A merchant service account is the best way for your business to benefit from credit card acceptance. As popular as credit cards are already - around $2.5 trillion was charged in 2004 - their use is still growing: the exploding world of online commerce and the increasing use of credit cards in business-to-business transactions will continue to drive this expansion. If your business isn't already accepting credit cards, you might be missing out.

By starting credit card acceptance, businesses who currently invoice all their customers can improve cash flow: payment times go from 30, 60, and 90 days down to three to five days. You'll also reduce the hassle of sending late-payment notices. And surprisingly, in controlled scientific experiments, retails stores displaying their acceptance of credit cards saw cash sales increase by 29%.

Companies who thought their average transaction was too small to benefit from a merchant services account may be surprised at how many customers will whip out the plastic for a $5 sandwich, especially due to the increased use of debit cards. And if you're finding that third-party merchants like PayPal and cc:Bill aren't cutting it for your web site any more, you might be ready to move up to the big time and establish your own credit card acceptance account.

Setting up to accept credit cards

The terms and players involved in setting up merchant services can be confusing. And there are definitely some lower-than-dirt scam artists out there who will try to stick you with unfavorable terms and tricky contracts. Here are the players you should know:

• Banks - Your everyday business bank should be the first place you contact about credit card acceptance -- many banks offer small business packages that include merchant services. Banks can be picky about accepting your application, though.
• Independent Sales Organization - An ISO is essentially a credit card broker. They set up and service merchant service accounts so you can accept credit cards, but do not do the actual processing. ISOs are less selective than banks, but that comes at a somewhat higher price. They are also not strictly regulated the way banks are, so be particularly vigilant when evaluating potential suppliers.
• Financial Service Provider - MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them.

You should also inquire at the various business associations and trade organizations you belong to - some of these groups offer good deals for small merchants through the power of bulk purchasing.

How much is it going to cost you?

The recurring charge you'll have to pay is called the "discount rate", which is somewhat misleading since it's no discount to you: it's the percentage of each sale that goes to your provider. The rate will be set according to your expected volume, risk of chargebacks, and average transaction size, but is typically 1.5% to 2% for in-person transactions, and 2.2% to 3.0% for phone and Internet transactions. In addition, a fee of $0.20 to $0.50 will be tacked on for every transaction.

In addition, there are an astonishing number of other fees related to credit card acceptance: statement fees, annual fees, programming fees, Internet processing fees, customer support fees… essentially a range of arbitrary jack-up-the-bill fees. We cannot stress this enough: make sure you have a complete understanding of all the one-time, monthly and per-transaction charges you will incur before making your decision.

BuyerZone helps businesses of all types find the suppliers they need. Answer a few simple questions and we'll connect you with ISOs and other merchant services providers in your area.