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For a small business, especially one just starting up, deciding to take credit cards is a big decision.

Before you start shopping for the best service, consider how you’ll use it.

What do you want your customers to do: use the credit card every time, or use it only as a last resort?

  • If your answer is use it every time, then the monthly fee for a merchant account will be part of the consideration, as will the cost per transaction.
  • If your answer is only as a last resort, you may not need a traditional merchant account. You may want to use a service like PayPal or Square. These services charge higher fees per transaction, but there is no automatic monthly fee. You only pay for the service when you use it.

Will you be swiping your customer’s card or will it be stored on file for recurring billing?

  • Swiping the card usually generates a lower cost per transaction, but that may not be feasible, if you don’t have a storefront. Swiping the card also requires equipment that is typically leased from the merchant services provider, so that can increase the monthly cost.
  • Storing the card manually (e.g., written down in a file) is an option that doesn’t have a direct cost to you. However, merchant services accounts that offer a recurring billing component (where you enter the credit card once and that system charges the card automatically based on a schedule) generally have a higher monthly cost.

How many transactions will you process each month?

  • Weigh this number against the ongoing monthly fee for having the account. The higher per-transaction fee of a PayPal or Square might be cheaper in the long run than that ongoing fee.

How do you handle refunds?

  • If a customer asks for a refund, or if they dispute the charge on their credit card, the merchant services provider will immediately withdraw that amount from your account. Be sure you have a plan for handling refunds and disputed charges.

Will you process payments on your website or other online venue?

  • There could be additional payment gateway fees involved when payment is made via a shopping cart or some other online system. Depending on how the shopping cart works, even pay-as-you-go services like PayPal could require an ongoing monthly fee.  Investigate this carefully if it applies to you.
  • PCI compliance relates to the security standards required for companies that handle credit cards. Many merchant services providers charge a fee for maintaining PCI compliance for online venues. Be sure you understand how the fee is charged and how it protects you and your clients.

Once you have the answers to these questions, you’re ready to begin your research to choose the best provider for your needs. A quality provider will do more than just give you a quote – they’ll explain how things work, how the fees are determined and make a recommendation on the services your business will require.

How to choose? Ask your CPA or bookkeeper to tell you about the service providers in your area. Their experience will guide you to the best-in-class providers and help you make the best choice for your business.

Cheryl Blazej has been providing no-nonsense back-office bookkeeping and support to entrepreneurs since 2006. In the course of her work, she has encountered business management questions that are shared by many entrepreneurs, and she publishes the results of her research and experience here.

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