A Small Business Owners Guide to Accepting Credit Cards

Major Credit CardsWhen it comes to the decision whether or not to accept credit cards small business owners need to take a lot into consideration. Credit cards provide customers with simplicity and convenience when it comes to making a purchase. A business that does not accept credit cards risks the possibility of losing sales. As much as small business owners are aware of this they are overwhelmed and confused by the fees and complexities associated with accepting credit cards.

Determining whether or not to accept credit cards does not have to be so complicated. Understanding what is involved can help demystify the complexity and confusion of accepting credit cards.

It takes four parties to complete a credit card transaction. They are:

  1. the business, otherwise known as the merchant
  2. the bank or processing company who processes the merchant’s transactions, otherwise known as the acquiring or merchant bank
  3. the bank that issued the card to the customer, otherwise known as the issuing bank
  4. the customer

Having an understanding of all parties necessary to complete the credit card transaction will help in better understanding terminology used in the credit card industry. Some of these terms are:

Interchange fee: A cost that merchants pay to issuing banks to process a transaction. These are fees that were agreed upon with major credit card companies such as Visa, MasterCard, and Discover. The exact amount charged for an interchange fee is determined by the following factors: whether or not the card was present for the transaction, what type of card is used (standard, reward, frequent flyer, business),  and the type of merchant accepting the card.

Discount rate: A percentage of the total transaction amount which the acquiring bank charges the merchant to process a credit card transaction. This amount varies (qualified, mid, and non-qualified) and is affected by such things as whether or not the card is present and what type of card it is.

Chargeback: A reversal of a transaction that is a result of a customer or card issuer dispute.

Merchant Category Codes (MCC): A four digit number assigned to the business by the acquiring bank when the business starts accepting credit cards. These codes are used by the major credit card companies in determining the interchange fees a business will pay.

Authorization: This is the approval of the sales transaction.

Debit Card: A card that takes money directly out of a customer’s bank account. They can be authorized by either using a pin number or providing a signature.

Floor Limit: The maximum amount a merchant can charge a customer’s card without getting authorization.

Point of Sale Terminal: This is a machine that records and initiates a transaction approval.

By getting familiar with the above terms, small business owners can maneuver through the acceptance of credit card with more ease. In future blog posts Back On Track Solutions will discuss other credit card related topics that might affect small businesses. Please feel free to enter any topics you would like to see discussed in the comment section below.       

 

 

 

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Barbara Goldberg

Business Operations Strategist at Back On Track Solutions
With over 15 years of corporate experience within Fortune 500 companies, Barbara Goldberg now brings world-class customer service to the small business community. An avid sports fan, Barbara likens her passion, focus and strategy to a crew chief guiding a race car driver to the finish line. Barbara will analyze, evaluate, distill and then solve the problems challenging business owners, allowing them to get back on track to servicing customers.

With over 15 years of corporate experience within Fortune 500 companies, Barbara Goldberg now brings world-class customer service to the small business community. An avid sports fan, Barbara likens her passion, focus and strategy to a crew chief guiding a race car driver to the finish line. Barbara will analyze, evaluate, distill and then solve the problems challenging business owners, allowing them to get back on track to servicing customers.

Posted in Business Lessons, Credit Cards, Small Business, Small Business Toolkit Tagged with: , , , , , , ,

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