Processing Credit Cards

As technology continues to advance, people can use their credit cards to buy nearly anything from anywhere. Whether you need to buy a last-minute plane ticket to San Diego or you want to send flowers to a friend in Alabama, you can use your credit card to immediately get what you need.

In fact, more often than not, credit is king, not cash. Not only do more consumers use credit cards, but they are also likely to buy more when making purchases with their cards instead of cash. Here are some statistics about the prevalence and power of credit cards:

  • About 70 percent of low- to middle-income families admit to using their credit cards to pay for “rainy day” expenses (i.e. car repairs, house repairs, doctor visits, etc.).
  • Nearly 80 percent of U.S. citizens own at least one credit card.
  • Over 80 percent of graduate students have at least six credit cards, and about 14 percent of them owe at least $15,000.
  • Typical credit card users charge between 12 percent and 18 percent more when making purchases than they would if using cash.

Consequently, both local businesses and ecommerce merchants understand that being able to efficiently accept and process credit card purchases is key to their success and their ability to increase their sales.

In this section, we will describe the various ways in which businesses can process credit cards. Our articles will outline not only how to make credit card transactions but also the associated fees and costs of processing credit cards.

Invoicing versus Merchant Services

The term “merchant services” refers to any type of financial service businesses use to process credit card and/or debit card payments during a transaction. Along with credit and debit card processing, merchant services allow businesses to:
  • convert checks
  • draft checks
  • establish and monitor customer appreciation programs
  • guarantee checks
  • issue and monitor gift cards.
Invoicing, another feature that falls into the category of merchant services, describes the process in which a seller presents the buyer with the terms and conditions of payment for products and services. Depending on the size of a business and what a particular merchant is selling, businesses have varying methods of invoicing and use different merchant services.

Necessary Equipment

When it comes to recording, monitoring and processing transactions, businesses need a variety of equipment. The exact processing equipment a business uses will depend on what they sell, as well as how they sell it. For example, while a liquor store will likely process its transactions through a cash register and/or a credit card machine, an online merchant is more apt to use a Web-based service, such as PayPal, to transact their business, rather than a cash register.

The key to getting the proper equipment for you business is to identify how you interact with your customers and the type of clients to whom you plan on making your services available. If, for instance, you want to reach a national or international market, you are going to need far more transaction processing equipment than if you simply plan to sell to a local market.

As you shop around, consider examining the methods your successful competitors use so that you can get a better idea of the necessary POS equipment you will need.

Fees and Recurrent Costs

Both the equipment and merchant services your small business uses to operate on a day-to-day basis will likely have associated fees and recurrent costs in addition to the initial cost of buying the product or service. This means that, after buying the equipment you need to process credit cards, your business may have to pay a set fee for each swipe, as well as a base percentage of each charge you process with this machine.

Because these fees are charged with each transaction, shop around for the right merchant service provider. Before signing any contracts, make sure that you understand all associated fees and recurrent costs.

Resources

Creditcards.com (2006). Credit Card Industry Facts and Personal Debt Statistics. Retrieved September 7, 2007, from the Creditcards.com Web site: http://www.creditcards.com/statistics/ credit-card-industry-facts-and-personal-debt-statistics.php.