MERCHANT ACCOUNT SERVICES TERMINOLOGY

Some Important Terms To Understand

At Credit Card Processing Services, we have always focused on ensuring our customers are properly informed, and know exactly what they need to run their business, and exactly what they are purchasing. If you are shopping around for a merchant account, many of the following terms will be used in common conversation, so it is essential to understand exactly what they mean. As a result of years of experience in the merchant credit card processing industry, we understand that a better informed customer is a better satisfied customer.

Settlement Times

Settlement time is generally the time period between when your customer's credit card is charged and when the funds are available to your business to use. In most cases, this settlement time is only a period of 1-2 business days, but in some cases, we have heard stories of settlement times stretching over three months or more. Generally any settlement time longer than one week is the mark of a poor merchant provider, or an extremely high risk credit card transaction. However, if you use third party processing companies, typical settlement times typically can stretch to 2-4 weeks. For these processors, this is normal.

Settlement times are critical to your business' potential, mainly because the sooner you have access to revenue, the sooner you can use it for business activities.

Discount Rates

The discount rate is a percentage of each credit card transaction that is charged by your merchant account provider. This discount rate varies depending not only on the type of transaction, but also on whether you are using a merchant provider or third party processor.

Most businesspeople look for the lowest discount rate possible. Typical rates with merchant providers can be anywhere from 1.59% for a high volume merchant to 2.59% for Internet Transactions. With third party processors, this rate can be upwards of 10% or more.

Many of our customers come to us looking for the lowest discount rate, although having the lowest rate isn't necessarily what they want. In fact, sometimes higher discount rates come with extra features, such as shopping carts, wireless processing or other important features which are provided free of charge. The value here is much better than a low discount rate with no features.

Monthly Fees

Most established merchant providers charge a monthly fee for upkeep of your merchant account, which generally includes tech support, shopping cart programs, payment gateway fees and other costs.

As long as you are aware of these costs up front, and what they are for, you should not worry. These fees are typical - in fact, if a provider tells you there are no monthly fees, then you should worry. When it comes to merchant services, realize that the industry is competitive enough to ensure that generally - you get what you pay for.

Third-party processors rarely charge monthly fees - but only because their discount rate fees are incredibly high.

Generally, most merchants shopping around for credit card processing services consider discount rate and monthly fees to be the most important factors when making a provider decision.

When you're shopping around, it's good to find a nice balance between monthly fees and discount rate, and understand where your business will be a year from now. Remember, switching providers is never easy, particularly while running a successful business.

Reserve Funds

Generally, reserve funds, or holdbacks, are a type of merchant account provider insurance. In most cases, these funds are simply "reserved" in case, as an example, you were to receive chargebacks greater than total sales in one month. Most ethical, well run businesses rarely have to use these reserve funds.

In general, you are required to build up these reserve funds on acceptance of application, or instead have the funds deducted as a small amount each month. Usually, the second choice is best, especially if you are starting out. However, in cases where you already have a merchant account, your "reserve fund" may be quite small, or perhaps unnecessary, depending on your business' history. The best thing to do is to contact a representative regarding this.

Processing Limit

Your processing limit is the maximum amount of money you can take in with your merchant account. This limit is usually based on a monthly turnover average and may affect the price of the products you sell. In most cases, this is rarely an issue - as an example, small business' selling items under $100 will never have to worry about this. This is generally a concern for high-value retailers who sell cars, jewellery, or other high ticket items.

Chargeback Fees

When you run an Internet based business, chargebacks are a simple fact of life. In most industries, however, they are not an issue. But there are some industries which are incredibly high risk, such as casinos and adult-oriented businesses. Chargeback levels for these industries can sometimes reach upwards of 25%!

Chargebacks occur when a customer credit card is charged, and the customer claims either to not have received the product, to have been defrauded, or to have had their card improperly charged. This is not always malicious, of course, as things get lost in the mail, etc, but fraud on the Internet has been quite a problem since the introduction of E-commerce.

In some cases, customers simply do not recognize the charge (this is typical with 3rd party processors, whose name may come up instead of the original vendor). In others, they may have forgot buying the product, and simply need a reminder.

This is one of the important reasons why if you must use a 3rd party processor, ensure you remind your customers via email that the processor name will appear on their credit card bill, and not your company's name. This is a critical action that will save you money over the long term.

Do you have any more questions about Merchant Accounts and Credit Card Processing Services? If so, please check out our FAQ here, or contact us with our contact form here. We thank you for your interest in Credit Card Processing Services.