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Accepting Credit Cards

Discussion in 'Picture Framing Business Issues' started by KeepFraming, Feb 4, 2001.

  1. KeepFraming

    KeepFraming Guest

    ACCEPTING CREDIT CARDS -Boost your sales by getting merchant status with credit card companies.
    ---------------------------------------------
    (Below is Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press)
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    Why should a small-business owner accept credit cards? There are dozens of reasons. First and foremost, research shows that credit cards increase the probability, speed and size of customer purchases. Many people prefer not to carry cash, especially when traveling. Others prefer to pay with credit cards because they know that it will be easier to return or exchange the merchandise.
    Accepting credit cards has several advantages for business owners as well. It gives you the chance to increase sales by enabling customers to make impulse buys even when they don’t have cash in their wallets or sufficient funds in their checking accounts. Accepting credit cards can improve your cash flow because in most cases you receive the money within a few days instead of waiting for a check to clear or an invoice to come due. Finally, credit cards provide a guarantee that you will be paid, without the risks involved in accepting personal checks.

    To accept major credit cards from customers, your business must establish merchant status with each of the credit card companies whose cards you want to accept. You’ll probably want to start by applying for merchant status with American Express or Discover. For these cards, all you need to do is contact American Express or Discover directly and fill out an application.

    However, chances are you’ll want to accept Visa and MasterCard, too, since these cards are used more frequently. You cannot apply directly to Visa or MasterCard; because they are simply bank associations, you have to establish a merchant account through one of several thousand banks that set up such accounts, called “acquiring banks.”

    The first thing you need to understand about accepting credit cards, there is a the real concern that if your company goes out of business before merchandise is shipped to customers, the bank will have to absorb losses.

    While requirements vary among banks, in general a business does not have to be a minimum size in terms of sales. However, some banks do have minimum requirements for how long you should have been in business. This doesn’t mean a start-up can’t get merchant status; it simply means you may have to look a little harder to find a bank that will work with you.

    While being considered a “risky business”—typically a start-up, mail order or homebased business—is one reason a bank may deny your merchant status request, the most common reason for denial is simply poor credit. Approaching a bank for a merchant account is like applying for a loan. You must be prepared with a solid presentation that will persuade the bank to open an account for you.

    You will need to provide bank and trade references, estimate what kind of credit card volume you expect to have and what you think the average transaction size will be. Bring your business plan and financial statements, along with copies of advertisements, marketing pieces and your catalog if you have one. If possible, invite your banker to visit your store or operation.

    Banks will evaluate your product or service to see if there might be potential for a lot of returns or customer disputes. Called “charge-backs,” these refunds are very expensive for banks to process. They are more common among mail order companies and are one reason why these businesses typically have a hard time securing merchant status.

    In your initial presentation, provide a reasonable estimate of how many charge-backs you will receive, then show your bank why you don’t expect them to exceed your estimates. Testimonials from satisfied customers or product samples can help convince the bank your customers will be satisfied with their purchases. Another way to reduce the bank’s fear is to demonstrate that your product is priced at a fair market value.

    The best place to begin when trying to get merchant status is by approaching the bank that already holds your business accounts. If your bank turns you down, ask around for recommendations from other business owners who accept plastic. You could look in the Yellow Pages for other businesses in the same category as yours (homebased, retail, mail order). Call them to ask where they have their merchant accounts and whether they are satisfied with the way their accounts are handled. When approaching a bank with which you have no relationship, you may be able to sweeten the deal by offering to switch your other accounts to that bank as well.

    If banks turn you down, another option is to consider independent credit card processing companies, which can be found in the Yellow Pages. While independents often give the best rates because they have lower overhead, their application process tends to be more time-consuming, and start-up fees are sometimes higher.

    You can also go through an independent sales organization (ISO). These are field representatives from out-of-town banks who, for a commission, help businesses find banks willing to grant them merchant status. Your bank may be able to recommend an ISO, or look in the Yellow Pages under “Credit Cards.” An ISO can match your needs with those of the banks he or she represents, without requiring you to go through the application process with all of them.

    Enticing your bank with promising sales figures can also boost your case since the bank makes money when you do. Every time you accept a credit card for payment, the bank or card company deducts a percentage of the sale—called a “merchant discount fee”—and then credits your account with the rest of the sale amount.

    Here are some other fees you can expect to pay. All of them are negotiable except for the discount fee:


    Start-up fees of $50 to $200
    Equipment costs of $250 to $1,000, depending on whether you decide to lease or purchase a handheld terminal or go electronic
    Monthly statement fees of $4 to $20 u Transaction fees of 5 to 50 cents per purchase
    The discount rate—the actual percentage you are charged per transaction based on projected card sales volume, the degree of risk and a few other factors (the percentage ranges from 1.5 percent to 3 percent; the higher your sales, the lower your rate)
    Charge-back fees of up to $30 per return transaction
    Miscellaneous fees, including a per-transaction communication cost of 5 to 12 cents for connection to the processor, a postage fee for sending statements, and a supply fee for charge slips
    There may also be some charges from the telephone company to set up a phone line for the authorization and processing equipment. Before you sign on with any bank, consider the costs carefully to make sure the anticipated sales are worth the costs.

    Getting Equipped
    Once your business has been approved for credit, you will receive a start-up kit and personal instructions in how to use the system. You don’t need fancy equipment to process credit card sales. You can start with a phone and a simple imprinter that costs less than $30. However, you’ll get a better discount rate (and get your money credited to your account faster) if you process credit card sales electronically.

    Although it’s a little more expensive initially, purchasing or leasing a terminal that allows you to swipe the customer’s card through for instant authorization of the sale (and immediate crediting of your merchant account) can save you money in the long run. Many cash registers can also be adapted to process credit cards. Also, using your personal computer as opposed to a terminal to obtain authorization can cut your cost per transaction even more.

    Once you’ve got merchant account status, make the most of it. Both the credit card industries and individual banks hold seminars and users’ conferences covering innovations in the industry, fraud detection techniques and other helpful subjects. Check with your credit card company’s representatives for details . . . and keep on top of ways to get more from your customers’ credit cards.
     
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  2. KeepFraming

    KeepFraming Guest

    In reading this article, I found a couple of questions I would like to pose to the forum for input. They are:
    1)"However, some banks do have minimum requirements for how long you should have been in business. This doesn’t mean a start-up can’t get merchant status; it simply means you may have to look a little harder to find a bank that will work with you."
    ...Experiences...? Anyone know of a website that lets you compare the fees/and requirments for eligability for a business to get merchants status?

    2)"...estimate what kind of credit card volume you expect to have and what you think the average transaction size will be."
    Experiences?...

    3)"In your initial presentation, provide a reasonable estimate of how many charge-backs you will receive, then show your bank why you don’t expect them to exceed your estimates"
    ...Has anyone never or very often had chargebacks?...What is your average in a year for chargebacks?...Did you see them coming, and do you think they could have been avoided?...

    4)"Another way to reduce the bank’s fear is to demonstrate that your product is priced at a fair market value."
    ...In your experience, does this entail getting specfic quotes from other town retailers?...

    5)"...ask around for recommendations from other business owners who accept plastic. Call them to ask where they have their merchant accounts and whether they are satisfied with the way their accounts are handled."
    ....I'm asking!! Anyone care to share?!

    Thanks in advance!
     
  3. JPete

    JPete <span style="color: red"><b><i>Charter Member</i><

    we accept Visa and MC. I don't know about the present but we signed up once for discover and it meant 7 day processing. At the time because we did and still do very little Credit card that was too big a hassle. We had to send to CA instead of processing through out bank. I'm sure that has changed.

    We just went from paper processing to telephone. Handy, but oh what if you make a mistake....used it a lot at Christmas and all went well. Money in our account in two days max. We've never had a charge back but I'm sure we are the exception.

    We could save by joining the state retail association but so far those dues and cost are still higher for what we do. We live in an area where checks and a persons word are still pretty much the norm. "Honest to Pete" we have had less than $100 not collected since 1975.

    Word of caution, don't believe everything you read. Sounds to me like the above excerpt was written by either Discover or Am. Express.



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    Knowledge is to be shared!
     
  4. John Ranes II CPF GCF

    John Ranes II CPF GCF SGF, Supreme Grumble Framer

    <BLOCKQUOTE>quote:</font><HR>Originally posted by JPete:
    .............but we signed up once for discover and it meant 7 day processing. At the time because we did and still do very little Credit card that was too big a hassle. We had to send to CA instead of processing through out bank..............<HR></BLOCKQUOTE>

    JPete,

    This was a problem/fault of the processor that your bank was using, not Discover Card. Most banks (Large & Small) farm out their credit card processing to outside companies.......some "sound" like they're part of the bank.

    Truth is that when you set up a business account with your bank, they will almost automatically set you up with their processor to handle MC & Visa sales. (US - different in Canada) That processor may also be set up to handle your Discover and American Express transactions as a "pass through"....actually sending them on to Discover & AMX for a fee.

    Annually, we do about 45% of our monthly business with credit cards, and in Nov-Dec that number increases to almost 65-70%. That's alot of transactions. With that in mind, I don't want to make it difficult for ANY of my customers to use the credit card they prefer..........hence we accept all four: MC,VS,DS,AX.

    The other area of concern are all the fees associated with CC processing. KeepFraming's first question was how does one compare.......it's tough. Don't let the straight percentage be the guideline. Sit down with a monthly statement and do a side-by-side comparison.

    For example, you can usually expect to pay an additional 1-2 points to process an "outside" card (DS or AMX), but look deeper into the fees. Some companies will charge an additonal fee as well as % points. You will pay different fees for Debit Vs. Credit Cards; swiped Vs. typed in Cards; Out of country cards; Monthly handling fees, etc.

    We recently sat down with a new company, referred by a larger business (friend), and changed to their processor. It saved us over $500 in fees during December. I will dig up the contact name and company, and post it in a follow-up posting later. Good company that we've now been with for 18 months.

    We obviously don't get that many AMX and DIS transactions in comparison to MC/VISA. But the average AMX sales is double. And it's simply good business. It says that you've gone out of your way to make the process easier/more favorable to your customer........like keeping longer hours, or gift wrapping for FREE or carrying that framed item to their vehicle.

    Regards,

    John
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    The Frame Workshop of Appleton, Inc.
    www.theframeworkshop.com
    Appleton, Wisconsin
    jerserwi@aol.com
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    [This message has been edited by John Ranes II, CPF, GCF (edited February 04, 2001).]
     
  5. Rob Markoff

    Rob Markoff PFG, Picture Framing God

    One point that has hardly been mentioned is the "float time" between the time you charge a transaction and the time you have access to the money in the bank. This is especially important to know when weighing fees. Access to your money has a value.

    With our vendor, we have immediate access to the funds the day they are charged. This is extremely important because we also have a "sweep" account that allows all money not immediately needed to cover checks written to be moved to an interest bearing account. The interest earned helps offset expenses.

    With most of our affluent clients using charge cards to earn airline miles, one of my stores does MOST of its business in credit cards. Our annual fees to credit card vendors is more than$13K! This expense is built into the prices we charge.

    Another thing not mentioned is that discount fees are based on an estimate of charges, average transaction, mail/phone order vs. swiped, etc. We request an annual review of our account and have received an adjustment DOWNWARD of our transaction fee percentage because our volume is going up as we grow the business.

    You might want to consider banking with other sources than conventional "banks." Many of the brokerage firms offer full service banking with interest bearing accounts that beat most conventional banks.

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    Rob Markoff, CPF
    San Diego, CA
     
  6. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    It's fantastic to see my good friend, Rob Markoff, post his advice. He's one of the bright guys in the trade. His counsel is always sound. We, however, have found our traditional bank to provide our best service for credit card processing. We tried one of those"we can save you money"outfits awhile ago with lousy results. With the interest and service charges we pay the bank, coupled with the $1500-1600 a month we pay in credit card fees, we found our leverage improved with the bank. Our personal banker really does the stuff you see promised on the ads. To us it's worth it. But as far as accepting all major cards, it's a no brainer. One thing that Rob didn't bring up that he advised to me years ago, bears repeating.He suggested we start paying our bills with a mileage credit card(we use Amex for this)to gain some mileage, rebate or gift points.Almost every vendor accepts cards and we make it a point of negotiation. We have a couple that don't, but we receive some other benefit from them.The key is pay it off every 30 days, the same as you would your vendor and let the points accumulate. Rob bragged about going to Europe often on the points, rightfully so.Bottom line: Last year our points gained me 7 airline tickets, 2 free rental cars, 4 nights at Hotel Del Coronado and several small gifts at Christmas time from the Amex gift catalogue. Thanks for the tip, Rob. Also on a personal note to Rob; Now that the wedding is over, I am finishing up instructions on the Costing program we spoke of. I'll send it to you this week.
     
  7. ChrisW

    ChrisW CGF, Certified Grumble Framer

    We've always accepted Visa/MC and Amex has been an on again/off again game for years ( we're on right now ), over half our business was CC. I say was because debit cards are taking more every month. I like this since CC fees are based on percentage but debit is a flat rate of 15 cents per transaction whether it's $15 or $1500 it only costs us $0.15. It's saving us a ton of money.

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    Wal-mart...the Ferengi of our times.
     
  8. Western_Winds

    Western_Winds Guest

    We accept Visa, MC, Amex, and Discover. We are thinking of dropping Discover. I know how Discover card holders get rebates, they charge US! Amex started charging us a flat fee until we complained, that's why we keep them on. Our merchant services company take care of the Visa/MC, but have to go thru Amex and Discover to get money.

    We would probably lose some good customers if we did not accept CCs. I personally wouldn't shop a business that did not accept mine.


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    Jim Price
    Western Winds Frame and Gallery
     
  9. Lance E

    Lance E Member

    Take money anyway you can get it [​IMG].
     
  10. TADPORTER

    TADPORTER MGF, Master Grumble Framer

    <BLOCKQUOTE>quote:</font><HR>Originally posted by Bob Carter:
    ...suggested we start paying our bills with a mileage credit card(we use Amex for this)to gain some mileage, rebate or gift points.Almost every vendor accepts cards and we make it a point of negotiation. We have a couple that don't, but we receive some other benefit from them.The key is pay it off every 30 days, the same as you would your vendor and let the points accumulate. Rob bragged about going to Europe often on the points, rightfully so.Bottom line: Last year our points gained me 7 airline tickets, 2 free rental cars, 4 nights at Hotel Del Coronado and several small gifts at Christmas time from the Amex gift catalogue. <HR></BLOCKQUOTE>

    Thanks for the tip Bob. Have been using a World perks Visa for years for personal stuff and NEVER thought to get a biz WP Visa (or any other mileage card) to pay vendors and gain points/miles. With last years' vendors costs alone I could have gone to see the Taj Mahal AND the Great Wall Of China. Amazing the simple things that fly by without even a thought.
     
  11. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    Mike-Don't thank me, thank Markoff. I, too, never gave it a thought. You're going to pay someone every 30 days, at least get some benefit to boot. It's painless and I find I write a lot less checks. It's a no-brainer, just be sure to pay it off every 30 days. At whatever APR you're paying to extend your payments defeats the benefit quickly. Some vendors (Studio) even give a early pay discount if you charge it at the time of order.I'm sure there are more, but it's easy
     
  12. Jim Miller

    Jim Miller SPFG, Supreme Picture Framing God

    Our original business planning almost 15 years ago made it clear that accepting credit cards would help our business. And it has; we've always accepted MC & Visa, then added Discover Card, and a few years ago we started taking American Express, as well.

    Our first processor was the local bank that handled our intitial start-up loan -- it was a package deal, and OK at the time.

    After a few years we moved on to Novus (Discover Card). When they got greedy, we went to Concord/EFS, but teir statements are hard to read and they've added new charges lately.

    Now we're seriously considering a change to NOVA. According to the representative, there are only two *direct* processors of MasterCard and Visa: First Data Corp. and NOVA. All other processors work through one of those two. The NOVA representative says that because there is one less "middle man" in the transaction processing chain, the cost is less (true, by his quote) and less lag time in posting transactions to our checking account.

    Anyone have an opinion on NOVA? Or any other specific recommendations for a processor?
     
  13. gemsmom

    gemsmom SGF, Supreme Grumble Framer

    We accept V/MC/AMEX/DISC. Most people use MC/VISA, but I don't like to refuse any card. I don't think it reflects well on the business to refuse the card of someone spending a large amount of money. I also have an airline milage card. Been lots of places first class and free. I like the fact I am also writing out fewer checks each month.
     
  14. Greg Gomon

    Greg Gomon CGF II, Certified Grumble Framer Level 2

    We signed up many years ago thru PPFA. Card processing is thru Novus which has a 3 day turn around for Visa/MC/Amex. Seems ok but I am always looking for a better service. Bob, thanks for mentioning Frequent FLier miles. I will sign up for one this week - seems like a no brainer.
     
  15. Bob Shirk CPF

    Bob Shirk CPF Guest

    You guys that pay your bills with a credit card, do large vendors like Larson Juhl accept credit cards? Do you give up your prompt pay discount when you pay with a credit card?



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    Bob Shirk CPF
    Blue Mountain Gallery
    Shippensburg PA
     
  16. gemsmom

    gemsmom SGF, Supreme Grumble Framer

    Most companies do not give the discount if you are paying by credit card. LJ does not. I pay as many as I can using the card, and I use it if I miss the discount date. You'd be surprised how much you can still put on it. I get around 100,000 air miles per year.
     
  17. Bob Carter

    Bob Carter SPFG, Supreme Picture Framing God

    Speaking from our experience, LJ does gives us the choice of 5% or mileage (easy choice), buteveryone else does accept the card and some even allow the 2% if you pay with card at time of order. Like Pam, it works for us. Usually I pay the statement with my card.
     
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