In order to accept credit cards, you need to work with a bank that will transfer the money into your account within a day or two of the sale, and then collect the money from the customer. In return, you pay the bank a commission of 1.5 percent to 5 percent for each credit-card transaction; a set, per-transaction fee; and a setup fee. You will also have to pay monthly support or equipment-rental fees for a point-of-sale terminal--the machine used to swipe the card--depending on the contract. Hogan, for instance, pays 2.5 percent plus 30 cents per transaction and $15 per month. She also paid a $125 setup fee.
"The fee is based on two things," Fazzini says, "the average amount per transaction and the total volume for the year." Hogan's high average dollar amount per transaction helped lower her fees, but this was offset somewhat by her relatively low yearly volume.
When you apply for merchant status, the banks evaluate your business based on its sales track record, the type of business it is, your credit record, the business's credit record and your overall financial picture.
Fazzini advises applying for merchant status when you get your start-up financing. This accomplishes several things. First, it shows that you've thought ahead. "And you will probably have customers that you wouldn't have otherwise," he says. In fact, some people don't pay with anything but credit cards.
Second, you show you're taking steps to minimize the time and expense involved in recovering bad debts. If someone writes a bad check, for instance, it will cost you time and money to recover the loss. If you swipe a customer's credit card through a point-of-sale terminal, you can be sure you'll get paid. The machine contacts the issuing bank to authorize the transaction and runs the account numbers through a variety of fraud-protection procedures.