The primary focus of most small businesses is not necessarily to improve the efficiency of their payment processes. Yet, 500 million credit cards are used in the US alone. In addition, consumers and vendors alike are demanding other types of electronic payment. As a result, local business owners really must educate themselves on merchant services.
The primer below is intended to educate small business owners about payment processing via merchant services.
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Many payment options are available between consumers and small businesses, or between small businesses and their vendors. Traditional payments like cash and check are still available as well as a variety of newer electronic payment options.
● Business checks. Checks continue to be a widely accepted payment method. However, processing costs are high (purchase price of check stock, toner, and postage; the labor of signing, stuffing, and mailing).
● Wire transfers. The electronic transmission of funds from one financial institution to another involves an order to pay a certain amount to a beneficiary upon receipt, or on a day stated in the order.
● Credit cards. Cardholders make purchases using a line of credit granted by a card issuer.
● Debit cards. Cardholders make purchases using funds pulled directly from their checking accounts.
● Internet Bill Pay. A payment service that facilitates both one-time and recurring bill payments through electronic mediums.
● Automated Clearing House (ACH). The network through which batches of funds are electronically transferred between banks. ACH transfers may be automated or performed at the request of a bank account owner.
A merchant services provider is the entity that allows a business to accept payments by credit card or debit card. Through the merchant services provider, a business will establish a “merchant account.” This account functions as an agreement between the business, a merchant bank, and a payment processor. The role of the payment processor is to work with the bank to process payments. A merchant services provider should help a small business owner or financial service manager determine which solutions are right for their business. “Merchant services” typically include both the software and hardware required for a business to accept and process credit card or debit card payments. These services should be able to cover both online and in-store Sales.
When a local business (doesn’t matter if it is an eyewear boutique in NYC or home improvement contractor in TX) is seeking to establish a relationship with a merchant services provider, below are some of the issues and services to discuss:
● Do they have a small business focus?
● Which credit card solutions do they offer?
● What are their transaction fees?
● Do they offer services to set up local businesses as ACH receivers
and originators?
● Do they offer fraud monitoring and prevention tools and alerts?
Merchant services allow small businesses to expand their customer base beyond buyers using cash or checks. Having the ability to process payments electronically and safely also opens the doors to customers shopping online.
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