The Merchant’s Guide to Credit Card Processing

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Caculating Losses, by Lisa Solonynka, morguefile

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This chapter is an excerpt from my new e-Book, Retailers’ Guide to Merchant Services and can be obtained at Gelise 1′s Storefront.

Chapter 1 Making a Decision to Accept Credit Cards Start-up business owners have to make many decisions about their cash flow and if they are not currently accepting credit cards, this may not be a priority when all seems to be running well. After all, people are coming into the store and paying in cash. Once in awhile, someone asks if you accept credit cards and the answer is “No.” If the customers really wants the product and has the cash, they just pay in cash. However, if the person does not have the cash, the business owner loses out on a sale.

But, this does not seem to matter, as most of the patrons come in with cash. The business owner may even direct the customer to the nearest ATM machine, at which time, the customer returns with the cash and pays for the merchandise.

Money in the Competitor’s Pocket But, what is really happening here? When the owner directs the customer to the nearest ATM machine, he pays for the use of the machine and the owner of the other business receives a fee for the transaction.

What about that customer who desperately needs or wants your product so badly and prefers to pay with a credit card? He leaves and finds another business which sells the same product, but accepts credit cards. Because he has found the product and payment terms he wants, he opts to become a regular customer. Let’s say you own a restaurant and the customer likes to go out to eat dinner with his wife once a week.

Your average dinner is $15.00. That computes to a loss of $60.00 a month or $720.00 per year. This does not seem to be much of a loss for your company on a yearly basis, but what if you turned down five customers per day and they all found another restaurant as the first customer did?

Calculating the Loss

You are open six days per week, so you turn down 30 customers per week. That’s 120 customers per month at $15.00 each which computes to $180 per month. At this rate, the annual loss would be $21,600! What could you do with another $21, 600?

If you are cost conscious, you cannot afford to let this continue. Your competition is earning another $21,600 per year because you will not accept credit cards! If you are profit motivated, you will think about your losses in this way. Could you ever imagine that letting people walk out of your establishment because they are unable to pay in cash could lead to losses of this magnitude?

Let’s imagine what could happen when a customer leaves your establishment to cash an ATM card. He goes next door to cash the ATM card. It costs the customer an average of $3.00 per transaction to use the ATM machine which is the business owner’s profit. If the customer is desperate for your product, they will use the ATM machine.

However, they may decide that $3.00 is too high to pay for acquiring cash out of a machine and leave the store looking for another store which sells the same product and accepts credit cards. If the business owner receives $1.00 for every customer who uses the machine and you send him five customers, he makes five dollars a day. If you are open six days a week, he makes $30.00 a week or $120 a month. After one year, he makes $1440.00, all because you are not equipped to accept credit cards. So now, you are losing $21, 600 + 1440.00 = $23,040. I ask you again, what would you do with an extra $23,040 per year?

Studies have shown that people spend an average of 12 – 18% more when they pay with a credit card. The owner must be prepared to accept the credit cards when customers present them for payment. If you were the owner of a restaurant and a customer came in to use a credit card, you would have to turn the customer away if you did not accept credit cards. Suppose the customer ordered a meal and paid cash for it. If he enjoyed the meal he may decide he wants to share it with friends who are coming to visit on the weekend. However, since he prefers to pay for large orders with a credit card, he decides to plan a catered event at his house.

Let’s suppose that the charge for a catered event is $500.00. You miss out on an additional $500.00 in profits. You may not feel that losing $500.00 a year amounts to much and you could make it up on other sales, but suppose one customer per month wants to pay for a catered event by credit card. Because you do not accept credit cards, you turn the customer away and end up missing out on $6000.00 per year.

This loss could amount to more during the holidays. If you add the $6000.00 to the previous losses, it totals $29,040, all because you do not accept credit cards. What could you do with an extra $29, 040 per year? Sooner or later the business owner is going to resign himself to the fact that if he accepts credit cards at his business, he will make more money. How many years are you going to wait until you decide to purchase a credit card terminal? If you wait one year, you lose $29,040. If you wait two years, you lose $58,080. If you wait three years, you lose $87,120. What could you do with an extra $87,120?

Despite itemizing these losses, some business owners will not be impressed. In their own mind, handling credit cards is just another burden. Having to learn how to make transactions on the credit card terminal, learning the record keeping and watching out for fraud are very time consuming duties. The business owner would have to learn new terminology, keep abreast of the compliance issues, and work to avoid charge backs. These are added responsibilities for which he has to set aside time to perform these tasks. In some cases, the business owner is already overwhelmed with the day to day operation of the business.

ow will the business owner fit this into his schedule? Will the representative be there to assist in the areas where he needs help? What if he cannot get in touch with the representative? These are all valid questions and the owner should not proceed with ordering a credit card terminal unless these questions are answered. Is the extra time spent on learning about credit card transactions worth the $29,040 saved?

Let’s answer these questions one by one. The first question, is one of time management. The owner is going to have to examine his schedule very closely and see when he will have extra time to devote to learning all about accepting credit cards. He may have to delegate some of his duties to his employees in order to free up some time.

There is much to learn, including the operation of the credit card terminal, how to batch out, recognizing fraud, and when and how to call credit card numbers into the credit card companies. Then he has to review and become familiar with the compliance issues. A good representative will assist the new business owner in learning everything that he needs to know. He will answer questions, make himself available when necessary, and provide a telephone number where he can be reached. The representative should be able to answer most of the questions. In order to retain the customer and receive referrals, the representative should ensure that this process is as efficient for the owner as possible. In the event that the representative is not available, there should be a technical support department which will assist the business owner and answer any questions he might have.

Most credit card processing companies have a technical support department available twenty four hours a day seven days a week, including holidays. Most questions and problems with the terminals can be handled over the telephone. Your patrons will take you more seriously when you install a credit card machine. Your current customers will go out and tell their friends that you accept credit cards and then they, in turn, will tell their friends. Advertisers say that the best advertising for a business is word of mouth.

The ones who pay in cash now, will probably continue paying in cash. But now, you will gain new customers who prefer to pay in credit cards. Customers prefer to have a choice in payment methods and studies have shown that you will retain your customers when they have a choice. Credit card terminals also accept debit cards which are a safer transaction for the consumer. Debit cards require the use of a PIN number which only the owner of the debit card has.   In order to use the debit card, the owner must enter his PIN number into the machine. The business owner incurs a charge for the debit card which is below the rate for the lowest priced credit card, the qualified VISA or Master Card. The savings in processing debit cards is around sixty percent. This means that the fee to process debit cards is about sixty percent lower than the qualified rate.

In order to process the debit cards, the owner must purchase a PIN pad in which the consumer enters his/her PIN number. If the owner does not purchase a PIN pad or ask the consumer to enter his/her PIN number, then the fee for the transaction is at the check card rate which is a about double the rate for processing a debit card. Because of the savings involved, some business owners choose only to process debit cards. Debit cards have become very popular as many people carry them in lieu of cash. When people use the debit card, they have the option of receiving cash back from the purchase. This means they can receive an amount over and above the amount of change they would receive from the transaction. The maximum amount is determined by the owner.

Receiving cash back is another very attractive benefit for the consumer to use his debit card instead of a credit card as he would not be able to receive cash back from a credit card. Now the customer has a choice of using cash, check, credit card or debit card. What do you gain by turning down a customer? Studies have shown that a customer is more likely to recount a bad experience rather than a good one. When he relates the experience, people tend to believe the story-teller and boycott the place rather than investigate on their own. You may still continue doing business, but your business will not grow as much as it would have, if you were accepting credit cards.

Some business owners do not believe in credit cards for the social reasons of how customers misuse them. While this may be a valid point, most people are responsible in handling their credit cards. We are living in the “Age of Plastic” and people are able to purchase things that they normally would not purchase because they possess a credit card. Credit cards make it possible for people to have businesses and make more profits than they normally would have if they did not accept credit cards. When the merchant accepts the payment by credit cards, he receives cash in his business checking account within three to five days. As long as the credit card machine accepts the credit card, the merchant is guaranteed to receive the money.

People are responsible for their own credit cards and how they use them. Your decision to accept credit cards will not contribute to the customer’s lack of responsibility in controlling his expenses. This is an issue that the customer must address. It is not the business owner’s responsibility to ensure that the customer does not over spend or abuse his credit card privileges.

Just as the owner must be responsible in learning enough about the credit card processing industry in order to process credit cards, so the customer must be responsible in learning how to manage his debt. The customer, as an owner of a credit card, has certain responsibilities that he must undertake and he/she must make a conscious decision to accept the responsibilities.

© Gail Cavanaugh and The Merchant’s Guide to Credit Card Processing, 2008.
Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

Excerpts and links may be used, provided that full and clear credit is given to Gail Cavanaugh and The Merchant’s Guide to Credit Card Processing with appropriate and specific direction to the original content.

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If you would like to be on my e-mail list, please complete the form below and include your e-mail address.  All information is kept confidential. I would be interested in knowing what percentage of increase in sales that you experienced the year after you started accepting credit cards. <a Gail Cavanaugh’s Business Solutions consults with businesses and is a provider of merchant services and equipment for businesses. If you would like to know more about the services, please complete the contact form with your questions. To subscribe to this blog, click onto “Subscribe in a reader” above.

APSense - Get Paid While Promoting Your Business! Check Out: http://www.apsense.com/invite/gelise1 Comments: Name: Business blog Website: http://www.in-business.org.uk This is a good article that any business not already taking credit cards should read and especially in the present economic climate. In the UK for example, for a long time Marks & Spencer refused to take credit cards, so customers could only pay by cash or cheque, until eventually they started to loose customers to their competitors and in the end they had to bow to the pressure and ended up taking credit cards.

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Name: Jamwes Website: http://tim-jim.blogspot.com/ Very good information. Thank you.

Name: Chuck Bartok Website: http://www.chuckbartok.com Gail, Very Informative Blog site. Yes merchants can benefit from a well manged Credit Card Processing System. Also another advantage is the Judicious use of the “loans” available to Strong accounts. But like all Credit, it must be managed well.

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Managing Credit Card Debt

Managing Credit Card Debt.

So many of us have accumulated debt which we is difficult to pay off. This is what has happened in this economic crisis that we have endured for the last four years. Debt has been a problem throughout the history of mankind. Perhaps the most unfortunate country has been Greece who at one time in their history, took 1000 years to recover from its debt problems.

Read more: http://bizcovering.com/business/managing-credit-card-debt/#ixzz1kDFsM78P

Should You Use Debit Cards?

Should You Use Debit Cards?.

Debit cards have become so popular, now, that almost everyone who has a bank account owns one. However, what most people do not realize is that debit cards are very risky transactions.

Read more: http://gomestic.com/personal-finance/should-you-use-debit-cards/#ixzz1kDEeITFV

The Financial Policies of Greece and the United States

Greece is a country which has had its share of misfortunes due to the inability to manage money properly.

Greece’s problems did not begin in its recent history, but rather over a number of years, beginning with its ancient history. Greece has always been dependent on income from its agricultural activities, being well-known for its olive and olive oil production. Unfortunately, it has been very reluctant to produce new and improved tools for growing and cultivating the crops. For example, in the 1820’s, Greece was still using farming tools which dated back two thousand years!

When businesses fail to upgrade their industrial tools and products, they lag behind other countries and businesses which are producing and marketing the same products with new and improved tools. This results in more earnings for the countries which are more up-to-date. We have seen this happen in the United States with Borders Bookstore, which refused to market e-books and Polaroid Corporation, which refused to produce a digital camera.

Despite the lack of progress in upgrading tools, Greece has always paid better than average wages for the work which they did. If a country is not producing because of its failure to upgrade its manufacturing tools, the country will lose money because other countries are more efficient in producing goods. Instead of using money to upgrade tools and products, Greece gave workers a better than average salary, which caused financial problems for the country.

Unfortunately, Greece’s problems stem from an inability to properly manage its revenue. Unlike the United States, the bankers are not knowledgeable about managing money. The early settlers of the United States learned how to manage money according to Biblical principles, enabling it to prosper and the nation’s money handlers are still following these principles which are based on the Bible. Accordingly, one per cent of the population in the United States has control of fifty-four percent of the wealth, which helps the United States to remain prosperous.

The situation in the United States is not an ideal situation, as more of the population should have more control of the wealth. There is clearly a need for education on how to manage money properly. Because of the many people in the United States who do not manage their money properly, they become victims of unfair fees and charges on their banking accounts. The poor end up paying exorbitant fees while the rich do not pay banking fees.

During the economic crisis of 2008 in the United States, the banks, insurance companies, and automobile industry had to request a bailout to alleviate their financial woes, while Greece had to request assistance from the European Union. There is clearly a difference between the abilities of the two countries to manage their finances.

In conclusion, countries must adopt sound financial principles for managing their money in order to prevent an economic crisis which could affect other countries which depend on their resources.

Credit Card Swipe Fees Cut in Half

Consumers will be happy to know that the Federal Reserve has set limits on the rates for credit card swipe fees that the banks have been charging the retailers, effective October 1, 2011.

As a result, credit card processing fees can no longer exceed twenty-one cents per transaction and 0.05% of the purchase price. This is much lower than the previous rate of from 1% – 2% of the transaction. The only drawback to this is that the banks will charge the maximum fee for purchases on small ticket items.

This new ruling is expected to save consumers about $7 billion and to help stimulate the economy. In retaliation, however, the Bank of America is charging a $5.00 monthly fee on debit cards and the other banks may follow suit.

This is one of the last regulations that the Federal Reserve Board is enacting in an attempt to regulate the banking industry. There have been many reforms over the last two years which were enacted to reduce the fees that consumers were paying for banking services. However, the bankss seem to create more fees on other products in an effort to recoup their losses.

Should Illegal Immigrants be Allowed to Attend College

There are so many illegal immigrants in the United States, more than we can imagine, yet so many of them are living their lives as if they were legal residents.

They shop at their own stores and do business with people from their own country whenever possible. They come around the Americans, only when they have to acquire something which they cannot acquire from their own people. This is not unusual because many of the immigrants from other countries did the same thing.

The state of Rhode Island attracts so many immigrants because of the many factories that are still operating in the state. There are over two thousand eight hundred factories that employ immigrants, and some may be illegal immigrants. When they are discovered, the illegal immigrants are sent back to their country.

Many of the immigrants also seek jobs in the southern part of Rhode Island, whose history attracts tourists who want to know more about the early settlers of this country. Because of that, there are summer jobs which are available. The immigrants take these jobs low paying and many sign as independent contractors, which eliminates the tax burden for the business owner.

They are required to show documentation that they are working and living legally in the United States, but the paperwork may be false or erroneous. Immigration officials are assigned to investigate them and when the immigrants discover that they are being investigated, they flee to another state. Disagreements and arguments with spouses is usually the cause of the investigations.

Now, the State of Rhode Island has granted permission for illegal immigrants to attend college at a reduced rate in an attempt to collect much needed revenue for the state. The parents of students who attended high school for three years in Rhode Island and received a degree are eligible for this opportunity. There is a stipulation, however, the immigrants must apply for legal status as soon as they are able or face losing the tuition.

Although the lawmakers argue that allowing illegal immigrants to attend college would contribute new to a stronger work force and improve the quality of life in Rhode Island, many legal residents who are struggling to pay tuitions oppose this new ruling.

It will be interesting to see how many of the illegal residents attending colleges actually complete their studies and how many of them secure jobs after they graduate.

Are Coupons a Good Marketing Tool?

If you are considering offering a coupon to you customers to increase your sales, think again. Internet coupons are not as profitable and popular as they used to be.

Business owners are reporting that people are calling in to ask if the company would match a coupon from another company. Because of the many deals available, there is no loyalty among the customers. If a customer took advantage of a price discount, they often would find a similar offer with another company and buy the same product or service again. Business owners have found that the people who use coupons are hard to please and complain about their purchases on the review sites on the Internet.

Groupon, which is the largest coupon site on the Internet, is now facing financial woes, because their business is no longer profitable. Eighty percent of the people who subscribed to the site never made a purchase. At one time, Google offered Groupon $6 billion dollars to purchase the company, but they turned it down, believing the company is worth more.

Compounding its troubles is the appearance of copycat coupon sites which have saturated the coupon market making it difficult for Groupon to make a profit. These copycat sites have closed, reformulated, or merged and Facebook and Yelp are no longer interested in entering the market.

Although the daily deal coupons do create brand awareness, they are not cost-effective, because the coupon site has to share the profits with the merchant. The future of Groupon is uncertain as they struggle to make profits.

Business Ideas for Start-ups

Financial stability and independence are two of the main reasons that people go into business. However, having the right idea which could net you enough income to live on is important.

There are many reasons why businesses fail and one of the reasons is that it may take time for the business idea to produce income. Meanwhile the bills need to be paid. That is why business owners must investigate having multiple streams of income in the early stages of the business to ensure that they do not end up homeless or divorced because they are not bringing in enough income.

Therefore, starting a business while you are still employed is an important consideration. Once the business starts producing enough income to consistently pay the bills, then the business owner might consider quitting the full-time job. The other option is to secure a part-time job and work the business part-time.

Now that you have decided that you want to start a business, it is important to consider the type of business you would want to have. Some people, after having worked many years in corporate America decide to quit or find that the company is downsizing them. Depending on the type of job they may have had, they can decide to go out on their own.

For example, a computer technician may decide to find his own accounts with some local companies that may have a need for his services. A bookkeeper for a major corporation may decide to secure several local accounts with lawyers or computer companies in her area. A web designer for a major corporation may decide to help start-up businesses establish themselves on the Internet. The possibilities are endless.

People who have other talents or hobbies may decide to market their talent and earn some money. The things that we do best are referred to as core competencies in the business world. Each person has their own set of skills or talents which they can do exceptionally well. For example, a painter may decide to network with a real estate agency and paint homes which are going on sale in the real estate market. A furniture builder may decide to build furniture in his basement and advertise the pieces for sale or take orders for custom designed furniture.

Whatever they decide, they will have to keep their options open for making money in another way, such as marketing another talent, or doing work for another company as an independent. When they take on another stream of income, it will be important to organize their time so that the work is completed and to keep accurate records.

At times, business owners may discover that they need more training or education to pursue a business. In that case, they must acquire the new skills or education as quickly as possible so as to capitalize on the business as soon as possible.

In conclusion, if a person wants to start his or her own business, they must consider ways of earning more than one income stream.

Limited Liability Company or Non-Profit

There comes a time when sole proprietors must make a decision about how to register their company when they start growing. This is an important consideration, because having the right organization will enable the company to experience even more profits, and in some cases, protection against law suits.

When writing a business plan, one of the most important considerations is type of business organization to adopt for the company. The benefit of the non-profit organization is the ability to raise money from donors and not have to pay income or property taxes. Money is used to expand the company or to pay for its expenses. The non-profit organization does not issue shares of stock to its owners and does not have shareholders. The government tends to limit the amount of money a non-profit organization can make and monitors the organization through stringent reporting.

The limited liability company, on the other hand, is an unincorporated association. It has certain characteristics of both a corporation and a partnership or sole proprietorship and provides limited liability to its owners. The benefits of creating a limited liability company is that is flexibility in this type of organization, as a clause can be added to modify the agreement (“unless otherwise provided for in the operating agreement”). For income tax purposes, the entity is treated as a pass through entity. Some limited liability corpoation comanies include lawyers and attorneys who often operate as partnershps, such as McGladrey & Pullen LLP, one of the largest accounting firms in the country.

For example, owners of the corporation can raise money by selling shares of company stock. There is a greater potential for more income compared to a non-profit organization, as there are no limitations to the amount of money one could raise. There can be one or multiple members of the LLC. If there is one owner, the person would report the income on their tax return. However, if there are multiple members, they must file a form 1065 for income tax purposes and each one receives a form K-1 for reporting on their own income taxes.

The members may elect to be taxed as a corporation where the dividends earned from the shares and the distribution of the dividends would be taxed as they are received by the members.

The members may elect, instead, to be treated as an S Corporation, where there would be self-employment tax savings.

Advantages:
1. Less paperwork and record keeping than a C-corporation,
2. Members are taxed on their profits individually
3. Members can decide how they want to be taxed, i.e., sole proprietor, partnership, S- corporation, or C-corporation
4. There is no double taxation unless the members elect to be taxed as a C- corporation,
5. LLC’s are treated as a separate entity in most states,
6. Only one natural person is required to set the business up as an LLC,
7. There is more protection against a “hungry investor”

Disadvantages:
1. If there is no agreement between the members, there could be a problem. To avoid problems, the members must outline their governance and protective provisions in an operating agreement or similar governing document.
2. It may be difficult to raise money as investors may be more comfortable with the corporation and IPO (Initial Public Offering) as a way to invest money. If that is the case, the owner(s) may elect to dissolve the organization and reform under a corporation.

If business owners are unsure of the type of organization which is beneficial for them, they should consult their attorney.

Marketing Mistakes

 

 

 

 
Although many retailers are moving their operations across the seas, they can still avail themselves of the opportunities to market their businesses on-line. Shoppers have become more sophisticated and willing to shop on the Internet, now that more safety measures are in place. Many of the on-line shopping carts are encrypted, making them less vulnerable to identity theft.

Read more: Marketing Mistakes.

The Plan to Prospect for Customers

 

 

 

 

 

The Plan to Prospect for Customers.

Prospecting for customers is the key to prosperity for business owners. This skill must be mastered to see results from your marketing. (Read more….click onto the above link.)