There are some clear advantages to accepting credit and debit card payments in your business — including the ability to offer your customers the convenience of paying electronically by mobile phone or tablet, online, or in QuickBooks.
To get the most out of accepting credit cards, it’s wise to familiarize yourself and the employees who will handle transactions with the processes and parties involved, and how to avoid problems.
What Entities Are Involved?
Every time you accept a credit or debit card payment, several parties work together to complete the transaction. The key players include:
- Merchant bank: The financial institution that provides you with a merchant account. The merchant bank will handle credit card transactions to your bank account and charge a fee called a discount rate.
- Processor: A third party that merchant banks often partner with to share their responsibilities. Processors are authorized to set up merchant accounts, quote you a discount rate, and route credit-card transactions to the right networks. They manage all the relationships between you and the other players. The benefits you receive may include better customer service and integrated business solutions (beyond just accepting credit cards). Processors are paid on a per-transaction fee basis, which is included in your discount rate.
- Issuing bank or issuer: The financial institution that provides the credit card to the end user.
- Card payment brand: Associations such as Visa, MasterCard, and American Express. They charge you an interchange fee, which they share with the issuing bank. Some brands such as American Express and Discover issue cards directly to consumers, without a bank intermediary.
Get Started with Credit Card Processing
The first step in being able to accept credit cards for payment is to select a payment-processing services provider. Here are some tips for choosing the right partner for your business:
- Understand the fees each provider the charges, and find out whether it charges a termination fee for switching providers.
- Find a provider that will actively partner with you to get you started, support you when you run into problems, and help your business grow.
- Be sure your payments solution will allow you to grow with use of-point-of sale (POS), online credit card processing, and mobile credit card processing.
- Look for a payment-processing system that’s integrated with your accounting software. This will save you time and reduce double entry. QuickBooks Payments is one such solution. It allows you to process and record each credit-card transaction in one easy step.
Once you sign on with a service provider, you will get set up with a merchant account based on your type of business. You will need to decide how you’ll accept credit cards: in QuickBooks, on mobile phones or tablets, or at the point of sale. The entities involved all get notified of the transaction and “take part” in some way, but despite these many touch points, the transaction should only take a few seconds.
As soon as you swipe the card, the information will be forwarded to the participating entities so that the transaction can be approved or denied. If the transaction is approved, you’ll deliver your products or services to your customer. The issuing bank will send the money through the credit-card network to your bank account (usually within two to four business days). Whether you use a credit-card machine, QuickBooks, or a mobile credit-card reader, every transaction will follow these same basic steps.
You can save time and money and avoid costly mistakes by following these best practices for processing credit-card payments:
- Carefully review the fees, charges, rules, and regulations in your merchant account agreement.
- Check the identity and expiration date on any card you’re about to process.
- Don’t put minimum or maximum limits on your transactions. Regulations state that you must accept credit cards for any size of transaction.
- Don’t offset the cost of accepting credit cards by charging a usage fee for credit card transactions.
- Don’t display full account numbers on your receipts. Each state’s laws regulate how much information can appear.
- Get to know the fraud screening products and services that can help you.
- Use the right accounts for your business. (If you try to process internet transactions with your retail merchant account, for example, you may face steep fines and lose your merchant account.)
- Never run your personal credit card through your merchant account.
- Don’t split a transaction into smaller transactions. This could put you at risk of a chargeback.
- Prioritize customer service above all else.
Reducing Processing Fees
The myriad fees associated with processing credit-card payments can be complicated to sort out. When you’re shopping for a provider, be sure you review all the fees and key factors involved. There are a variety of ways to reduce the costs associated with processing credit card payments.