becomes having the structure and qualities other business people and the public respect. That’s more than just printing business cards and having a website. For many, the first real evidence they are going to make it is getting a merchant account to accept credit cards.

How a Business Merchant Account Changes the Landscape

Credit card merchant accounts benefit startups in a few key ways. First, they show a business isn’t just a hobby operation – merchants accounts separate the serious entrepreneur from the amateur. This is especially true for an online, virtual store. With the low barriers to entry, it’s very easy for someone “just playing” at business to put up a website and offer goods. Customers who see that you process credit cards know, going in, that you’ve met the minimum standards merchant account providers require. The business has already been checked out, and that establishes trust.

Second, when you accept credit card payments, either online or offline, your business is just meeting customers where they want to pay. Cash is on the way out – and checks were never very popular with the high level of fraud. Online credit card processing is almost a requirement when doing business over the net.  The point here is pretty simple, if you accept credit cards you will almost certainly have more customers as opposed to not accepting them and that trend should continue.

Finally, and perhaps most importantly, a merchant account establishes a track record with finances. When you get merchant account services, they will add to your businesses credit profile. Well managed merchant account credit card processing gives others something to evaluate. This track record will be essential when applying for a business loan or establishing your credit-worthiness when setting up other kinds of accounts. This is a very important issue that doesn’t even cross the minds of many small business owners, but it is vital if you want to take your company to the next level.

Trust is a Real Issue

Getting an online merchant account isn’t difficult, but there are some important steps. Merchant account services vary, but any merchant account provider will require you prove you are who you say you are. In the online internet merchant context, this is a valuable service. We’ve all heard the stories about fake sites and credit card fraud. Proving you are a legitimate business is tough in this environment, but a new merchant account is one way to do so.

Without solid payment processing through an internet merchant account, there’s little difference between a website offering goods and an ad on Craig’s List. When customers can use their credit card, they have some built-in protection – this increases trust and generates more sales.

When the time comes to get a business loan, a history with a merchant account will demonstrate sales, how long you have been in business and give a clear picture of you credibility. This is an important metric that creditors respect. Just as your personal reputation matters, so too does the financial reputation of your business.

What About the Costs?

Merchant credit card processing does come with costs. An entrepreneur who is serious about growing their business understands that merchant account fees are going to be part of doing business. They will seek to find the best merchant account for their business, and spend some time finding the best merchant account rates (it’s not the lowest rates that are best for your business – overall cost is the key), but won’t forgo having an account altogether.  Remember, merchant account rates are not the best way to shop when considering cost.  You need to consider overall cost based on your business needs – there are several rates and fees that will come into play and the only way to understand your true cost is to apply them to you typical transaction volume.  Don’t let merchant account providers confuse you with discounted rates that only apply to a small percentage of your transactions.

The best merchant accounts are designed with the needs of their account holders in mind. Merchant credit card services vary, and not all services fit all types of businesses. In general, lower fees in one area mean higher fees in another and there is no single merchant account service that fits every entrepreneur.

The question looks better when switched around: How much business am I losing because I don’t have merchant accounts credit card processing? A merchant account online alone won’t make a business successful, but it is an important tool. The credit cards merchant account opens the door to financial responsibility and documenting cash flow. In the cost/benefit equation, as long as you are transacting enough business to justify it, merchant account credit cards should be part of your business plan.  In my experiences I have found that the vast majority of businesses don’t have to look very hard to understand they are better off accepting credit cards.