biz ladies: setting up your business to accept credit cards

rosie_the_riveter1
it is my pleasure to introduce our newest biz lady, lauren venell.  lauren is an independent designer, artist, and small business consultant in san francisco.  she runs biz miss, a small business blog for creative professionals and teaches small business workshops around the bay area.  lauren is also an organizer for bazaar bizarre san francisco and for the 2010 conference for creative professionals in seattle.

today she shares with us some helpful advice on how to accept credit cards at your businesses.  the process can be difficult to follow, but lauren clearly outlines the proper steps and materials needed to get started.  she actually makes using ‘plastic’ sound fun (and profitable)! thanks lauren for making this complicated process a little easier to digest! -stephanie

CLICK HERE for the full post after the jump!

If you’ve been thinking about starting to accept credit cards but the process has you utterly baffled, don’t worry—you are not alone. When I first decided to start taking credit cards, it took me weeks to sort out the fees, the terminology and the parties involved, and even longer to feel secure that I was buying what I needed at a reasonable price.  To save you some of that hassle I’ve laid out the process below.

Step 1: Estimate whether your business can afford to accept credit cards.

For a small business, accepting Visa and Mastercard for in-person or phone/fax/mail sales will cost you around $25 a month, plus 3.5% of each transaction, often with a $20 monthly transaction fee minimum.  If you want to accept credit cards through your web site, add another $20 a month for a gateway, shopping cart, and/or SSL encryption (more on this later).

But how can you tell how much accepting credit cards will increase your sales?  Here are two commonly used rough estimates:

–you can estimate an increase of about 25% (I found this to be true for my own business).

–for in-person sales like those at craft fairs or brick-and mortar stores, you can estimate an increase rate about equal to your average sale.  In other words, if your average sale is $20, you can estimate about a 20% increase in sales from credit cards.

Here’s a quick example: if your monthly sales average $500 and your typical sale is $10, you can expect $50 more each month in sales (a 10% increase), but your processing fees will eat up nearly all of it, so it might make sense to wait a little longer before signing up to take credit cards.

Step 2: Know what you need.

Depending on your business, you may need some merchant services and not others.  It’s important to figure this out before you start searching for a “merchant service provider” so that you don’t end up paying for products you don’t use.

No matter what, you will need a merchant account.  A merchant account is basically an intermediate account between your bank and the customer’s card-issuing bank.  A merchant account is presided over by a merchant acquirer (usually another bank), who is responsible for finding out whether transactions have been accepted or declined. Here’s how it works:

The day of the sale…

  1. Susie buys a handmade scarf from you for $50.  She hands you her Washington Mutual Visa card.  You swipe or imprint the card and she signs the receipt.
  2. You send the information about the card and the transaction to your merchant acquirer.  You might type this in yourself on a phone or through a website, or it might get sent automatically if you swipe the card using a terminal.
  3. The acquirer sends the info to Visa, and then Visa sends the info to Washington Mutual for verification.  If everything is cool (i.e. the card number is valid, Susie hasn’t exceeded her credit limit, etc.), Washington Mutual authorizes the transaction to Visa.
  4. Visa tells your acquirer that everything is approved.  Your acquirer keeps a record of the authorization for later (called “batching”).

The next day…

  1. Your acquirer takes the batch of all the approved credit card transactions you made that day and sends them back through Visa for payment.
  2. Visa sends all of the transactions to the appropriate card-issuing banks, including Susie’s for $50 to Washington Mutual.  Washington Mutual pays Visa the $50, and Visa pays the acquirer.  The batch is now “settled.”
  3. Once the acquirer gets paid, they put $50 minus their transaction fee into your merchant account.  Usually, the money is then transferred to your business’s checking or savings account the following day.

Now that you know how it works, it’s time to decide what you need. You’ll need most basically to decide on your merchant account, equipment, and in some cases, your processing method.

The Merchant Account:

Lots of places offer merchant accounts, including banks, trade associations, and third-party companies.  Unfortunately, fee structures are not consistent from company to company, so it can be tough to comparison shop. Here are the most common charges to check on:

–One-time set-up fees

–Annual or monthly fees (often called “statement” or “reporting” fees)

–Per transaction fees

–Transfer fees (for transferring the money from your merchant account to your bank account)

–Monthly minimums

–Equipment fees (terminal lease, imprinter and name plate, etc.)

–Any other fees they haven’t told you about yet

You might have to do a bit of math to figure out the best combination of fees for your business.  If you have low monthly sales, for example (like if your business is part-time), your best bet is a merchant account with low monthly fees even if it means higher transaction fees.  If, on the other hand, you make a lot of small sales ($10 or less), you’ll want to look for a merchant account with percentage-only transaction fees (3.5%), rather than fees that take a percentage plus a fixed charge (3.0 % + $0.50).  Propay is a popular merchant account with small-volume businesses.

Equipment/processing method:

This is the device you use to collect your customer’s credit card info.  There are three common options:

“Knucklebuster” credit card imprinter:  This is the old-school sliding machine that physically rubs the credit card info onto a receipt.  You need to get the name plates for these directly from your merchant services provider.

Pros: portable, don’t require electricity or a network connection, inexpensive ($25 for machine and name plate and $20 for 100 receipts).

Cons: inconvenient, require manual entry of transaction info, offer no instant authorization.

Best for: craft fair vendors or people who need a cheap, portable device to use occasionally.

Processing method: manual entry of all data via “MOTO” processing (telephone) or “virtual terminal” (online form).  For an extra fee you can sometimes add cell phone processing to get instant authorizations while on the road.

Credit card terminal: this is the machine that you swipe your card into. Some print receipts directly, and others connect to a computer or cash register running “Point-of-Sale” (POS) software, which might cost extra.  They need to be hooked up to a phone or data line, but this can be done wirelessly.

Pros: convenient, offer instant authorization (and therefore cheaper transaction fees), can be integrated directly accounting software like Quickbooks.

Cons: expensive ($300-$1000 per system), require electricity and phone/data line, non-portable

Best for: people with brick-and-mortar stores, offices or studios who process a fair number of credit cards each month.

Shopping cart and payment gateway: these are web tools you need to process credit cards through an eCommerce site.  The shopping cart collects your customers’ information, and the payment gateway transmits it securely to your merchant acquirer.  If the checkout page of your shopping cart isn’t secure, you might also need to add SSL (Secure Socket Layer) encryption to your site. Your web host can usually provide this for about $20/year.

I won’t go into detail about the various e-commerce products now, but here are some examples:

-Shopping cart: Shopify, Zen Cart or Mal’s eCommerce.

-Payment gateways: Authorize, LinkPoint, and Paypal’s PayFlow.

-Combo merchant accounts/shopping carts: Paypal Merchant Services or 2Checkout.

Pros: convenient, offer instant authorization, allow you to take credit cards over the internet.

Cons: requires separate monthly fees, can be complicated to set up, not all shopping carts work with all gateways.

Best for: people who want to set up web stores that move beyond Paypal.

Phew!%C

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iPhone Credit Card Processing Apps

Hi guys! Grace here, I just wanted to add a quick note. If you’re running a small business and do the majority of your business at shows and festivals and would like to also accept credit cards, be sure to consider these new devices/programs that let you turn your iPhone into a credit card charging machine- complete with signatures, photo identification, and digital receipts. They’re easy, perfect for traveling and are great for small businesses that need to be able to transition from accepting cash to accepting cards. Be sure to check out the fees up front, just like with the more traditional systems above. iPhone apps like this often charge a small transaction fee (like $0.30) per charge along with their percentage cut, so be sure that your business is ok to handle that fee structure first.

*There are TONS of these types of apps, so be sure you do a little Googling to review the system you’ve chosen first. Most of these have received positive reviews online, but there are dozens out there to try.

margaret Haas

I used to pay $25 a month but now I pay $60 a year, and a higher percentage per every transaction. It works out because I rarely use the service, only during craft fair season. Its propay.com, and for some reason, it never works on my safari, use firefox. It works perfectly for my situation.

anastasia Faiella

Wow this is all great information. I am an interior designer and I am trying to decide if it makes sense for people to be able to pay for my services with a credit card and or product that I sell to them.
I was looking into Pay Pal. Any thoughts on this option?
thanks,
Anastasia

summerland

Such great and timely advice. We’re probably going to get iPhones this year specifically to be able to process credit cards during market season. Thanks for making my homework easier!

grace

anastasia

we use paypal for our ad program currently and love it- the ease of use and documentation for tax purposes is really great. the fee seems steep, but we’ve really loved it so far.

grace

nosheen

thanks for the advice!
Does anyone know whether propay has the ability of emailing a receipt to the customer? I was thinking about signing up for propay and accessing through my iphone but I was trying to consider ways to give the customer a receipt of transaction.
thanks for you help!!

Caroline

My boyfriend works for Heartland (one of the main payment systems). Hearing him talk about the credit card industry is actually quite fascinating, and the differences between the main ones are significant.

Lisa T

Hi, I’m starting a new business this year selling handmade items. This information is great- I’ve just started looking into the the whole credit card / ecommerce systems. This article answered a lot of questions.

ecogrrl

Just starting out? Set up a Paypal account. Keep it simple. My Etsy store is perfect for my small truffle business and Paypal works just fine.

Nina

Here in Australia I use a mobile/portable POS unit out in the field at markets and fairs! It’s like the swipe + keypad unit you have at a shop counter or checkout, only it runs off the mobile phone network – there is a SIM card inside. I can swipe credit, debit and regular ATM cards. I find the cost is easily absorbed by my extra sales but my products are popular at the moment, soy candles in boutique containers. I wonder why US banks haven’t gotten on to this?? Electronic POS has been hugely popular in Australia for 20 years now, I haven’t seen anyone use a chequebook in over 10 years.

nauli

We never think about accepting creditcards so far. I think here in Germany it’s still not common at craft markets. But this Iphone solution sounds good. And it might bring some more sales…

Kipp Yost

I have a quilt show/craft show business and have taken credit cards for at least 1/2 of the 16 years I’ve been in business. It really does increase sales. I have just switched to a program called “Every Swipe Counts” – a collaboration of Susan J. Komen foundation and Century Payments. Very sweet deal! I was thinking about the cell-phone capable system, but there are lots and lots of extra charges which add up. Check out http://www.everyswipecounts.com

Miriam Karp

I’ve been using merchant credit for about 4 years now. I did a lot of research about fees before deciding who to go with. Costco has a professional level membership ($100/yr) which gives you access to merchant credit. It was the most reasonable one I found. Be aware of hidden fees with other merchant credit offers. I’ve loved the Costco service.

Lauren Venell

Paypal is a great way to accept credit cards online, but some of my customers have trouble understanding that you can pay through Paypal without actually needing a Paypal account.

Paypal is not ideal for events like craft fairs because it requires an Internet connection on-site and customer who are willing to type in all their information at your booth. And no, you cannot collect people’s information at the fair and then enter it later using a dummy Paypal account to pay yourself. That constitutes impersonating your customers and is considered credit card fraud (i.e. illegal).

Lauren Venell

nosheen

Propay takes care of the merchant account side of things. What you use to swipe the cards determines what kind of receipt your customers will get. You can print receipts using a mobile terminal or some iPhone attachments, for example. Otherwise, if you use a knucklebuster, you’ll have to fill out the receipt yourself, the old-fashioned way. :)

sharon budijono

i use paypal merchant only for shows/fair, but cancel it everytime after since i don’t need it. it’s easy to set up, and doesn’t charge you to set it up (but it charges you fee when you process it.) most of the apps are for iphone, what about blackberry? are there similar apps? i’m considering both phones right now.

Margo Duke

This article is so timely, I can’t believe it. I’ve never had a booth before and have been invited to speak to a large group and in return will be given a booth. Needless to say, I’ll need to take credit cards and after reading everything I could find, I was still confused until I read this post and since I have an i-phone, I at least know where to begin. Thank you, thank you!! I love everything about designspongeonline.com – the first thing I look for in my mail :-)

Cliff

Our iMerchant Pro, credit card processing app for the iPhone (previously mentioned) lets the customer “sign” the charge slip with their finger. No card imprint or “knucklebuster” is required with our app.

QMS

This is a great breakdown of the process and options to accept credit cards. I will add that some of the new smartphone apps have detachable printers that can be added on for receipts.

Kyle

The company we used has no annual fee, no sign up fee, free paper supply, free knucklebusters and 24 hour customer service that answers in less than 10 minutes. We don’t use the phone applications because they cost so much in upwards of 4.5%. I looked at propay and they are way too expensive for small businesses. They take all of the profit away. My total fee’s are never higher than 2.5% of my total amount processed Quickbooks and Intel are a merchant services team so you have to pay them a fortune! I had it once and canceled within a year. Have any questions feel free to ask with an e-mail they dealt with me locally. chattpc@gmail.com

Julie

For those of you trying to find a mobile credit card processing solution, you should check out PhoneSwipe via http://www.moblized.com. I have been using them for 5 months now. I have a small boutique, but use PhoneSwipe for traveling trunk shows. It’s amazing! The rates are competitive (no monthly, no annual, no hidden fees) – it’s a pay as you go system. I’ve really enjoyed it so far! Thought I would pass the info to my fellow business women =)

Nima Houston

We would like to get some information on how to start accepting credit cards and some one told us we could get set up for free for our business.

Sally Murphy

This is a good list and brings up a lot of great options. I’ve personally used Shopify (http://www.shopify.com) for business endeavors that require a big ecommerce system (if you have a catalog of products) but for smaller businesses and especially people who prefer a “full service” solution I would highly recommend a system like Secure Order Form (https://www.secureorderform.com) because they will actually build you a custom form and get you linked up with PayPal or whoever your payment processor is. It can get expensive if you try to hire a web developer to do this kind of thing for you so this can be a good solution if you don’t want to spend too much :)

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