The Merchant’s Guide to Credit Card Processing

December 2, 2008

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Calculating Losses, by Lisa Solonynka, morguefile

Caculating Losses, by Lisa Solonynka, morguefile

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Retailers Guide to Merhant Services Reviews on Goodreads

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. ss_blog_claim=74da3239dd6b3ea2b0b14afc135d0ec5

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. ss_blog_claim=74da3239dd6b3ea2b0b14afc135d0ec5

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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: Comments: Name: Business blog Website: 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: Very good information. Thank you.

Name: Chuck Bartok Website: 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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Important Information for Startups and Storefronts.

May 4, 2015


For anyone who is currently operating a storefront or who is considering starting a business, it is important to understand the ways in which one may collect money for selling products and services, whether on the Internet or at the storefront. Making the right decision will help to increase the business profits.

When developing a business idea, it is important to include plans for managing the collection of the money to ensure that the business is making the maximum amount on the products and services while keeping the costs of doing business as low as possible. Therefore, it is best to research all the options and the costs involved.

In this day of digital products, it is amazing how many business owners still insist on accepting cash only for their businesses. By doing so, they are overlooking the fact that customers like choices and their competitors are constantly seeking ways to have a competitive advantage over other businesses. We cannot afford to overlook the advantages to accepting credit cards at the place of business, especially if we have a quality product or service to offer consumers.

I have recently published a new book for startup businesses about the credit card processing industry with the latest developments on the laws regarding credit card acceptance at storefronts and online. The book, The Retailer’s Guide to Merchant Services, includes information about rates, fees, advantages, and disadvantages of collecting credit cards. Join my mailing list.

Chip Card Technology – Protection against Credit Card Fraud

April 27, 2015

the general store1

On October 1, 2015, all retailers who accept credit cards have to install chip card technology on their point of sales systems. This technology will enable the merchant to authenticate transactions on credit cards and thereby help to reduce fraud when acceting credit cards at their place of business.

By installing this technology, the credit card processing machines and point of sales systems will be able to read the embedded computer chip on payment cards which contain important information to verify the customer and his/her transactions. This will help eliminate fraudulent transactions. Any business which does not install the technology could be subject to fraud.

Other countries have already instituted this program and have experienced a drop in consumer fraud involving payment cards such as credit cards. For more information about installing the technology, merchants should contact their credit card processing companies. American Express is offering a $100 refund for ugrading to this technology.

For more information on credit card processing, please request my newly revised book, “RetailersGuide to Mechant Services” on the contact form for this site.

The Right to Reduce Employee Benefits

February 20, 2015

Businesspeople Applauding

Employers who are facing poor financial conditions may reduce the benefits which they offer employees, but there are guidelines which they must follow.

Generally, an employer cannot reduce benefits by more than fifteen percent. If the employer reduces the benefits by more than fifteen percent, the employees is entitled to leave the employer and sue for damages. Because reducing the benefits produces hardship for the employee, he/she has a right to ask the employer to reinstate the benefits, or ask for compensation in order to purchase a plan on their own. At times, employees accept a job with benefits as an inducement to take the job. A situation such as this would strengthen the employee’s position.

The Federal government has set down guidelines for reducing employees’ benefits and laying off employees. Additionally, each of the states have their own guidelines and it is important for the employer to investigate the guidelines and ensure they are acting within them. The only exception to this would be that if the employer promised certain benefits for a certain amount of time, the employer would not be able to change them. Therefore, employers should review the laws in their own state as well as the laws of the Federal government relative to reducing employees’ benefits.

Free e-Book on Merchant Services

February 1, 2015


In order to remain in business, the business owner must have an effective way of attracting customers to the business. Once they are attracted and use the services or purchase products, the customer should be given an incentive to return for repeat purchases. One of the incentives would be a variety of payment options which would include cash, check or credit card. When the business owner is prepared to accept payments from their customers and makes it convenient for them to spend money, they are in a better position to realize a gain from their profits.

To help business owners understand their merchant services accounts and how to make more money for their businesses, I am giving a free copy of my e-book, The Retailers’ Guide to Merchant Services, which includes the details on processing credit cards and how to save money with them. The e-book will be ready within the next week, as I have revised it. You may request a copy of the e-book on the Contact form located withing the first posting on this blog or on the “Contact Me” Page on the Menu bar. I will add your address to receive the newsletter which will be sent each month. The first issue will arrive with the e-book download.

If you have any questions about receiving extra cash to finance your business, please use the form to send me your question about that as well. As soon as the e-book is ready, I will send it to you.

Employee Assistance Programs Can Help Boost Profits

January 25, 2015


As we transition from an Industrial Age to a Digital Age, families are experiencing more stresses due to the changes in skill sets. Some are prepared for the changes and will embrace them, while others are not prepared for the changes and will not willingly make them. Some are reluctant to pursue an education to prepare themselves for new responsibilities.

Unfortunately, these changes are causing stress within the families and among workers in the workplace. Many workers lost jobs as companies made changes in their goals and plans for the future, resulting in restructuring of the job force. Losing these jobs intensified the stresses within the families, causing marriages to fall apart and put added pressure on the working spouse to support the family on one salary instead of two.

Because we are individuals, we have different ways of coping with these changes. Some employees resort to alcohol or drugs to cope with the changes or may develop mental illnesses. As a result, some employees may need help in adapting to these changes and others may not. Because the employees who are struggling with change do not ask for help, the employer or business owner has to be observant of and attentive to the indicators of stress within the workers. It is estimated the seventy-six percent of substance abusers are working. Additionally, there should be a plan in place to address these issues.

In the past, health insurance companies introduced Employee Assistance Programs to the companies to help employees adjust to changes. However, thirty-eight percent of employers chose to make these plans available only to their executives up until a few years ago. In recent years, however, Employee Assistance Programs are becoming very popular, as seventy-four percent of employers are making these programs available to all workers who are in need of the services.

Employers have found that it would cost them anywhere from twenty-five percent to as much as two hundred percent of the employees’ salary to replace him/her, because of problems with substance abuse or mental illness. These losses total $197 billion per year nationwide. The employees have a tendency to be tardy, take excessive days off, suffer industrial accidents, experience limited production, conflicts with co-workers, and high turnover. These employees were very valuable to the company because of their knowledge and skill pertaining to their jobs.

Workers between the ages of eighteen and twenty-five are more apt to struggle with mental illness as well as substance abuse, and experience high turnover, while Baby Boomers who need to remain in the job force during retirement age, will have problems with masking their pain with alcohol. This may exacerbate any other underlying health problems such as heart disease, diabetes, and high blood pressure, increasing health care costs.

Once the employees are able to enroll in the programs, the employers see results which save them time and money in recruiting new employees to replace the troubled employees. The Employee Assistance Programs consist of wellness programs which encourage the employees to make lifestyle changes. The employees also need adequate medical coverage to cover the costs of doctors’ visits and counselling. Available through health insurance programs and voluntary insurance programs from life and health insurance carriers, these programs are gaining in popularity as a way for employers to address employee substance abuse and mental illness issues on the job.

In conclusion, companies which incorporate Employee Assistance Programs into their benefits packages will retain their valuable employees rather than spend time and money in recruiting new employees.

Gail Cavanaugh is an Independent Life and Health Insurance Agent representing Colonial Life.

Blog Talk Radio – Substance Abuse and Mental Illness on the Job

January 5, 2015


As families become more stressed due to the struggles of a single parent trying to maintain a household and a full-time job, heads of households become more at risk for mental illnesses and substance abuse.
Many employers are discovering the benefits of addressing the issues of mental illness and substance abuse on the job by offering assistance through the Employee Assistance Programs. Find out more about this program which airs tomorrow and sign-up to receive notices of more programs below:

An Increase in Americans Applying for Affordable Health Care

November 29, 2014


The Obama administration reports that three time as many people applied for health coverage on-line which resulted in more applicants than had applied in November and December of 2013.

Many of the new applicants this year were people who had lost their coverage due to non-payment of premium or had no coverage at all. Others had simply renewed their coverage. In the case of new people enrolling in health care coverage for the first time since the enactment of Obamacare, most of them may have found that they will be paying more in deductibles and co-payments. As more come into the system, more will be turning to voluntary benefits as a way to defray their costs.

Some private insurance companies offer voluntary benefits which pay lump sums of money for hospital visits and other procedures such as surgery and diagnostic testing to help defray the costs of co-payments, deductibles, rent, mortgage, and utilities. These amounts are offered over and above the actual charges incurred for these visits. Employees also receive life insurance and disability coverage, which they may not have had at their companies.

There were many problems with the implementation of Obamacare last year, as many people experienced delays in the processing of their applications. There were many problems with the computers which had to be resolved. Additionally, the climate under which the former health and human services secretary, Kathleen Sebelius had to operate, was difficult because of the opposition of many of the members of Congress to Obamacare.

Consequently, Sylvia Matthews Burwell was appointed to replace Kathleen Sebelius when she resigned in June 2014. Ms. Burwell has already implemented weekly reporting on the enrollments, as opposed to monthly. She has been hailed as an extremely skilled negotiator and knowledgeable about the health care system.

Ms. Burwell will be facing many challenges with the states of Texas and Florida who have not offered Medicaid to more of their residents who need them, nor have they set up health exchanges for their states. Her background and experience in working with the Bill and Melinda Gates Foundation and other non-profit agencies will enable her to overcome many of the challenges she will face in this position.

In conclusion, it appears that more people who need health coverage are gaining access to a system which will enable them to secure the needed coverage.


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