By Steve Yankee
As an individual who once had much, much more than my fair share of credit card debt (they call it “revolving credit” –I usually call it by a couple of stronger names), I know that using the plastic can be all too easy at times. You don’t have to count out the money and part with the actual cash, so there’s no separation anxiety involved. It makes impulse buying quite easy; it’s especially handy in emergency situations. And, if you have a reasonably good credit rating, you probably get a couple of pre-approved credit applications in the mail every week. In our first few years of operation, we didn’t take credit cards business for our video services company. Oh, it wasn’t that we didn’t want to…we couldn’t. Our personal credit ratings were zilch, due to the failure of a couple of prior businesses we owned. And most banks told us that our business was “too young” and lacked a sufficient credit history.
That didn’t stop us; don’t let it stop YOU!
Give up? Never! We knew that adding the options of letting our customers charge their duplication, transfer and production jobs would increase our sales volume by at least 50 percent –and that our average order would also increase by an average 15 to 20 percent. Let’s face it; people just won’t have that film transfer done if they don’t have the money in the bank to pay for it next week; and likewise, they’ll figure that the party they wanted you to tape can be produced by someone who’ll let ’em charge the $100 tab at the end of the day, too! But we persisted in trying to obtain “Merchant Status” and in the end, we won. And we win every day, every time another customer whips out the plastic and tells us to “Charge it, please.” If you have a good credit rating –and that also holds true for your business –you stand a good chance of being approved for merchant credit card status. It also helps if you’ve been in business for more than two years. But even if you haven’t, I’m going to teach you the secrets we learned –secrets that you can use right now to improve the odds!
Start with your own bank.
First off, start with the bank that you currently do business with. Speak to a person in authority. Present a professional, positive image. (Right; wear your good suit –that dark blue pinstriped model.) You will be requested to present financial information –both personal and corporate –including your last couple state and federal tax returns. So be prepared and bring it all with you.
While you’re at the bank, don’t try to hide any negative information about either your personal credit or your business’s financial state. They’ll find out sooner or later and you don’t want to look dishonest. Really impress those 9-to-5’ers by providing a complete business package. One that includes a profile sheet on your company, copies of your advertisements, your company’s projected earnings for the next three to five years and –most importantly –GOOD REFERENCES.
Be armed with third party references (influential friends, good personal friends, your minister, your lawyer, etc.) and credit references, too. Names, addresses and phone numbers of your suppliers –your tape stock supplier, your landlord –anyone you do business with that lets you charge goods or services and with whom you’ve built up a good repayment record.
Next, gently remind the bank of all the business you currently do with them; your personal checking and savings accounts, as well as any loans or mortgages you may have. Let them know if they do grant you merchant status you will be willing to open up a business commercial account there (if you don’t already have one with them.) Make sure the bank is aware of who your customers are; hard-working men and women like yourself who never bounce checks.
The terminal; an important lever for acceptance.
During your meeting, you’ll need to tell the bank that you want to rent or buy an electronic authorization terminal. Electronic terminals cost between $200 – $500, or you can rent one for $20 – $30 a month.
There’s a cheaper way to go, but it’s inconvenient. You also have the option of purchasing a manual card imprinter for about $40. However, with a manual imprinter, you then need to place a phone call to the credit card company to get an authorization number in order to accept the charge (if the amount of the charge is over your floor limit, but more about limits later). If the line is busy, the card company is closed, or for any other reason you can’t get through, you could lose the sale.
You’ll find that banks prefer electronic terminals because it’s less paperwork for them. AND they get to make money off you right away from the terminal rental payment or the lump sum purchase price.
Why you should go “electronic,” if you can…
Electronic terminals offer you some handy advantages, too. First of all, the authorization process is computerized, so you don’t have to waste your valuable time making phone calls to get the transaction approved. Secondly, the necessary funds are deposited in your account in two to three days verses five to seven days with the manual imprinter.
Next Step: The Merchant Application Form
So now that you’ve convinced the bank that you are an honest, hard-working, non-check-bouncing, pay-all-your-bills-on-time type of person, they’re going to give you a credit card merchant application.
Besides carefully doing the obvious –like filling in the blanks legibly and double-checking all the figures –you need to pay special attention to one particular area. It is the question on the form which asks what your ANTICIPATED AVERAGE SALE will be.
The answer to this question will determine your FLOOR LIMIT.
No, the floor limit is not how far you’re willing to get down on your hands and knees to beg for approval, but rather THE SALE AMOUNT FOR WHICH YOU ARE NOT REQUIRED TO PHONE IN FOR AUTHORIZATION.
Example: our floor limit 50 dollars, so if we were using a
manual imprinter and had just made a sale for $49.99, we would not need to make that phone call to get authorization. We could just accept the order because it does not exceed our floor limit. However, IF we were using a manual imprinter and the sale was for $50.01, we would need to place a phone call to get authorization. Fortunately we have an electronic terminal so, like I said before, this is all computerized, floor limit or no floor limit. The important part here is THE HIGHER THE ANTICIPATED AVERAGE SALE, THE GREATER THE RISK THE BANK WILL PERCEIVE YOU TO BE.
If you already know that you are a perceived risk, there is something you can do to lessen that risk. Have an agreement with the bank that you will place a certificate of deposit (CD) to be held in escrow for the purpose of assuring your merchant status. Remember to bring this up at your initial meeting if you know it’s the only way you’ll ever be considered (and you know who you are.)
If you do chose to go this route you’ll also need to pay special attention to the question which asks “WHAT IS YOUR TOTAL MONTHLY SALES VOLUME – WHAT PERCENTAGE OF THAT DO YOU ESTIMATE WILL BE MASTERCARD CHARGES – WHAT PERCENTAGE WILL BE VISA CHARGES?” This question is important to you because the banks usually asks for three times the monthly sales volume to be put in the CD. Too high an answer, you may not be able to tie up that much money: too low an answer, the bank may think you do so little business that there’s no reason for merchant status to be granted.
Also, if you are using a CD to guarantee your status (and who
ever said money can’t buy acceptance was just plain mistaken!), do not allow it to be held for more than 18 months. Eighteen months without a mishap should be long enough to prove your worthiness.
What to do if your bank says “NO!”
First off, don’t give up! Now you just have to do a little more legwork. To start, ask your bank why they denied your application. Is it because you haven’t been in business long enough, because 10 years ago you had a business that went bankrupt, your personal credit rating is poor or you just weren’t prepared enough for the interview? Once you know what the problem is, you can take steps to correct it. Get your business suit back from the cleaners and try another bank. This time, set your sights on small banks with only one or two branches. It’s best if you can find one in your area. (It doesn’t hurt to look outside your immediate geographical area, but keep in mind that if a problem does arise and you need to straighten it out in person, you need to be able to get there before the doors close.)
Here’s why a small bank is better: small banks are more likely to take risks because they need all the business they can get to keep up with the big boys. Small banks in small towns are your best bet. Also check out newly established banks. Institutions that have been in business for only the past four or five years did not go through the credit card charge-back scandals of the greedy 1980’s. Because they’ve had fewer bad experiences, they’re more likely to say yes.
When meeting with another bank remember what you need to do;
*Speak to a person in authority.
*Present a professional, positive image.
*Bring your personal and company financial statements,
including state and federal tax filings, as well as a complete
business package and references.
*Offer to do all your business at this bank. This includes transferring your current accounts (savings, checking, loans, etc.) to the bank which approves your application, as well as opening up a commercial account there.
*Tell the bank you want to rent or buy an electronic terminal from them.
So I’ve got my merchant account status. What next?
Once the new bank grants you merchant credit card status, keep your promises. Take all your business from that mean, old nasty bank that wouldn’t grant you merchant status, and give it to your nice, new bank that did!
Help! I’m not finding any nice, new banks!
Can’t find a nice, new bank to give you want you want? Try your credit union or check with professional trade organizations. Or you can look into national associations that offer merchant services. One that I’ve talked with is The National Association of Credit Card Merchants (NACCM). Just call (407) 737-7500 and ask for Leslie Adams, the sales manager. The NACCM has been in business since 1982. They’re a member of the Better Business Bureau and the Direct Marketing Association.
According to Ms. Adams, applying merchants are evaluated on the basis of what they are selling and how they are selling it. The fees vary, based upon what you’re doing or selling. They work with mail-order, telephone and home-based businesses. There is no minimum monthly sales quota and they specialize in working with new companies.
Another option to consider if you can’t get merchant status through a bank is an Independent Sales/Service Organization (ISO). ISO’s work as subcontractors to banks. Proceed with caution if you decide to go down this route, as some ISO’s have been known to take the money and run. Make sure the firm you are dealing with is reputable, and that you know about all of their fees and services up front, so you’re not surprised when your monthly statement arrives. I spoke with two ISO’s. The first was Harbridge Merchant Services at (800) 858-1166. The representative in the merchant process center informed me that Harbridge deals primarily with American Express and Discover card. Their fees are determined by what the merchant sells. All fees are discounted right off the top, which means you receive a check at the end of the month which includes your monthly sales, minus a certain percentage.
The other ISO I spoke with was Data Capture Services at (605) 341-6461. After speaking with Deb Marlow I learned that Data Capture Systems has been in business as an ISO since 1987, and here’s how they work:
First off, each merchant is assigned their own merchant number for Visa and MasterCard acceptance. They work with small business, as well as home-based, telephone/mail-order and retail storefronts. The more complicated your business, the more complicated the application process can be, but even if you run the most simple operation, good credit is a must. HOWEVER, DCS is more lenient with 100 percent storefront operations than it is for businesses involving phone orders. That’s because a storefront operation always sees the actual credit card at the time of payment (or at least they’re supposed to), so it can be verified, in person, whether the card can be used, (i.e. it’s not expired) or that the person using it is authorized to do so. DCS offers electronic terminals for all types of businesses, and a portable, mobile unit (a lot like a cellular telephone) for home-based companies who need to take their show out on the road.
Equipment costs 25-100 dollars a month on a lease-to-own basis. Fees vary according to the type of business you have, but here’s what I was told. [WARNING: fees in real life may be larger than they appear on paper!] One hundred percent card-swipe storefronts = two percent; hand-entered, but company employee still sees actual card = three percent (remember all the paper work that has to be done with manual transactions – and that cost is passed on to you.) Telephone or mail orders = five percent. These percentages are deducted right off the top. The remaining funds are available in your account in two to three business days.
Some merchants are also charged a $7.50 ‘monthly statement’
fee –find out if you are going to be one of them –and are also charged 20 cents for each transaction. So it’s easy to see how all of the miscellaneous fees can take a bite out of your profits, but it can be well worth it when you consider that accepting credit cards can increase your sales volume by 50, 60 percent or even more –while increasing your average order by 15 percent or more.
If you deal with an ISO, be prepared!
Another thing you need to be aware of is when you call these organizations on the phone is that most will not mail out information. So there is no chance of looking over the questions beforehand to prepare yourself. Most want to interview you on the phone right then and there. If you’re calling them, be prepared with all your financial information –past, present and future! You should also be aware that the ISO representatives can be very controlling of the conversation, so make sure they take enough time to answer all your questions and concerns. You may feel pressured by their sales tactics, so my advice is to dress comfortably and don’t get nervous. Call them when you’ve got your financial information together and you’re in an alert-but-relaxed mood. If you can’t find anyone willing to take a chance now and grant your business Visa and Master card status, you could start by getting a application to accept American Express. American Express has fewer biases against new and home-based businesses. To receive a merchant application, call 1-800-528-5200, and speak to a customer service representative. Fewer people carry American Express than Visa or Master card, probably because balances need to be paid in full at the end of the month, but many companies do use American Express as their corporate card. And although American Express costs the merchant more per transaction than the other two cards, getting American Express status right away can help you secure Visa and Master card.
Another card you may be interested in getting merchant
status for is:
DISCOVER CARD. Call 1-800-347-6673. With the Discover card you can either purchase a manual imprinter from them for $20 and mail your transaction slips in to the company, or you can lease or buy an electronic terminal. The Discover card terminals can then be used to process other credit cards when you become a merchant for other cards.
Some final words of advice…
*Once you do receive merchant credit card status, NEVER
delay a refund to a customer. Delaying a refund could result in having your hard-won status taken away.
*Keep in mind that just because you may have been turned down for merchant status six months ago, doesn’t mean you can’t apply today and succeed. Or even if the bank next-door said no, a different branch of the same bank could say yes. SO KEEP TRYING! The higher profits you’ll receive for being a credit card merchant are well worth the extra effort.
*Once you’ve got merchant status, let the world know! Your bank or ISO will provide you with reproductions of your bankcard logos; use them in your ads and your brochures and your direct mailers. They’ll also give you decals and plastic displays –put them on your doors and windows, display them in your reception area or on your customer service desk. When people call you, let them know that you accept Visa or Master Card or any other cards you handle. They’ll appreciate it, and your checkbook will, too!
Steve Yankee is a full-time business-to-business copywriter and consultant, and the author of over 50 books, videotapes and special reports dealing with advertising and video production subjects.