Accepting Credit Cards – Risks and Rewards

Do you accept credit cards at your shop?  Have you thought about it but were scared off by the complexity and the worries about charge backs, fees, etc?  Fear not – it’s not that scary. 

We have become a plastic society.  Many people no longer carry cash.  Consumer credit has edged itself into every corner of our financial lives.  Fast food restaurants and even vending machines now accept credit cards.  Statistically speaking people spend between 12% & 18% more when they use credit cards instead of cash.  Clearly if you accept credit cards you will get some sales that you might have missed otherwise as well as be better able to maximize add-on sales.  Here’s what you need to know…..

First, you need a bit of the “big picture”.  Your customer has a credit card issued by a bank.  You will have what’s known as a merchant account also issued by a bank.  When your customer buys something from you and you swipe his credit card you are basically transferring money from his bank to your bank.  Most merchant banks will then directly deposit the funds right into your business checking account.  So there are basically four parties involved in every credit card transaction – you, your bank, your customer and your customers’ bank. 

To get started you will need two things – a credit card terminal and a merchant account.  A credit card merchant account is basically just another type of bank account.  You may well be able to get this from the bank you do your everyday banking with.  Remember that just like all banking services there are a variety of fees and rates out there so it can really pay off to do a little comparison shopping.  The basics that you want to keep in mind are:

• Setup Fees – fees charged by the bank just to open the account
• Transaction fees – fees charged with every transaction
• Discount Rate – the percentage of each transaction that the processor keeps.
• Cancellation Fees – the cost of closing your account
• Other – Statement fees, maintenance fees, annual fees, etc.
• The cost of the terminal

The “Fab Four” details of any credit card merchant agreement are going to be the discount rate, the transaction rate, the cost of the terminal and the annual fee.  Just like any banking product you will find a certain degree of give and take.  For instance, bank A might offer a really low discount rate but then zap you with a steep transaction fee.  Bank B might charge a little more on its discount rate but have no annual fee and not charge you for the terminal.  So by all means do a little comparison shopping.  One piece of advice though, unless they are unreasonably more expensive it can be very nice to have you merchant account with your regular bank.  This way when you have a problem you can walk right in and have Bob or Linda or whoever you’ve been doing business with fix it for you.  In trying times it can be tremendously satisfying to have a living, breathing person to throw things at!

So you have made the plunge and opened a merchant account.  Next you need a terminal.  Don’t get fancy!  The cheap ones work just as well as the expensive ones and tend to be easier to use and have fewer problems.  Unless you are using a point of sale computer system, don’t try to use your PC as a terminal. Setting up a PC to be a credit card terminal is a process fraught with peril and is somewhat akin to racing mopeds – sure you can do it but why would you want to?  Keep it simple; expect to pay $100 to $200 for a good one.  By all means buy a receipt printer (another $200-$300) and if you want to take debit cards as debit cards you will need a PIN pad.  As a part of setting up your merchant account you will need to decide what cards to take.  MasterCard and Visa are part of every agreement but if you want to accept American Express or Discover you will have to jump through a few more hoops. 

Time to face your fears – chargeback’s!  Just the sound of that word is enough to bring a merchant to tears.  Here’s how it works.  When you swipe a customer’s card your bank charges the customers bank for the amount of the sale.  If the customer is unhappy enough with the transaction (or just a jerk in general...) then he might call up his credit card and “contest” the charge.  Some credit card issuers will send a request for information asking the merchant to explain (read “justify”) the charge.  Others will just reverse the charge without speaking to the merchant.  Your best defense against chargeback’s is good customer service and setting realistic expectations.  However if it happens to you be sure to respond IN WRITING explaining what services were rendered and/or what items were purchased.  The chargeback process exists to protect customers from being ripped off – i.e. charged for goods they never received or items that were mis-represented.  It was never intended to allow customers to deny payment to merchants without justification.

Remember too that every state has laws about folks not paying for stuff so if some creep decides not to pay you out of spite you can take him to court.  Unless the amount of money involved is substantial it’s probably not worth the effort but if the guy is a big enough turkey it might be fun! So respond to every chargeback in writing and make sure that everybody leaves your shop happy and you won’t have any problems.

For most grooming operations accepting credit cards makes sense.  You will increase your sales and at the same time handle less cash which is better from a safety point of view.  Go ahead –take the plunge!  If you hate it you can always go back to cash and checks!