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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The Business of Women

There will be  a seminar for women on June 15, 2013 from 9:00 am – to 3:00 pm at the Mainstay/Best Western  Inn, 15 Admiral Kalbfus Road in Newport, Rhode Island sponsored by Gail Cavanaugh’s Financial Solutions.  RSVP 401-380-7850.

The seminar will cover some of the business and financial issues that women struggle with in their businesses.  They will also learn how to protect and plan for their financial security through life insurance and annuities.

As more and more households in the U.S. are headed by women, their incomes are not adequately protected, leaving their families at risk for financial calamity.  We will discuss ways to ensure that the families are protected and that women take steps to plan for their financial futures.

For more information and to register for this event, please visit the website, The Business of Women.   Fee:  $65.00.

Saving for the Future

                          

 

Often, people fail to accumulate money for retirement because they fail to develop a plan for saving money.  It is important to budget the money that comes into a household by deciding how much will be saved before the money is spent on the necessities of running the house.  George Clason mentions this concept in his book, The Richest Man in Babylon.

People often say they do not have enough money to save because of all their expenses.  However, a careful review of the budget will reveal items which can be eliminated.  People who fail to save often spend money on the wrong things, overindulge, or just waste money on things that they do not need.  These items include junk food, cigarettes, alcohol, dining out in restaurants, clothing, and other items.  insurance premiums should be part of the budget.

If we make a conscious effort to save first, before we spend, we will see what on our list needs to be eliminated. When we see the money accumulating in our accounts, we will look forward to saving more money.  The first goal should be

to accumulate an emergency fund in the event that the car breaks down or the kids need new clothing,  or someone in the family needs a loan, for example.  The emergency fund should not be touched unless there is an extreme emergency and it should be in a separate account.

After saving the emergency fund, people can begin a savings plan for a new house, a new car, retirement, or college funding, depending on age and needs.

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When to Consider Buying Life Insurance

There are life events which should encourage families to consider buying life insurance. Unfortunately, life insurance is not a priority in the lives of many young families, as younger people tend to believe that they have many years ahead of them. However, the prudent thing to do would be to purchase life insurance to cover a loss of income in the event that something happens to one or both of the parents or if they become disabled.

They can purchase enough life insurance to cover college costs as well for the children. In the case of younger parents, life insurance is very inexpensive in the earlier years and parents would be able to afford to buy higher amounts of insurance coverage.

Newly weds should consider buying life insurance on themselves to protect their incomes in the event that something happens to them. If husband and wife are working, both can purchase life insurance on themselves. In this way, both can continue their normal lifestyles in the event of death or disability of the spouse.

When couples purchase a home, one thing that needs to be done is to purchase mortgage insurance to cover the mortgage in the event of death or disability of one of the partners. Many people suffered a loss of their properties during the economic crisis because they were not adequately insured. Some people may not be able to purchase enough to cover the entire mortgage, but any amount which they can afford would help their family.

When families experience financial hardship, the insurance is usually the first thing to go. Now, with the changes that insurance companies have enacted, families can continue their life insurance coverage in the event that the policyholder is disabled, unemployed, or when the family suffers a natural disaster.

In conclusion, families need to consider purchasing or increasing life insurance when they marry, purchase a home, or begin to have children, if they care about making sure they are protected in the event of death or disability. If you would like a review of your situation, feel free to contact me.

 

Technorati Tags: life insurance,newly weds,mortgage,families,spouses,college funding,death,disability,mortgage insurance,income protection

What is Buy-Sell Agreement?

Business partners need a buy-sell agreement or buyout agreement when they form a business or immediately after. It is an agreement which protects the interest of each party whenever there is an event which would change ownership. The agreement would set the price and the conditions upon which the mandatory or optional buyout would take place. Whenever this process is delayed, the business owners increase their financial risk.

The goals of the buy sell agreement would be:

· the identification of the events which would trigger the purchase of the business and to ensure that the business owners’ interest would be protected,

· to identify the buyer of the owner’s interest in the business, i.e., the company, the remaining owner, or joint ownership of the owner and the business,

· to provide a procedure for determining purchase price of the business, according to market conditions when the event occurs,

· to provide a way of funding the agreement, such as through life insurance

· to determine the deceased owner’ interest in the business for estate tax purposes

There are several events which would trigger the optional buyout of an owner’s interest in the business. They include death or disability of an owner, the decision to transfer ownership to a third party, the retirement of an owner, divorce of an owner, or bankruptcy of the business. In the event of death or disability, the business owner’s family would be protected, since the business owner supported the family with his share of the proceeds of the business. If the decision to create a buy sell agreement is delayed, it places the family at risk for financial hardship. Conversely, divorce or bankruptcy would make the business vulnerable to outsiders, such as a spouse or a creditor. Creating a buy-sell agreement would prevent these outsiders from taking over the business.

 

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Sole Proprietorship

 

 

 

Often when business owners start a business, they start out as sole proprietors. As a sole proprietor, the owner is the operator of the business. Many artisans and self-contractors operate their businesses as sole proprietorships because they are easy to set up. They owners use their own social security number to pay taxes. Sole proprietors often do not delegate their duties and they do not have to set up a trade name in order to operate the business.

Examples of sole proprietorships are hair dressers, landscapers, artists, designers, and daycare. These workers typically make under $100,000 per year and do all the work themselves. The business owner would be responsible for all debts and he/she alone receives all of the profits. They only disadvantage of the sole proprietorship is that he/she would have difficulty receiving funding or a business line of credit from a bank.

In order to qualify for funding, a business owner must change to another form of organization, such as a corporation, S- corporation, LLC, or partnership, which would give him more potential for profits.

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Individual Retirement Plans The IRA’s

Most people who have planned for their retirement have either Roth or traditional IRA’s which they will use to transfer retirement plans from their employers upon terminating employment. While accumulating retirement income in these plans, it is wise to solicit the help of a CPA in determining how these plans will be taxed at year end and during the distribution phases of these accounts.

A Traditional IRA is a retirement plan in which an individual can accumulate money for retirement over and above the 401(k) or other retirement plan, which one may have at work. Unlike the 401(k), the traditional IRA allows for accumulating money for retirement with after-tax dollars.

The money can be invested in mutual funds, or stocks and the earnings can be reinvested and grow tax deferred, as long as the money remains in the account until age 59 ½. Once the person turns 59 ½, he/she must pay taxes on the money which is withdrawn from the account. By this time, the person in a high income tax bracket may be in a lower tax bracket and therefore will pay a lower tax rate than the year when the money went into the account.

The maximum amount which a person can contribute to an IRA is $6000 per year and the person can no longer contribute money after age 70 ½, which is the latest that the person can begin to withdraw money from the account.

With a Roth IRA, the owner of the contract can withdraw money before age 59 ½ without incurring the 10% penalty in certain situations.. It is suitable for accumulating money for college funding, and other large expenses which must be withdrawn before age 59 ½.

For example. a contract holder may withdraw money from a Roth IRA without incurring a ten percent penalty if he/she becomes permanently disabled, has to withdraw money to pay medical expenses for which he/she will not be reimbursed, he/she plans on withdrawing money to purchase a home as a first time home buyer, needs to pay higher educational costs for the family or self, has been collecting unemployment for more than twelve weeks and needs to pay medical insurance premiums, owes back taxes to the IRS, or has reached age 59 ½. If the contract owner dies before age 59 ½, the estate would not be required to pay taxes upon inheritance of the account.

There are many types of annuities to invest the IRA, if one is seeking safety. With the recent occurrences in the stock market over the last six years, Baby Boomers in particular may be a little hesitant about investing in the stock market or mutual funds. Additionally, an annuity may be the right vehicle for someone who needs safety, but more of a return than the banks are offering. To accurately assess your needs, a qualified insurance agent can offer assistance.

Financial Literacy Conference

The National Coalition of 100 Black Women – Rhode Island Chapter is planning a conference, “Building Assets and Strengthening Families,” at the Urban League of Rhode Island, 246 Prairie Avenue, on February 23, 2013 from 9:00 am – 5:00 pm. This would be the first event, of its kind for the organization.

Scheduled speakers are Dwayne Keyes of Bank Rhode Island, Garfield Davidson of MetLife, Manny Barrows of Bank Rhode Island, and Michelle B. Davidson of Trinity Mortgage Solutions.

The Rhode Island Foundation, Bank Rhode Island, and The Black Philanthropy Initiative are sponsoring the event.