Small Business Blog

The rationale behind setting up a merchant services account is pretty straight forward: accepting credit card payments generally helps you capture more customers and get paid faster. In theory, every business owner could stand to have a few more customers on the books and a few less dollars tied up in accounts receivable (AR).

But that’s theory. In practice, the decision to set up a merchant credit card processing service isn’t always a no-brainer. It’s important, first, to understand how you would use a merchant account. Do that analysis upfront and, if you decide to proceed, you will be better prepared to select the right service provider.

Questions to ask

What are your sales channels?

Analyze the accepted forms of payment in your current and prospective sales channels. For example:

1. Online retailing to any customer type generally requires some form of credit card processing service, either through a direct provider like North American Bancard or through a third-party provider like PayPal.
2. Door-to-door selling usually involves cash or check.
3. Direct mail sellers tend to accept check and credit card.
4. Storefront, consumer businesses vary in accepted forms of payment. The decision to accept credit cards should depend on the average sale and the composition of the store’s walk-in traffic.

Who are your customers and target customers?

Credit card processing capabilities are often more important when you are selling product (rather than services) to consumers (rather than businesses). If you sell t-shirts on your Web site, you won’t make many sales if you ask your customers to mail you a check. On the other hand, if you are mowing lawns or repairing computers for your neighbors, your customers might be more comfortable paying in cash.

Business customers, particularly larger corporate entities, tend to pay their service providers via check. This varies by industry and company size, of course. If you aren’t sure, ask your customers to specify their payment preferences.

The other factor to consider is where your business is headed. Do you have plans to go after new customer groups? Check out what the competitors are doing in that space; if they accept credit cards, then you need to as well.

What is your average sale amount? How tight are your margins? How flexible is your pricing?

Credit card processing comes at a cost. If your average sale is tiny or your margins are thin, it can tough to absorb those extra fees. Your options are:

1. Adjust your pricing
2. Accept a lower margin in return for higher sales and lower AR. Make sure you set sales and AR goals, and then track your performance against those goals.

What are your average monthly sales? What percentage of your customers can you convert to credit card payments?

A portion of your processing fees will be composed of monthly minimums. You’ll have to estimate what your average monthly credit card sales might be for two reasons. One, it helps you determine the bottom line impact of accepting credit cards. And two, it helps you understand the terms offered to you by prospective merchant service providers.

Choosing to accept credit cards is like any other business decision: you have to do your homework to identify the right course of action.