Letting Them Use Plastic


Obtaining merchant status will help to increase your sales.

Consumers are becoming creatures of convenience; when dealing with businesses-large or small-they desire ease of transaction. That most frequently translates into the ability to pay for services rendered or product purchases via credit card.

Small businesses are often denied merchant status because they can't prove to the bank that they are good risks. You must establish and demonstrate a track record before a bank or independent sales organization (ISO) will agree to back your business. Even today, some banks also hesitate to provide merchant status to companies without storefronts, to mail order firms or to individuals with a past history of personal or business bankruptcy. Although thankfully, it is getting easier today than it was even 15 to 20 years ago.

In this article we will help you to understand the reasons you may not be able to obtain merchant status, so that we can help you find ways to more favorably present yourself and your business as candidates for merchant status.

1. Start with your own bank. When shopping for a merchant account, the first place to stop is your own bank.

When banks look at an application, they consider three critical things: the principals, the product and the process. In other words, they need to know about you, what you are selling and how you are selling it. Be sure to take the time to carefully develop your proposal. It can really pay off. Show your bank that you're serious about obtaining merchant status and you take your business very seriously.

In spite of your best efforts, the bank may still turn you down. The next step is to approach other banks in your area. If you're still running into roadblocks, there is another option.

2. Investigate ISOs selling on behalf of other banks. ISOs serve as a liaison between banks and merchants. Your odds of getting merchant status from an ISO may be greater than from a bank, but the costs-and risks-may also be greater.

Most ISOs are legitimate businesses, but it pays to be wary. The first thing you should ask any service provider is what banks they represent. When considering an ISO, a merchant should know which bank they are working for, and should check with MasterCard and Visa to ensure the ISO is properly registered. Keep in mind that this service you are buying can have a significant impact on the cash flow of your business, and don't be shy about asking for references.

A good bank or ISO should provide reliable and trouble-free processing, with responsive customer service whenever you have a problem, all at a fair price. What's fair depends on the risk level of your business and the terms being offered by competing ISOs. Make sure the merchant bankcard provider you choose fully supports you as a merchant with a variety of services, like check guarantee, acceptance of all major credit cards, debit cards, etc. Also make sure they fully support the equipment or software they sell you. If they don't, ask them who does and how much extra this costs. Some programs may be appealing, but require hidden costs for assistance.

3. Clearly understand the costs involved. To better grasp the issue of costs, you must understand how credit card sales are processed. Simply stated, when you conduct a charge transaction, you will receive the cost of that sale, less a previously agreed-upon discount (from two to more than five percent), from the bank or service company. The more stable your business is, the lower your discount rate will be.

Fees are a substantial cost: ISOs typically charge fees for minimum activity, if yours doesn't reach a pre-determined amount; fees for each transaction made, above and beyond the two to five percent discount; and fees for processing customer statements. Another cost is that of equipment. Most merchants today use an electronic draft capture terminal to process sales, which you can lease or purchase. It is more economical to purchase the equipment, but your choices will be limited by the ISO you choose. You might be able to purchase a used terminal from your ISO or buy a new or used terminal from another source. Check with your ISO first!

If you have a personal computer and a modem, there are several software packages currently on the market that perform authorization and draft capture. Make sure that any software you buy is compatible with the system used by your ISO.

4. Caveat emptor. As with any other business decision, carefully consider your options and shop around. Research the requirements, costs and services of banks and ISOs offering merchant status, and talk to other business people who are already offering credit card service. There are many reputable companies out there and, of course, there are also bad apples. As a merchant, ask questions about any company you are choosing to use. The company should be willing to answer any questions you might have, as well as to tell you openly if they can't!


While the information presented might seen very disheartening to your getting merchant status, listen to this. Many individuals who have filed bankruptcy and have terrible credit have received merchant status.

While you may pay more fees going through an ISO, it is worth it to be able to say, Visa, Mastercard, American Express or Discover. For those of you doing any kind of consulting it is a big plus. If you eventually sell products, again it is a great convenience for your customers and many times will close the sale.

So, GIVE YOUR CLIENTS THE PLASTIC OPTION!

Copyright 2004 DeFiore Enterprises

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