Here in the 21st century, most people don’t want to rely on cash or checks to pay for the goods and services they need. They expect to be able to use their trusty credit or debit cards almost exclusively. This isn’t just the case when it comes to in-store transactions either. People are increasingly interested in using their cards to make payments online. A given business that doesn’t offer this as an option runs the risk of losing its customers to competitors simply because the competitors make payment more convenient.
For that reason, a merchant account is an absolute must for any business that’s serious about becoming as successful as possible. It’s the easiest, most convenient way to make relying on outmoded paper invoices and snail mail a thing of the past as well. Here we’ll go over some of the most important things every business needs to know and consider before opening such an account.
1. Understand what issuing banks and account providers are looking for.
The entire process of accepting payment via credit cards or debit cards comes alongside a certain degree of risk. Every single dollar and cent charged could be charged back at some point if the business in question proves incapable of delivering the goods or services as promised. Should that happen, the payment processor’s bank is usually left liable for the funds.
For that reason, a bank is going to look at the overall legitimacy of your business to ensure there are no possible fraudulent intentions behind the request for a merchant account. They’ll also be looking at the risk factors attached to the type of business you’re in. (High risk merchants include those in the travel industry, e-commerce merchants, Internet auction businesses, and telemarketing businesses.) The higher the risk, the more likely chargebacks are ultimately going to be. Account providers also consider factors like the length of time you’ve been in business, the standing of any previous merchant accounts you may have had in the past, and your credit rating.
Before you apply for a merchant account, make sure everything’s in line as far as how your business operates. Also, make sure underwriting is a smooth process for your business going forward by taking advantage of any help resources your merchant account provider may offer.
2. Make sure you have a business account.
Before you open a merchant account, you’ll want to set up a business bank account for receiving the funds collected. This is the case even if your business is a total one-man show. This account will become the default destination for all of the moneys you collect via your merchant transactions. It will also be the account from which any applicable fees will be deducted.
Setting up such an account is as simple as visiting the local branch of your existing bank and asking for one. They’ll just need your business license info, as well as your employer identification number (EIN). You can easily obtain an EIN if you don’t already have one by visiting the official IRS website and requesting one. Alternatively, if you’re a sole proprietor, your social security number can double as your EIN.
3. Make sure you have a business license.
Unless you are running a one-man-show in regards to your business, you will need a business license. If you don’t have one, get one, as you’ll eventually need it for other reasons beyond simply opening your merchant account. (This can be done by registering your business via the Secretary of State’s official website.) Your merchant account underwriters will most definitely expect to receive a copy of your business license in order to validate the legitimacy and legal standing of your company, no matter how big or small it might be.
4. Begin the application process.
You don’t have to worry about mailing or faxing a paper application in order to be considered for a merchant account. Most providers these days make the process simple for you by letting you apply online and sign using an e-signature. Most applications are pretty straightforward and to-the-point as well, so you don’t have to prepare yourself for a lengthy process that will take up an hour of your time.
During the application process, you’ll be asked for detailed information about your business, as well as anyone that will be an authorized signer on the account. Before you start the process, make sure you have your business bank account and routing numbers handy, as well as your tax ID (EIN or social security number). You’ll also probably be asked to provide full contact information and personal information for authorized signers, as well as the exact start date of your business.
5. Different payment types may call for separate merchant accounts.
Many businesses simply want to be able to accept credit or debit card payments from their customers and clients. However, certain types of businesses may also want the ability to accept e-checks and other similar forms of payment. If this is the case for you, understand that you may need more than one account, possibly from more than one provider. (Note that Authorize.net and PayPal.com don’t allow high risk processing.)
This may or may not require you to fill out a separate application. When applying, be sure you select all types of payment you’d like your business to be able to accept to streamline the process for everyone involved.
6. The processing volume you’ll be dealing with counts.
Keep in mind that the more money your business needs to be able to process on a monthly basis, the more documentation you’ll need to include with your application. Many small or independently owned businesses, including sole proprietorships, just need to be able to move a few thousand dollars every month. If that’s the case for you, you’ll probably only be asked to provide marketing material for your business, as well as a voided check and a couple of bank statements.
If you plan on processing more than that, you should also be prepared to provide the account issuer with lots more financial information. Examples include several months of bank statements. Some businesses may be required to provide up to two years of documentation showing statements of profit and loss as well.
You’ll also want to keep in mind that your payment processor will keep a close eye on your account’s activity going forward. For that reason, you’ll want to be very accurate and honest when it comes to stating your processing volume. Habitually exceeding your processing limits, especially when your account is very new, isn’t a good idea.
7. It doesn’t take as long to be approved as you might think.
If you’re picturing a lengthy evaluation process that will leave you wondering for months whether or not you were approved for a new merchant account, don’t worry. Depending on how quickly you can submit any documentation required of you, it’s possible for your account to be open, set up, and ready for you to use within a single business day or two. (It’s not even unheard of for the process to take mere hours.)
Just keep in mind that underwriters do tend to stick to standard bank hours. If you submit your application for consideration after business hours, it probably won’t be reviewed until the following business day.
8. You only need one merchant account for both your brick and mortar shop and your online shop.
Yes, you may need separate merchant accounts to process very different forms of payment (as touched on above). No, you do not need a separate account for your e-commerce website from the one you use for your physical storefront. If your platform is the same, you can use the same account for both.
That said, if you already have a merchant account set up for your physical location or storefront, check with your account rep before starting the application process over again for your e-commerce presence. The chances are pretty good that you’ll simply be able to use one account for both.
9. Understand how funding times, processing fees, and the like may vary.
Sometimes there are differences between payment types as far as associated fees, so keep this in mind from the get-go. For instance, e-check processors may simply charge you a flat rate while a credit card processor may do that plus a percentage fee. Fees can also vary from one credit provider to another, as well as according to whether or not the card is actually present at the point of sale.
Payment processing times can vary as well. For instance, e-checks or similar payment options may take up to five business days for funding to take place while credit card payments may only take 48 hours or so.
At the end of the day, opening a merchant account is an important part of growing your business and helping it reach its full potential and it’s simpler than you might think.
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