Accepting Debit and Credit Cards

Should your business accept debit and credit cards? What are the costs and benefits? What is a merchant account, and how do you set one up?

Choosing to accept debit and credit card payments is a big step but often necessary in running a successful business. It is important to be aware of all the benefits, downfalls, and laws that regulate their use.

Accepting Credit Cards

Credit cards allow customers to make payments or purchases by drawing from a reserved line of approved credit. Credit cards are still considered the preferred and most popular purchasing power, especially for people with limited fund or those who often make large payments. The cards are easy to use and make paying bills or making store purchases hassle-free for customers. In general, the convenience of using credit increases the likelihood of consumer "impulse purchases," and ultimately contributes to an increase in a business’ average sale. Compared to other forms of payment, credit cards come with an increased risk of fraud; however, because getting personal credit approval is more difficult, and through laws like the Fair Credit Billing Act, they also offer more protection and flexibility when dealing with fraudulent charges or defaulted payments.

Accepting Debit Cards

Debit cards allow customers make payments to a business by withdrawing funds directly from their personal checking account. This allows them to pull from expendable income assuring them that they will not be going into debt. This creates a sense of security that may prompt customers to spend more than they generally might with a credit card. Banks encourage the use of debit cards because a small transaction fee is often charged for its service. They argue that the increased sales volume from the convenience of using debit cards more than makes up for this fee. Choosing to accept debit cards requires the minor additional step adding of a pin pad to a credit card terminal.

Accepting Card Payments

Although the battle continues between debit and credit cards as the best payment method, businesses don't have to get involved because it is easy to accept both forms. Both cards are convenient, flexible, and have become increasingly important in business commerce. In addition to the demand for card services in the traditional business environment, accepting these payment methods are necessary for telephone and online sales.

Enabling your business to accept debit and credit card purchases is done through a Merchant Account; set up to receive card payments and chargebacks as a businesses designated bank account. Because obtaining merchant account status is not always easy, advertising your business as a Merchant Account holder who accepts card payments increases your credibility.

For more information see Managing Finances.

Setting Up a Merchant Account

A Merchant Account's role is to accept card payments by acting as a clearing account for card transactions. Payments are accepted from customers and deposited directly into your business's checking account within a short period of time. Merchant Accounts can be opened through most major banks or through another financial institution that specializes in e-commerce, such as Merchant Express or Merchant Warehouse. Because there are many different companies offering Merchant Accounts, you will find a wide variety of "deals" when trying to open an account. It is important to do your research to avoid scams or overcharging.

See Getting a Merchant Account, provided by the Minority Business Development Agency, for more information

Completing the Process

After you have successfully set up a Merchant Account, several steps are required to officially prepare your business to accept card payments. Begin by installing the necessary equipment to physically accept payments, including card terminals. Without a card terminal, you will not be able to complete customer transactions. After all installations are complete and your card terminals are ready for business, be sure to train your employees with the necessary skills to handle your machines. They should know how to use the terminals, avoid security concerns, and respond to functional problems.

Security and Liability

Although accepting card payments will generally increase business profits, there are still risks involved. In addition to the rates and fees charged by card companies, and the several day waiting period to receive profits, businesses should be aware of chargebacks. If a customer is unsatisfied with their service or product, card holders generally have up to six months to dispute charges made on their card. By accepting card payments, you also open your business up to fraudulent payments. Chargeback scams and card fraud scams are always a risk that businesses must be aware of as they can cause unnecessary headaches for companies that may not have been ready for the extra risks. Requiring a photo ID, using pin numbers, asking for clear signatures, and calling the cards authorization number are all ways to safeguard against security risks of accepting cards.