Cleaning & Restoration Association News

Does Your Company Accept Plastic?

May 10, 2005
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For your small business, plastic - credit cards, that is - may be the key to future growth. Today's consumer expects to be able to pay for home repair items and services with plastic.

If your business doesn't accept plastic, you've probably got more dissatisfied customers than you realize. Whether for convenience, security, loyalty awards, or just plain habit, today's consumers prefer to pay with plastic. They are ditching checks in favor of credit cards in record numbers.

Not offering your customers the option to pay with plastic means fewer customers and ultimately fewer sales for your contracting company. If your competitors accept credit cards and you don't, your customers may soon start doing business with your competitors.

How To Accept Plastic
The process of setting up your contracting company to accept card payments is neither mysterious nor costly. Here's what you do:

Get ready to apply for merchant status. You must establish merchant status with each of the credit card companies you want to accept. American Express and Discover issue their own cards, so you need to apply for merchant status directly with them. Simply visit their Web sites for application details.

Visa and MasterCard are effectively brand names backed by an association. Their association membership consists of all the member banks that issue Visa and MasterCard credit cards. So, to start taking Visa or MasterCard, you must establish a merchant account with one of the several thousand banks that issue those cards, called "acquiring banks." You can do this either by going directly to the bank or by working with an independent credit card processor - a company whose only service is processing credit card transactions for small businesses like yours.

Establishing a merchant account isn't always a slam dunk. When you approach a bank or an independent credit card processor, its fundamental concern is whether your company will go out of business before merchandise is shipped, in which case it would have to absorb the losses. Therefore, they will thoroughly evaluate your product or service to determine the potential for "chargebacks" - credit card terminology for funds returned to customers.

If they don't deem your company worthy, sorry - no merchant account for you! Alternatively, they may ask you to put down a security deposit - money in the bank that you won't touch that they can tap into just in case your chargebacks outpace your account balance.

Given that issuers are selective in allocating merchant accounts, it's important to approach your application as if you were applying for a loan. Be prepared to convince the bank that you are a good risk. You need to provide trade references, estimate the credit card volume you expect, and what you think the average transaction size will be. Bring your business plan, financial statements, and any marketing materials, e.g. catalogs, Web screen captures, print advertisements, etc. Be especially prepared to provide a reasonable estimate of how many chargebacks are likely. Satisfied customer testimonials and a demonstration that your product or service is priced at fair market value will help lessen their chargeback exposure concerns.

Shop around and compare. All merchant accounts are not created equal. Even though they may be the best for establishing a merchant account, don't limit your choices to the bank that you currently do business with. Do your homework and shop around. Taking charge of this process by knowing what is expected and knowing your options will put you into position to recognize and negotiate a better deal. And if you find that nobody is offering you a merchant account, find companies that are similar to yours that accept credit cards and ask them how they do it. If they can do it, you can, too.

When an issuer's representative offers to set you up with a merchant account, compare the services, fees, and terms they offer with those of other independent credit card processors and banks. Evaluate the hardware or software they provide; would it work for your business? Always ask, "Is this the best deal you can give me? Is there anything I can do to get a lower rate?" You'd be surprised how willing some issuers are to negotiate. In some cases, great terms really are too good to be true. The Internet is littered with "Accept Credit Cards!" offers from questionable firms, so ask other small businesses and your accountant for referrals.

Don't forget your backend accounting system. A very important aspect to consider is whether the transaction equipment or software you will use to accept credit cards will integrate into your company's computer system and accounting procedures.

Most card acceptance equipment is easily linked with small business accounting software. In some cases, software vendors will even set you up with a merchant account, usually via a third-party relationship they have in place. For example, small business management software vendor MYOB offers a Merchant Account Service that makes it easier to process credit card sales directly from its software. Credit card transaction settlements are automatically and accurately reflected in daily cash flow and invoicing procedures. Peachtree and Intuit's Quickbooks - two other desktop accounting software vendors - offer similar services.

Avoid a scenario in which you start accepting credit cards and then have to manually key credit card sales into your accounting system. That is a recipe for disaster; the potential for error is very high.

Once you've established your merchant accounts and wired up the equipment and software that you'll use to process the cards, you're ready to let your customers know. Put appropriate credit card logos on your business's front door, invoices, and Web site. You can get those logos from the processing companies.

The bottom line is that all customers expect to be able to pay via plastic. Focus on the core goal of your business -giving customers what they want - by letting them pay the way they want.

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