Businesses That Don't Accept Plastic Lose $100 Billion in Sales Annually

Intuit announced today the results of their research on small businesses in the US and how they accept payments from their customers. Apparently 55% of these businesses do not accept credit cards and they are missing out. On the whole, $100 billion in sales is lost every year, averaging out to about $7,000 per business (15 million SMBs don't accept cards). When you hear $100 billion, you think "WOW!" But then when I heard it only averaged out to about $7,000 lost per year I didn't think that number was very impressive.

"Oh, just $7,000 per business? That's not much," I said to a group of coworkers. But one of them piped up and reminded me that these are small businesses and another $7,000 a year in sales could mean a lot for them. She's right.

It makes me wonder why over half of small businesses in the US just won't accept plastic. I mean, I do know why - the majority of them don't want to pay the fees - but they would still make more money if they just took the plunge. I have tried to convince many a merchant of this fact unsuccessfully. When you are a small business trying to make it, every penny counts and they don't want to hear about a service they have to pay for. But this doesn't stop me from trying to convince them otherwise every chance I get!

If you are interested in more fun payment facts from Intuit, they put everything in a cool infographic:

How Do I Set Up Credit Card Processing for My Business?

The first step in accepting credit card payments is the hardest: figuring out which company you'll work with for your merchant account. Maybe you know someone who likes their current processor and gives you a recommendation or maybe you've done some online searching. Both of these are viable ways to start shopping around and getting quotes.

Here are some tips to get you started:

1. It usually helps to get quotes from at least 6 different companies, since the rates and fees will be different with each one. You'll also want to see a copy of the agreement before your make a decision since this will be where any additional costs will be listed, on top of the rate your quoted.
2. Test out each company's customer service friendliness. Call them on different days at different times and see how long you are placed on hold. Are the people answering the calls pleasant and helpful? These are important factors to consider in the event that you need their support.
3. Determine which type of credit card terminal you are going to need. Are you a consultant that travels to clients? You will need a mobile processing account with a swipe reader for your smart phone or iPad. Is all of your business going to be conducted online? You'll need both a merchant account and a payment gateway. If at all possible, do not lease your terminal; buy it outright. Leases last for multiple years and you will end up paying way more than if you bought the machine right at the beginning.

For more information on getting a credit card processing solution that's right for you, check out this video:

What is a Merchant Account Cash Advance?

Did you know that many merchant account companies offer their merchants the option to have a cash advance? It works kind of like a loan (but is not a loan). You apply with the company and then set up a repayment schedule. The difference is that the merchant services company just withholds a predetermined amount of your credit card payment transactions in increments (usually daily or monthly) from your future sales until the advance is paid off. This is a nice perk, since you don't even need to handle the repayment yourself; it's all done automatically.

The process is simple, but most merchant account companies will require that your business "qualify" to receive an advance. Policies may vary but some general guidelines look like this:

1. Length of time in business: Most of the time you will need to be an established company with at least a year of business behind you. Some companies may require only 6 or 9 months.

2. Sales: You will need to have a decent history of monthly sales numbers. If you're not making any money at all, you're likely not going to be able to get an advance.

3. Type of business: Some companies only offer advances to certain business profiles, such as retail or restaurant. If your business is really non-traditional or "out there" you may have a harder time securing an advance.

A lot of merchants ask me why they have to show a good track record of monthly sales as part of the process. Their stance is that they wouldn't necessarily need an advance if sales are good. I tell them that advances are best used when businesses want to expand but don't currently have the capital to do so. Advances shouldn't be used to keep a sinking business afloat. Since it's not a loan, you have to actually have payment transactions since this is how your merchant company gets paid back (by withholding a portion of credit card sales).

Credit Card Processing: How It All Works

Understanding how credit card processing works is no small feat. It's almost like you need some sort of advanced engineering degree to wrap your mind around it. Still, it's important to know the gist of what happens when a credit or debit card is accepted for payment. Here's a helpful little diagram to get us started:

Photo credit: feeseeker.com

This is a really simplified version, but these are the steps that happen behind the scenes during that quick payment transaction. What a lot of new business owners don't know is that in order to be able to accept credit cards from their customers, they need to get a merchant account with a payment processing company. The payment processing company provides the business with a terminal to swipe the cards through. Not every business needs a terminal, however. If you are an online store, there is an extra step in the process above, known as a payment gateway:

Photo credit: merchantmaverick.com

The payment gateway in online transactions take the place of a credit card terminal, since online shoppers aren't able to swipe their credit card; they must type their card information on the payment page. The payment gateway transmits the card information to the card issuing bank for approval or denial and then payment gateway then relays the decision back to the website.

It's important to note that payment gateways and merchant accounts are two separate things, but you cannot get a payment gateway without having a merchant account. Again, payment gateways are only necessary when you are accepting credit cards online.