Merchant Accounts...Simplified

When it comes to understanding any faction of business, simplicity is the key. Unfortunately, the subject of merchant accounts can be one of the most difficult and important concepts for a merchants to understand, when the are looking to expand their business.

What is a Merchant Account?

A merchant account provides a business owner with the ability to accept credit cards either online or on location. The term merchant account is an industry term used to describe when a business owner and a bank have contracted to accept credit card payments. Establishing the account with a bank, Independent Service Organization (ISO) or a Merchant Service Provider (MSP) allows the merchant/business owner to receive and process credit card transactions from their customers.

Obtaining a Merchant Account

When you apply for a merchant account through your bank or other financial institution, your business will be subject to a charge back risk evaluation. A chargeback will occur when the products or service you have provided to the consumer are considered faulty, or have not been delivered according to the guidelines originally set upon. If these occur your consumer has the right to dispute the charge placed on their account.

Common causes can range anywhere from a discrepancy in the way your company’s name appears on advertisements, receipts, your customer’s credit card.  Another common cause is charging the customer for the goods before they have been shipped or your services have been provided. You can prevent this by not submitting the “deposit” transaction before the goods have been shipped.

In these two cases, the matter can be resolved through the retrieval request sent by the bank to your processor. You must provide proof that the goods or service were delivered; proof generally consists of a document (such as delivery receipt, credit card receipt and/or store receipt) signed by the cardholder. Once this documentation is provided, the matter is settled.

This is only one of things that your merchant account holder will look into prior to approving your account. When evaluating a prospective business the underwriting bank will look into as many factors as they have access to. These factors include industry type, business history and any personal information available on the individuals owning and operating the business.

A merchant account is like a short term line of credit. And because of this, the person applying will be required to sign a personal guarantee to provide the institution with the necessary safety net. In some cases, a business may be determined to be high risk and additional steps are required to obtain the account.

Benefits of Obtaining a Merchant Account

The major benefit of obtaining a merchant account is your business’s ability to process credit cards and the opportunities it provides. This can open up new avenues for your business allowing for you to do business over internet, through the mail or over the phone. Credit cards allow for responsibility from all parties and prevent such modern disasters as fraud and shady business practices. By obtaining a merchant account, you are providing your financial institution and customer with a guarantee for your services and products.

The system has no way of recognizing the validity of your promise to the consumer. Therefore, you must always remain in good standing with your bank or financial institute that maintains your merchant account. Fraudulent or unlawful business practices will result in your merchant account provider eliminating your account. As with all aspects business, accountability to your customer will ensure your success with obtaining and maintaining a merchant account.