A Small Business’ Guide to Merchant Accounts

As more people leave the cash at home (or in the bank) and opt instead to walk around with plastic and other electronic wallets to pay for goods and services, the need to process credit cards quickly and securely grows stronger. To do this, most small businesses turn to credit card payment processors and other merchant services providers. But what are merchant accounts and why does your business need one?

Merchant services, like credit card payment processing, allow the average small business owner to accept credit card payments from customers. Merchant accounts act as “holding tanks” of sorts for the funds generated through these credit card payments.

Once the funds are deposited into your merchant account, you can then transfer them to your business bank account where they can be withdrawn or used to pay for a variety of business expenses.

What does a Credit Card Processor Do?

The credit card payment processor operates like a middleman between you and your customer’s credit card company. Once the credit card is accepted for payment, the processor transmits the transaction information to the credit card interchange. That information is then rerouted to the customer’s issuing bank where it is either approved or declined.

Once a transaction is approved, the processor deposits the funds from that transaction into your merchant account. Odds are good that your bank will require a waiting period before making the funds available to your business banking account. Once the funds become available in your business account, it is like all the other money in your account.

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Dedicated Vs. Aggregated Accounts

There are a few distinctive differences between aggregated merchant accounts, like PayPal, that provide credit card processing services to numerous companies via a single merchant account and dedicated merchant accounts. A dedicated merchant account is an account set aside for your business alone.

Each offers definite strengths and weaknesses for businesses, however, if you want the greatest degree of control over your account (including the funds within your account) and the best rates, a dedicated merchant account is often the better choice for your needs.

One reason for this is that there are no industry standards when it comes to how aggregated accounts for merchants handle or disburse your money. It leaves you very little protection when the provider decides to change the terms of the contract as far as fees are concerned.

While fees are important, you should resist the temptation to always go with the lowest fees promised. Those fees, especially with aggregated merchant services, are subject to change and you might be giving up other key services and protections to accommodate those lower fees.

Merchant Account Fees

Of course, regardless of everything else, you’ll want to take the time to shop around and compare merchant accounts to find the one that offers you the best combination of cost, convenience, and service. You want to make sure you’re getting your money’s worth and not making your business vulnerable to excessively lengthy contracts and punitive early termination or cancellation penalties. Some fees you should note when comparing costs and companies, include:

  • Application fees
  • Cross-border fees
  • Discount rates
  • Interchange rates
  • Leasing fees for equipment
  • Monthly fees
  • Per-transaction fees
  • Setup fees

BankCard Services understands how complex the process of finding the right payment processor for your business needs can be. Our goal is to make the comparison process as transparent as possible, so you can choose our services with confidence that you know what you’re getting into and have made the right decision for your business. Contact us today if you have questions or concerns or if you’re interested in learning more about our free equipment and credit card processing services offered on a monthly basis with no long-term contracts.

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