Last week I was down in New Canaan, CT, visiting my friend Greg. I took a walk at lunchtime one day, stopping by a little restaurant in town to grab a salad and bring it back to the house.
When I went to pay, I handed my debit card to the girl behind the counter. Instead of taking it, she said, “Sorry, our credit card machine is broken. It happens all the time. You can pay next time; just sign the receipt and give us your phone number.”
I told her that I live in Boston and it would be a least a week before I returned (she said that was fine). Then, being unable to keep my RocketGirl brain under wraps, I asked whether a frequently broken credit card machine cost the restaurant a lot of money.
“Not really,” she said. But I wondered.
What do they do with all those receipts and phone numbers, anyway? I mean, it’s nice that they trust me to return (I went back and paid the next week) but, human nature being what it is, I’m sure many people just forget about it and never settle up. There’s the potential for a lot of free food to go out the door.
I started thinking about how easy it would be to fix this problem with the right equipment and the right credit card processor. And, even though credit card processing might seem mysterious, it’s really pretty straightforward when you know the basics:
1. The Payments. In order to accept credit cards you’ll need a “Merchant Account.”
To get one, you need to apply with a credit card processing company. They’ll ask you a bunch of questions about your business and the size, frequency and type of transactions you expect. Nothing too complicated, along the lines of applying for a car loan.
Credit card processing companies are everywhere these days, at your bank, Costco, and plenty of independent companies (including my favorite, PowerPay).
2. The Equipment. Once you have your merchant account, you’re ready to set it up and start processing those transactions!
If you’re using a physical cash register, you’ll need to integrate it with your merchant account, using either a separate credit card terminal or your Point of Sale system (POS). Your credit card processor can help you set this up.
If you want to link a “buy” button on your website to your merchant account, then you need to have a shopping cart application and payment gateway. Authorize.net is my favorite payment gateway because it’s reliable and integrates with almost every shopping cart. Your website developer can help you to get this going.
3. The Bank. At the close of each day, your credit card processing company will run “a batch.” This is when the cards that were authorized that day are actually charged.
You’ll want to reconcile your batch reports to your bank statements to make sure they match. Often the transaction and processing fees are taken out at this point, so you’ll need to account for them as well to make sure things add up.
Visa, MasterCard and Discover usually take two business days to deposit the money into your account; AmEx takes three.
4. The Price. Fees for merchant accounts vary based on a number of criteria, including whether or not you’re swiping the physical card (higher fees, if not) and the number of transactions processed.
In general, though, the three things you want to pay attention to when comparing vendors are:
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- The monthly fee. Even if you have zero transactions in a month, you’ll usually pay a flat monthly fee.
- The percentage of each sale charged, which is a function of the size of the transaction.
- The flat fee for each transaction.
5. The Company. While price is important, make sure that you also like the company you’re dealing with. This is an important relationship in your business life; they’re going to be handling the flow of your money.
Make sure they have all the reports that you’ll need available online. Make sure you have an assigned rep to your account (not just an 800 number), and make sure they’re familiar with your particular cash register system and/or shopping cart.
That’s about it! Like I told you, pretty simple stuff.
But…none of that means anything if your machine (or any of these other essential pieces) is broken, offline, unreliable or anything else that keeps you from simply and consistently charging customers.
That’s it for today – I’m off to pick up another salad. I wonder if I’ll be getting it for free?
I recently set up a merchant account for my management consulting business due to the launch of a trade show where many clients wanted to pay for exhibit booths by credit card. I used Bank of America, and because I was a) new to accepting credit cards b) my business is dealing with intangible product – a trade show booth at some point in the future (there is no physical product to look at) and c) there were companies from around the world (actually just the USA and Canada, but that is ‘international’) the bank required a personal visit by an auditor to see my business. As a solo practitioner my business is me in a tiny home office. The auditor needed to see a formal business certificate (in my case a ‘Doing Business As’ certificate from my town) hanging on the wall. It wasn’t when she got there so I grabbed the tape dispenser and taped it up. She took three photos as proof – me with the dba certificate, my desk (in it’s overloaded with paper stacks glory) and me at the front door to the house with the house number visible.
Not sure this type of audit eliminates the possibility for fraud with small business credit card processing but it did get me looking at Square, Intuit’s credit card system and other POS options. Good to see from your blog post today that there are other options…in case the fees with this big bank are too high.
Hi Bill – Thanks for your great comments. You mentioned Intuit so I wanted to make sure you know about this: https://paymentnetwork.intuit.com/. I started using it last month and it’s a great solution for people like me who only process a couple of transactions a month. It gives clients an alternative to writing a check – and the payment comes into my account very quickly – in one instance overnight. I’m a big fan.
And what about Square. It is the greatest thing since sliced bread. I don’t do a lot of credit card processing so this is the best solution for me:
– no startup cost
– free hardware – they will send you a square (about the size of a postage stamp) to swipe credit cards on your phone
– works with your smartphone or tablet
– no monthly fee
– transaction fees that are even lower than what my bank offers
– money delivered to my account that night
Check out https://squareup.com/
I am surprised the deli doesn’t have one as a backup to their unreliable cc processing machine.
Hi Katie – Thanks for this info – I just signed up. It looks awesome and the rate is very competitive. And ok – the square is really cute.
PS – when I signed up they sent a text to my phone with a link to the app. Love that! Very smart.