Choosing Invoicing and Merchant Account Services

For a business owner, a merchant banking account or an invoicing service is often a necessity. A merchant account is an account that a business establishes with a bank or an independent service provider in order to be able to process credit card and debit card transactions. With an invoicing system, customers can pay invoices online, using a variety of payment options.
 
Merchant accounts and invoicing systems allow businesses of all sizes to operate smoothly across standard and e-commerce routes.

Merchant Account Services

Merchant accounts are imperative for any business that sells goods or offers services and that accepts forms of payment other than cash. Merchant accounts offer a number of specialized services, including:
  • accepting and processing credit card payments
  • accepting and processing debit payments
  • accepting gift cards as payment
  • providing instant money transfers from customer bank accounts.

With a merchant account, businesses can process credit cards in several ways, including the following:

  • through a virtual terminal
  • using computer software
  • via a physical terminal (for a brick-and-mortar store)
  • via telephone.

Types of Merchant Accounts

The type of merchant account you establish will depend on whether you have an online business or a brick-and-mortar business. Even though both types of businesses can accept credit card transactions, the merchant accounts for the two are very different, due to the security risks involved with e-commerce:
  • In a brick-and-mortar store, a person's credit card and identification can be inspected. Thus, an owner can determine if the person holding the card is, in fact, the person to whom the card was issued. Also, in a traditional store, a merchant can swipe the card using a credit card terminal.

  • For Internet businesses, credit card transactions are handled differently. Accepting these transactions on the Web requires an online payment gateway and terminal. Also, online customers must be able to enter their private information on a secure order form. These secure order forms feature extra safety measures in order to prevent credit card fraud.

Merchant Accounts: How They Work
This is the way an e-commerce merchant account operates:

  • The customer selects a product and chooses to pay by credit card.

  • A secure server takes over the transaction with the appropriate forms.

  • The customer enters his credit card information and personal information and then clicks on a button to authorize the purchase.

  • The transaction passes through a secure gateway. This connection goes to the merchant bank for verification of ownership and proof of funds.

  • Order is approved and customer receives confirmation.

  • Money arrives at merchant's account within two to three business days.

E-Commerce Merchant Account Costs

Most banks have merchant account capabilities and offer them to business owners for a price that typically includes an initial fee, transaction costs and setup costs. The initial fees are often high at banks, but ongoing transaction rates are generally lower than those offered by third-party processing services.
 
In general, a person can expect to pay approximately $150 to establish a yearlong merchant account with a bank. In addition, he can expect to pay a monthly maintenance fee of approximately $12 and a per-transaction fee of approximately 10 cents.

E-Commerce Invoicing Systems

Paper invoicing is fast becoming a process of the past. As businesses embrace online billing and payment through merchant accounts, customers are starting to appreciate the convenience as well. With online invoicing, customers can pay invoices online using any of the following:
  • credit card
  • debit card
  • electronic check.
Invoicing systems are often excellent solutions for any small business or home business that does not use a merchant account. They are especially convenient for companies that provide monthly payment options

Invoicing systems are important for tracking as well. A customer can check the status of payments and track account history. This can quickly reduce customer support expenses. Customizable formats allow individuals or clients flexibility in how they view and print their invoices.

In-House and Invoice Service Processors

You can choose to either set up your invoicing system in-house, or you can use an out-of-house invoicing provider. Businesses that incorporate invoicing systems internally require operational labor. However, in-house systems are more flexible and provide greater data resources. They can, however, be costly in both the short and long term.

An out-of-house invoicing provider has pros and cons as well:
  • employee and labor cost savings.
  • fewer setup expenses
  • lack of fully integrated resources
  • reduced control in how data is processed
  • volume pricing, which goes down as transactions increase.

Third-party invoicing is more economical but sometimes less flexible in meeting the needs of some businesses and customers. It's important to find a reliable partner with a history of outstanding technical service as well as high quality standards with regard to security and convenience. In a business-to-business environment, it's also critical to be able to access the necessary analytical reports in a range of formats.

Resources

Kumar, Sanjay (2006). Invoicing Systems: Efficient Automation or Customer Drain? Retrieved September 8, 2007, from the Simplify This Web site: http://www.simplifythis.com/blog/2007/06/ invoicing-systems-efficient-automation.html.

Quotecatcher.com (2007). Basics of Credit Card Merchant Accounts. Retrieved September 8, 2007, from the Colorado Innovations LLC Web site: http://www.quotecatcher.com/Module/Article/ ArticleView.aspx?idArticle=329&idCategory=32.

Webhostingmenu.com (2000-2006). Accepting Credit Cards - Third Party Processors. Retrieved September 8, 2007, from the Gromco, Inc. Web site: http://www.webhostingmenu.com/creditcards_thirdparty
processors.html.