This is just the plain and simple truth as it’s a function of specialization. But, unlike specialization in the medical field using a specialist for your credit card processing will get your business better service and a better price. How?
First let’s examine why businesses use their bank for credit card processing.
- Lack of understanding that other options exist
Many businesses select their bank for credit cards processing simply because they have always used their bank for financial functions. It is thought that the bank must be able to give them the best deal based on a history of loyal patronage of the business. The truth is that businesses that use their bank for credit card processing typically pays more than any other segment in the country.Equipment purchase and lease prices are, on average, double and the processing rates are often much higher than a merchant service provider’s. Businesses are locked into long term contracts with no options for termination.
The reason for generally higher prices and inflexible contracts is that fact that most banks outsource their credit card processing to a merchant service provider (MSP) or independent sales office (ISO). The problem with outsourced service is the introduction of a middleman and additional margin that must be covered. All but a few large banks outsource their credit card processing.
Many businesses feel that it is more convenient to have one entity handle all their financial functions. It is very convenient to have one place to see all the business financial data. However, aside from the deposits, credit card processing and banking are not integrated. There for the service you get from a merchant service provider or your bank will be exactly the same.
Most businesses don’t know of other options beyond their bank and subsequently don’t research the cost and customer service benefits of a merchant service provider.
So why is it beneficial to select a merchant service provider for credit card processing?
Well, first of all is specialization. Your merchant service provider only function is to provide credit card processing and electronic check processing.
Next is superior customer service, lower rates and better pricing on equipment. Most respectable merchant service providers have 24 hour a day, 7 day a week customer service. Your business will also be given a personal account representative for questions, issues and payment consultation. Your merchant service provider also has access to the payment network and can solve most every issue over the phone. Issues are resolved on the first call and don’t result in your business calling different departments looking for the right person to help. Equipment pricing is often the very best as your business is negotiating at the source.
Another significant advantage is the ability of your merchant service provider to work with many different banks. If your business processes with your bank and you have issues with your account you will have to switch out both accounts which can be a huge pain.
Your merchant service provider also has a much higher level of business expertise in setting up the right service for your industry type. Odds are that your MSP has numerous other businesses just like your and can instruct you as to the most beneficial set up.
Bottom line - merchant service providers have more industry experience, more available and focused customer service, better prices and are specialized in providing payment products and service for your business.
When you signed up for your merchant account you specified your average transaction amount, your high transaction amount and your estimated monthly sales volume. These values were used during the underwriting phase of your account acceptance and represent the soft limits for your account. Most processors won’t have a problem if you exceed any one of these by a nominal amount. On the other hand if you exceed any one of them by an excessive amount you are raising a red flag with your processor.
Now should you run a $50,000 transaction with your merchant account? The question would be – did you specify a high ticket amount of $50,000 or more when you completed your application? Typically when a new merchant account is set up the business owner will estimate what they think the volume, average ticket and high ticket will be. It is always a good idea to exaggerate the values to approx double, ever triple the expected amount. This is a good practice to allow for expected growth of the business.
With regard to our $50,000 transaction, if your normal transaction size is $30,000 and your high ticket amount is $45,000 then you will likely have little problem with an amount slightly above at $50,000. Now if your average transaction is $35 and you high ticket amount is $500, then running a $50,000 transaction is a very bad idea. This transaction represents a great deal of risk for a business that is averaging $35 per transaction, both for the business and the processor.
Why is that a risk?
The risk of the transaction lies in the likelihood of fraud or a chargeback. This risk is substantial to your processor because if you commit fraud or have a large number of chargebacks with the inability to pay for them then the processor is stuck with the bill. Situations like these are handled differently with each processor. Some have automated systems that will flag a transaction if its outside the specified boundaries. Others have actual humans that review each account. Some processors allow for the business to exceed their limits temporarily while others will permanently shut down the account if the limits are exceeded. Regardless of the rules with your specific processor you are pretty much guaranteed to have your batch reviewed if it exceeded your specified monthly volume limit.
Most credit card processor’s risk departments have very specific operational guidelines they adhere to. It is very important to know that they have complete control over the money that flows though the account they have underwritten. That being said, if your account breaks the rules the consequences can be severe. Some will shut down your account and never release any funds that are in excess of the guidelines approved for your account. Some will hold the funds for extended periods of time. Others won’t tell you the funds have been held and will wait for you to call in. Once your account or funds are transferred to the risk department within your processor it can be a very long, frustrating and cumbersome process to correct.
What should you do if you absolutely have to run a larger transaction?
I always suggest you be proactive. Call you processor and tell them what you would like to do. They may approve the transaction on the spot. They may want a signed invoice authorizing the charge from you customer. They may want to see recent bank account balances for the business. The point is that if you call ahead and seek approval first you are likely to avoid a great deal of headache later.
To sum it up:
Always try to get approved for the maximum amount possible when opening your account and secondly always ask before you attempt to exceed the approved limits on your account.
This post is to offer friendly advice as to the actions that should always be avoided when operating a merchant account for your business. The most important things to avoid are those actions that will result in your account being shut down and secondly those actions that cost your business money.
Actions to avoid:
- Never run a transaction on your own credit card
- Never refund a customer’s transaction to a credit card that differs from the original credit card used for the purchase
- Never refund cash to a customer that used a credit card for the original purchase
- Never forget to batch out your credit card terminal, virtual terminal or point of sale system
Processing a transaction on the merchant account owner’s credit card:
This action is considered fraud and will result in your account being shut down and your business black listed for credit card processing. You should never process a transaction with the owner of the merchant account’s credit card, not even for a small amount. Owners may think this is a good way to pull money out of the business but that is incorrect. This action is strictly monitored and the consequences are severe. If you are interested in taking cash out of the business look for a merchant cash advance instead.
Refunding the purchase amount to different credit card:
This action is also considered fraud and will result in the merchant account being shut down. Pay special attention that you are refunding to the exact credit card that was used originally. If the original credit card is not available issue an in-store credit.
Refunding cash on a credit card purchase:
It may seem logical that a refund is a refund, who cares if the refunded amount is returned as a credit to the original credit card or as cash? Well, if you issue a cash refund for a credit card purchase you are enabling the customer the ability to receive two refunds for the purchase amount. The first refund is the cash they receive when the item is returned. The second refund can come in the form of a charge back initiated through the credit card company. Since the cash return does not match the original purchase on the credit card you will have little luck winning the charge back suit.
Always batch out your terminal at the end of the day:
If you wait, even a day, to batch out your transaction you will experience a downgrade on all the day’s transactions. You will also delay the deposit of those funds into your bank account. Monitor your bank account closely to ensure your credit card receivables are batch and deposited daily.