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Just One Word Plastic

VARs, system integrators and agents would do well to watch some old movies every so often to get a little business advice. Remember the scene in the “The Graduate” when a Los Angeles businessman takes Dustin Hoffman aside and declares, “I just want to say one word to you just one word. Plastic.”

Turns out, that businessmans vision of the future was dead on.

If you’re an agent, VAR or systems integrator, plastic may be the key to future growth.

The Bad News Not into Plastic? You May Be Losing Customers

Heres the bad news. If you don’t accept plastic credit cards, that is you probably have more dissatisfied customers than you realize. Whether for convenience, security, loyalty awards or just plain habit, todays consumer prefers to pay with plastic. In record numbers, they are ditching checks in favor of credit cards.

Not offering your customers the option to pay with plastic means fewer customers and fewer sales for your small business. If your competitors accept credit cards and you dont, your customers may soon start doing business with your competitors.


Behind the Trend


Heres whats driving the trend toward plastic:

Credit Card Company Muscle

MasterCard and American Express are aggressively courting consumers and small businesses with corporate card programs that offer tremendous benefits like cash flow flexibility and bookkeeping support. Their goal? Eliminate cash and checks from existence.

Skipping the Credit App

Businesses paying with plastic avoid lengthy credit approval processes. A valid credit card carries instant credibility and a credit line. No need to fill out those annoying credit applications!

Rewards Programs

Credit card loyalty programs have become a big-time consumer addiction. Pay with a check and you get nothing. But put it on your card, and you can receive frequent flyer miles and other great rewards.

From your perspective, accepting credit cards increasingly makes as much sense as using them for purchases. True, you have to give up a transaction fee to the credit card companies so less money hits your bank account. The average fee usually runs between 2.5 percent and 5.5 percent of your sales. But the risk of getting stiffed on a receivable goes away once the credit card transaction is authorized you know you will get your money. And you dont have to wait 30 days to get it, either!

The Good News Accepting Credit Cards Is Easier Than You Might Think

If youre bummed out that youre losing customers because you dont accept credit cards, heres the good news. Its easier than ever to start accepting credit card payments. The process of setting yourself up to accept card payments is neither mysterious nor costly.

Step 1 Get Ready to Apply for Merchant Status

First, you must establish merchant status with each of the credit card companies you want to accept. American Express and Discover issue their own cards, so you need to apply for merchant status directly with them. Simply visit their Web sites for application details.

Visa and MasterCard are effectively brand names backed by an association. Their association membership consists of all the member banks who issue Visa and MasterCard credit cards. So, to start taking Visa or MasterCard, you must establish a merchant account with one of the several thousand banks that issue those cards, called acquiring banks.

You can do this either by going directly to the bank or by working with an independent credit card processor a company whose only service is processing credit card transactions for small businesses like yours.

Establishing a merchant account isnt always a slam dunk. When you approach a bank or an independent credit card processor, their fundamental concern is that your company will go out of business before merchandise is shipped, in which case they will have to absorb the losses.

As such, they will thoroughly evaluate your product or service to determine the potential for chargebacks credit card terminology for funds returned to customers. If they dont deem you worthy, sorry, no merchant account for you. Alternatively, they may ask you to put down a security deposit money in the bank that you wont touch that they can tap into just in case your chargebacks outpace your account balance.

Given that issuers are selective in allocating merchant accounts, its important to approach your application as if you were applying for a loan. Be prepared to convince the bank you are a good risk. You will need to provide trade references, estimate the credit card volume you expect and what you think average transaction size will be. Bring your business plan, financial statements and any marketing materials (e.g. catalogs, Web screen captures, and print advertisements). Be especially prepared to provide a reasonable estimate of how many chargebacks are likely. Satisfied customer testimonials and a demonstration that your product or service is priced at fair market value will help lessen chargeback exposure concerns.

Step 2 Shop Around and Compare

To be sure, all merchant accounts are not created equal. Even though they may be the best for establishing a merchant account, dont limit your choices to the bank that you currently do business with. Do your homework and shop around. Taking charge of this process by knowing what is expected and knowing your options will put you into position to recognize and negotiate a better deal.

If you find that nobody is offering you a merchant account, find companies similar to yours that accept credit cards and ask them how they do it. If they can do, you can too.

When an issuers representative offers to set you up with a merchant account, compare the services, fees and terms they offer with those of other independent credit card processors and banks. Evaluate the hardware or software they provide does it work for your business?

Always ask: Is this the best deal you can give me? Is there anything I can do to get a lower rate? Youd be surprised how willing some issuers are to negotiate.

In some cases, great terms are too good to be true. The Internet is littered with Accept Credit Cards! offers from questionable firms, so ask other small businesses and your accountant for referrals.

Step 3 Dont Forget Your Backend Accounting System

A very important aspect to consider is whether the transaction equipment or software you will use to accept credit cards will integrate with your companys computer system and accounting procedures.

Most card acceptance equipment is easily linked with small business accounting software. In some cases, software vendors will even set you up with a merchant account, usually via a third-party relationship they have in place. For example, small business management software vendor MYOB offers a Merchant Account Service that makes it easy to process credit card sales directly from your MYOB software. Credit card transaction settlements are automatically and accurately reflected in daily cash flow and invoicing procedures.

Avoid a scenario in which you start accepting credit cards and then have to manually key in your credit card sales into your accounting system. Thats a recipe for disaster.

Step 4 Start Accepting Credit Cards

Once youve established your merchant accounts and wired up the equipment and/or software that youll use to process credit cards, youre ready to let your customers know. Inform them by putting credit card logos on your front door, your invoices, and your Web site. You can get those logos from the processing companies.

Before you know it, youll see your bank account start to rise as the credit card sales flow in.

The bottom line is that customers, both individuals or businesses, expect to pay by plastic. Focus on the core success of any business giving the customer what they want by letting them pay how they want.

Charlie Redmond


owns and manages Avalon Computer (www.avalonmall.com), a small business consulting firm specializing in financial management and accounting software. Charlie has been involved in the accounting and computer industries for over 20 years and is an MYOB Certified Consultant (www.myob.com/us).



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