Small Business Guide: Credit Cards

The Ultimate Guide to Safely Accepting Credit Cards for Small Businesses and Startups

Nell

by Nell Gable

WHY YOU'RE READING THIS

It's true, accepting credit cards as a small business owner can seem pricey. But, the vast majority of consumers prefer to pay for goods and services with either credit or debit cards.

A 2016 study by credit card processor, TSYS, found that 40% of consumers cited credit cards as their preferred payment method, 35% cited debit cards and only 11% chose cash.

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By taking credit cards, you will not only be making your existing customers happier, you will open your business up to a much larger potential customer base.

In this eBook, we'll help you understand and weigh all the costs and benefits of accepting credit cards. Then, we'll walk you through all the steps you will need to follow to get set up with a merchant account to start taking credit cards. Finally, we'll take you through all the risks of credit cards and practical measures you can take to avoid chargebacks, holds and declines.

The Costs of Accepting Credit Cards

You know accepting credit cards almost always comes at a cost to you, the business owner, but what determines this fee?

Most transaction rates are made up of three parts:

Interchange fees – This is the largest fee and it goes to the bank that issued the card. It is typically made up of a flat rate plus a percentage of the sale (average 1.7%).
Assessment fees – This goes to the card network (Visa, MasterCard, Amex, etc.) and range from 0.105% to 0.13% for Discover, Visa, and MasterCard. American Express is known for having much higher rates than the other cards which is why some businesses forgo accepting American Express altogether.
Processor fees – These are the fees for providing the service and risk assessments. They are determined by the type and size of the transaction and include any chargeback or statement fees. Credit card rates for the processor are typically broken into two categories:

1. Card Present (or Swipe at Point of Sale) are transactions in which the credit card is physically swiped through a credit card terminal.

2. Card Not Present (or MOTO, Mail Order/Telephone Order) are transactions in which the card is not physically present. This includes online payments, phone transactions or even credit cards typed in manually to a terminal.

Because the rates will differ for each category, it’s important to know which type of transactions your business will be using most often so you can find a merchant processor that offers low rates for that transaction type.

In addition to the transaction fees, other fees associated with merchant accounts include:

  • Monthly minimum fees
  • Setup fees
  • Credit card reader fees
  • Cancellation fees
  • Statement fees
  • Customer service fees
  • Chargeback fees
  • Batch fees
  • Annual fee

Being conservative and taking all the fees into consideration (including one-time setup fees), an estimated average maximum cost to accept credit cards per transaction will land you at the most between 2.75% and 4%.

Now what can you do about these fees?

First of all, when setting up a merchant account make sure you research multiple companies and find one with fair fees. Next, consider raising your prices (or better yet, setting your prices if you're just starting your business) to make up for the added credit card fees. For example, if you’re planning on pricing a product or service at $15 add an additional $0.60 (4%) to the price to make up for the fee of accepting credit cards.

Why You Should Be Accepting Credit Cards

While the fees that come with accepting credit cards may seem high, most U.S. consumers use cards over cash, so warming up to credit cards shows that you have a modern, consumer-centric business.

If you’re still on the fence about credit cards as an option for accepting payments, here are a few benefits to consider:

SAVE TIME AND MONEY WHILE IMPROVING CUSTOMER EXPERIENCE

You can save both time and money when you accept credit cards, while improving the experience your customers have with your business, so they come back again and again. It’s a competitive world out there, especially as a business owner, and it’s important that you keep up with the proverbial ‘Joneses.’ Allowing your customers to pay the way they want is a huge differentiator.

Think about how you, as a consumer, prefer to pay for everyday items or services you receive. Likely, it’s by whipping out your credit or debit card. Not only are you able to earn reward points from your credit card issuer, but it’s also a whole lot easier than remembering your routing and account number, or carrying around cash or checks.

Chances are, if your business doesn’t accept credit cards, your customers won’t find it as easy to do business with you and could potentially go elsewhere in the future.

Additionally, according to Community Merchants USA, businesses can increase their sales by more than double when they start accepting credit cards.

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INCREASE CASH FLOW WHILE SHORTENING FUNDING TIMES

Increasing cash flow is important for business growth, and adding credit card acceptance is a surefire way to increase cash and speed up the time it takes for your business to get paid.

The funding time for most credit card payments is much faster than other payment methods like ACH or check. When you accept a credit card payment on Monday, you can expect to see the funds in your bank account by Wednesday. That means more money in your bank account at any given time, especially compared to ACH which would typically deposit on Friday using the same Monday example.

AVOID STRESS BY STREAMLINING YOUR PAYMENT PROCESSES

Credit card transactions give your business an immediate response that nearly ‘guarantees’ the funds will settle into your account. When your business processes a credit card payment you will receive an automatic response, known as an ‘authorization’ letting you know if the payment is going to be successful or not.

Compared to ACH, where you won’t find out if the transaction is going to fund successfully until 5 days later, accepting credit cards provides a lot more cash flow security.

An added benefit of accepting credit card payments is that your business can swipe credit card transactions, as compared to the manual entry required for processing ACH payments.

PROCESS MAILED OR CALLED-IN PAYMENTS AT LOWER RATES WITH AN ONLINE VIRTUAL TERMINAL

For retail businesses, using a physical credit card reader is often the most cost-effective option for processing credit cards (‘card present’ transaction rates are typically 50 to 100 basis points lower than ‘card not present’ rates). However, if a transaction is keyed-in on a credit card reader that is set up to accept swiped/dipped payments (on a card-present merchant account) it will yield a much higher ‘non-qualified’ rate and a high cost for the business.

Since not all businesses need to or want to charge physical credit cards, using a virtual terminal is a great alternative. It not only allows you to process mailed and called-in payments with ease, but your merchant account will be set up to accept ‘card not present’ transactions at a qualified rate often a full percentage point lower than a non-qualified rate on a card reader, which can save merchants hundreds (or thousands) of dollars every month.

Processing a payment on a virtual terminal is as simple as logging into your account and typing in the credit card information. Once you submit the payment, the transaction is processed and funds are deposited in your business bank account in 2-3 business days.

For businesses that accept and process payments remotely, an online virtual terminal is a necessity.

THE ABILITY TO PROCESS RECURRING CREDIT CARD PAYMENTS

One of the biggest advantages of accepting credit cards (specifically with online virtual terminals over physical card terminals) is that many include recurring payment functionality. Simply enter the credit card information, set a recurring payment date, and let the virtual terminal do the rest.

For businesses that rely on recurring payments, tracking down members or clients each month to get their payment information can be a struggle. If you’re currently using a card reader to process payments, you’re likely familiar with this issue. By making the switch to a virtual terminal, you’ll enjoy the improved cash flow that recurring billing provides, all while providing a convenient service for your customers.

SECURELY STORE CUSTOMER DATA FOR FUTURE TRANSACTIONS

Managing your credit card and customer information is an important issue that all business owners should take into account. If you’re physically storing customer credit card information for future purposes, you might be violating PCI DSS compliance rules.

By using an online virtual terminal to handle and store credit card data, you’ll be automatically set up to comply with PCI DSS regulations.

The virtual terminal provider securely stores customer data for future purchases and doesn’t put your business at risk of data breaches. The last thing a business owner wants to worry about is losing sensitive credit card information.

By securely storing it in the cloud, the business can feel confident that their customers’ payment information is safe.

PROTECT YOUR BUSINESS AGAINST UNFAIR PAYMENT DISPUTES

We hope that your business never has to deal with a payment dispute, but if you do, credit card disputes are much easier to manage and potentially win than ACH or check disputes.

If a customer disputes a credit card charge, your business will have the opportunity to provide receipts and authorization documents to the credit card processor so that they can determine if the transaction was properly authorized. The ACH dispute process is much less flexible and generally the only real way to resolve a dispute is between your business and the unhappy customer.

If you knew there was a solution to a business challenge that would keep your customers happy, increase the amount of cash you have in the bank, and save time and hassle—wouldn’t you jump at it? Activating credit card acceptance can do all that, and more.

Getting Started With Credit Card Processing

If you’re sold on the idea of accepting credit cards, you may be asking yourself, “How do I get started?”

In this section, we'll teach you everything you need to get started accepting credit cards, including the top 7 factors to consider when choosing an online credit card processor.

STEP 1: CHOOSE A MERCHANT ACCOUNT

A merchant account lets your business accept debit and credit card payments. There are two ways to get a merchant account. You can either enter into an agreement with a member bank that has a processing relationship with Visa and Mastercard or you can enter into an agreement with an authorized agent of the member bank, such as an independent sales organization or member service provider (ISO/MSP.)

To get more familiar with merchant accounts (and all of the terminology surrounding merchant accounts), use our handy, alphabetized guide.

Before you set up a merchant account, it’s important to think about how you want credit card payments to work for your business.

Some key questions to consider include:

  • What types of credit card brands do you want to accept? Visa and Mastercard are standard, but you’ll want to be prepared with a list of other credit card brands that you want to accept (if any).
  • How do you want to accept payments? There are many ways for customers to make payments including on your website, on their mobile phone, or in person using a virtual terminal. Make sure you’re prepared with the primary way you’ll accept payments, along with all the secondary methods.
  • How much sales volume will be through credit cards? Figure out whether you will still accept other payment methods, or if you’ll be switching to solely accepting credit cards. It’s important to have some idea about volumes before you talk with a merchant account provider.

Read some of the top questions asked by other small businesses when opening a merchant account.

Once you consider some of the key questions above, it’s important to compare merchant account providers to make sure you get the best option for your unique business.

A few considerations include the ease of use of the system for you, your employees, and your customers, secure handling of your customers’ payment data, and their customer support. Once you choose a merchant account it’s important to choose an online credit card processor and make sure the two work well together before finalizing your merchant account.

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STEP 2: CHOOSE AN ONLINE CREDIT CARD PROCESSOR

The payment processor is the company that facilitates transaction authorization and data transfer for the transactions you process. Choosing the right online credit card processing service will save you time, diversify your ability to collect payments and ultimately increase your ability to generate revenue.

When you’re a small business, it can be difficult to select an online credit card processor with so many options available. To help you make the choice, ask yourself these questions before signing the contract.

1. What are the fees?

The transaction fee is usually the first aspect a business will look at when evaluating online credit card processing options. But don’t be sold too soon on a low rate without asking more questions about additional fees. Many processors also institute processing minimums, where if you don’t meet a certain volume of transactions per month, the provider will charge a penalty fee. Ask for a complete breakdown of all transaction and incidental fees so you have an accurate picture of your monthly costs.

2. How high is its approval rating?

The approval rating indicates what percentage of applications the credit card processor approves. A higher approval rating usually means a higher percentage of approved applicants, a higher processing speed and a lower fee to apply.

3. What features does it offer?

Most companies offer a variety of terminal options, including swipers, virtual terminals, or online payment forms. However, many businesses will need more functionality than a simple gateway to process a payment.

Do you plan on storing customer information (or even payment information) for repeat purchases? Would you like to set up recurring billing to bill credit cards on a regular schedule? What type of reporting do you need to track your cash flow? Does the provider offer a mobile app to process credit cards on-the-go?

These types of features are often NOT included with your merchant account and can lead to expensive or complicated integrations by separate software providers. Be sure your merchant account is compatible, or better yet, already integrated with the features you desire. Use this free evaluation guide to help you find the right the solution for your business.

4. How much are start-up (or cancellation) costs?

Online credit card processing services usually charge you a fee to get set up, and many can charge you a fee if you cancel. Be sure to check on the setup cost (as this can often be negotiated) and whether you’re going to be locked into a contract with a hefty cancellation fee.

5. How do customers rate its service?

The Internet makes it easy to detect an inaccessible, unresponsive customer service department. Before you sign up with a processor, enter the name into Google followed by “reviews,” and read what customers have to say. You can also go directly to review websites and find objective write-ups from reviewers who have done a lot of in-depth research for you. A few notable examples include CNet.com, PCMag.com and CardPaymentOptions.com.

6. How long does it take to set up?

Some companies can have you set up within a day, and some can take weeks. The nature of your business can sometimes factor into how long it takes to set up your merchant account, but the provider and their systems can shorten or lengthen this process, as well. Be sure to ask this question up front so you are not left hanging when a customer needs to pay you.

7. How long is funding time?

Be somewhat wary of services boasting “instant” or “guaranteed” setup, as it can mean a holding time for your funds. Be sure that for whatever online credit card processing service you’re looking into, you know the average funding time for Visa, MasterCard, Discover and American Express transactions (as these can often be different). Any longer than a few days can mean your funds are being placed in a holding account to offset the processor’s risk of an “application-free” or “instant” setup.

Choosing the best online credit card processing service ultimately comes down to how well it will fit with your business in the long-run. Will its service and features make your life easier or more difficult? Research all your options, send them through this checklist and you’ll be processing credit cards, headache-free, in no time.

STEP 3: GET THE TOOLS

Getting started with credit card processing isn’t just about the setup, it’s also about the management of payments once the account is established and customers are paying.

Your needs will differ depending on your business type. You may need user-friendly software for online payment processing and order fulfillment. Or, you may want to find the best combination of receivables and payment processing software to manage recurring payments and phone order entry. Or, you may need an easy-to-use, secure terminal for Point of Sale card reader processing—perhaps even an attachment for your phone to read cards. For many merchants, a suite offering all of these features, like PaySimple, is the best solution. Just be sure that the tools you choose are compatible with your merchant processing account.

Now that you are able to accept credit cards it’s important to educate yourself on protecting your customers and remaining compliant so you can continue to accept credit cards.

How to Safeguard Customer Credit Card Data

Data breaches at stores like Target and Neiman Marcus put the credit card and personal information of thousands of customers at risk. As a result, businesses are under increased scrutiny for how they safeguard their customers' information.

In a recent survey 49% of American shoppers say they are extremely concerned with their data being stolen when shopping in stores and 58% were concerned when making a payment online.

As a business owner, if you have a merchant account for processing credit card transactions, you are contractually obligated to safeguard your customers’ credit card information. That’s right—if you look at the fine print of the contract you signed, it likely states that your business must be “PCI Compliant”. A key part of PCI Compliance is safeguarding account information, including how you store the information as well as the equipment and service providers you use. Luckily, when you use a third-party software like PaySimple to manage your customer’s credit card info, it will safeguard all your important information.

BELOW ARE 5 TIPS YOUR BUSINESS CAN FOLLOW TO MAKE SURE THAT YOU ARE HANDLING CREDIT CARD ACCOUNT INFORMATION PROPERLY:

1. Use only approved equipment and software

Whether you use a terminal for POS transactions, or a swiper attached to a computer or mobile phone running payment processing software, you need to be certain that all of your hardware and software is PCI Compliant.

While you would think that anything available for sale is ok to use, that’s not the case. There are many applications and card readers that have security holes and vulnerabilities that make them less than ideal. That’s why reputable hardware and software vendors undergo rigorous testing to ensure the integrity of their products. To protect your customers and your business, be sure to use only tested and approved solutions. You can find lists of approved providers on the PCI DSS website, which are searchable by company name or product name:

Hardware: Approved PIN Transaction Security Devices
Software: Validated Payment Applications

2. Use only approved service providers

If you don’t want to install and run credit card processing software yourself, you can use a service provider to manage credit card processing and credit card account storage for you.

Service providers include web-based SaaS (Software as a Service) providers, IVR phone services, and even companies to which you outsource all payment processing functions. These service providers must undergo extensive testing to make sure that the trust you place in them is deserved. The testing is done by an external QSA (Qualified Security Assessor) who performs a comprehensive audit of the company’s policies, procedures and systems. If a company passes, it is designated a “PCI DSS Validated Entity.” As part of your PCI compliance, you are required to use only PCI DSS Validated service providers.

3. Never store electronic track data or the card security number in any form

While you may have a business reason for storing credit card information, processing regulations specifically forbid the storage of a card’s security code or any “track data” contained in the magnetic strip on the back of a credit card.

The card security number, called by many acronyms including CVV2, CID, and CSC, is the three digit number on the back of Visa/MasterCard/Discover cards or the 4 digit number on the front of American Express cards. It is designed to provide a way for merchants to know whether a customer authorizing a transaction over the phone or via the Internet actually has the card in their possession. This approach only works if the security code is never stored with the card number. Electronic storage makes this easy. You simply do not create a field for the security code. For paper storage, you need to redact (cross out with a dark pen to make unreadable) the security code after you successfully process the transaction and before you store a paper authorization form.

The track data stored in the magnetic strip on the back of the card also contains information about the account that is not displayed on the card. This data assists with authorizing transactions and ensuring that credit cards cannot be easily counterfeited. Card readers can be made to make this track data visible, and software can be designed to store it—even without your knowledge.

Clearly you should store neither security codes nor track data purposely. But, you need to make sure you don’t store it inadvertently as well. To do this, be certain to use only approved hardware and software (see #1 above.)

4. Make sure all electronic storage of credit card account numbers is encrypted and all paper storage is secured

There are situations where you want to store credit card numbers to keep, for example, proof of written authorizations for mail-order payments or recurring payment authorizations. If you keep paper documents that contain credit card numbers, be sure that they are always locked in a secure place (such as a safe or file drawer) when not in use.

Electronic storage of credit card numbers is also common if, for example, you process recurring or repeat transactions. If you do this, you need to make certain that you never store these files unencrypted. You need to make certain that any electronic storage is encrypted using a robust encryption algorithm. That way, if your computer is stolen or if someone in your office gains unauthorized access, you have some level of protection for the credit card numbers.

There are many service providers that offer secure storage—either as a standalone service or as part of a payment processing package. These services typically provide you with a “Token” for a card number they store. You can store the token in any unsecured file. When you’re ready to process a payment, you simply send the service provider the token and it retrieves the full card number for the sole purpose of processing the payment. Just be certain to use a PCI DSS Verified provider (see #2 above) if you decide to go this route.

5. Make sure any phone recordings that contain credit card account numbers are stored encrypted

Many businesses that take telephone orders record calls to both monitor service quality and to keep proof of payment authorizations. If you do this, you are actually creating a database of credit card numbers (and often security code numbers) that is vulnerable to theft and misuse.

If you store phone records digitally, as many VOIP Systems do, you need to encrypt them immediately (or as soon as practical), and store them in a limited access, password-protected directory. You also need to ensure that there is no software attached to the storage system that will enable text-to-speech conversion that will make large numbers of credit card numbers readily available to someone who accesses the system.

Simply following these 5 best practices will go a long way towards meeting your contractual requirements to safeguard credit card account information and to be PCI Compliant. But that’s not the only reason to do it; protecting your customers’ credit card information shows your customers that you have their best interests at heart, which is just good business.

The Magic of Recurring Credit Card Billing

Now that you know the costs and benefits of accepting credit cards, how to choose and set up a merchant and credit card processing account, and how to safeguard your customers’ data, it’s time for a little fun. Below you will find tips and tricks to get the most out of accepting credit cards with recurring billing.

How to use Recurring Credit Card Billing

Recurring bills have become a significant and “normal” part of our lives, both in business and in our personal finances. We’re all used to paying every month for our phone service, rent/mortgage, internet, television, and utilities. Often with these recurring bills, we have the option to set up automatic payments, thanks to recurring billing technology. But when we don’t and we’re forced to resort to the checkbook and post office, we’re left feeling annoyed by the hassle.

As consumers, recurring billing allows us to provide payment information to a merchant and dictate the timing, frequency, and volumes of debits from our accounts. As business owners, it helps us maintain steady cash flow and decrease late payments.

Often times, recurring billing is associated with ACH or bank-to-bank transfers. However, recurring billing with credit cards should not be overlooked. It provides the same conveniences as bank transfers, but also brings with it the conveniences of credit card processing: instant approval, faster funding, and reward points!

According to the 2016 US Consumer Payment Study by TSYS 23% of credit card users and 33% of debit card users prefer to pay with recurring billing.

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With consumer attitudes towards credit card recurring billing in such a comfortable spot, why aren’t all businesses offering the option—especially those businesses with repeat customers who make regular payments? Many business owners just aren’t sure how to launch recurring billing for their business. We're here to change that.

Tips to Get Started With Recurring Billing:

1. Find a recurring billing solution

Even if you already have a credit card merchant account, you’ll still need an interface that manages your recurring credit card billing. With a service provider like PaySimple, you’ll also be able to manage your customer database, run one-time transactions, invoice, and set up recurring billing schedules, all from one interface. These software providers can also help you set up a merchant account, if you don’t have one already.

2. Introduce the option to your customers

Most of your customers will be well versed on how to use recurring credit card billing on their end, but you will want to let them know that you now offer the popular payment option. Most will be happy to hear that you’re going out of your way to simplify their bill payment process and will be eager to sign up. Consider blasting out an email to your customer list or simply letting them know over the phone or in person when they make their next payment.

3. Collect payment information

You may already have credit card information for your customers if you’re processing one-time payments, but if you don’t, you’ll want to collect it for your recurring billing solution. Aside from the advantages of recurring billing, uploading your customers into the solution also gives you the power to manage their contact information, company information, and more.

4. Receive authorization

Receiving proper authorization from your customers is as important as collecting the payment information itself; plus, it gives your customers peace of mind that you’re ensuring you get the schedule they requested correct. Authorization for setting up recurring credit card billing can come in various forms (email, voice, etc.), and is important to always keep on file.

Download our free authorization form templates for ACH, credit card and recurring payment processing.

5. Set timing, frequency and amount

Once you have your customer’s payment information and authorization in-hand, you’re ready to set up the recurring billing schedule. Depending on the solution you choose, you can:

  • Schedule start date
  • Billing frequency
  • 1st payment amount
  • Subsequent payment amounts
  • Schedule end date*

*The ability to add an end date to the schedule is helpful when using recurring credit card billing to create afinite payment plan.

Consumers have made it clear that they want recurring credit card billing as a payment option, and many businesses have answered.

If you’re looking to bring recurring billing to your business, start your free trial of PaySimple today.

Credit Card Processing Chargebacks and How to Avoid Them

A chargeback (sometimes referred to asfriendly fraud”) is the forcible reversal of funds typically due to a credit card holder’s dispute of the transaction.

Originally established in 1968 as a way to protect credit card holders against clerical errors, the chargeback has become a major tool in the fight against identity theft, especially for online credit card processing and ACH transactions.

However, for a business owner credit card processing chargebacks can be a huge headache.

Consumer protection needs to be a priority but the downside to chargebacks is that they are often caused by miscommunication or even consumer fraud. At worst, chargebacks can affect a business’s ability to maintain a merchant account and accept future credit card or ACH payments. Merchant account providers can also impose steep fines or put funds on a hold if a business has high chargeback rates.

So, how can you help protect your business and maintain a good standing with your merchant account provider?

First, familiarize yourself with the four basic chargeback types:

  • Technical: Expired authorization, non-sufficient funds or bank processing error
  • Clerical: Duplicate billing, incorrect amount billed or refund never issued
  • Quality: Consumer claims to have never received the goods as promised at the time of purchase
  • Fraud: Consumer claims they did not authorize the purchase or claims identity theft

For some types, such as expired authorizations or incorrect billing, if you follow proper online credit card processing regulations and best practices (your merchant account provider can supply these) you’ll be able to thwart many would-be disputes. However, fraud disputes can be more complicated since they are the result of fraudulent consumer purchases (as opposed to a business charging without authorization). Global Risk Technologies (GRT) found that about 86% of chargebacks are fraudulent and that many consumers file complaints directly with the card-issuing bank and avoid contacting the merchant/business owner all-together.

Here are 5 ways to verify lawful transactions and avoid credit card processing disputes:

  1. Closely examine orders from foreign countries that do not ordinarily purchase from you. A large number of fraudulent Internet purchases originate in Russia, Indonesia, and from Eastern developing countries.
  2. Require a CVC or CVV2 code on your payment form (or check to see if your merchant account processor offers it). This helps to ensure that the customer has the credit card in hand while making the online payment.
  3. If the business name that will show up on your customer’s statement is different than the one they’re familiar with (example: if you’re part of another legal entity), be sure to explain this beforehand and on their receipt.
  4. Go with your gut: If it seems suspicious, call or email the customer to confirm the order.
  5. Post a warning message on your order page to people who may attempt to make a fraudulent order.

With diligence, chargebacks can certainly be reduced, saving your business time, money and its reputation. Managing chargebacks is an important piece of the the cash flow puzzle for many businesses.

Credit Card Processing Holds

Credit Card Processing Holds

Credit card processing holds happen for several reasons and can be a nuisance when you are trying to run your business. Learning more about payment holds can help you prevent some holds and quickly prepare information to release a hold in the future.

Let’s start with the basics, there are two types of credit card processing holds: underwriting holds and risk holds.

UNDERWRITING HOLDS:

With some credit card processors, the underwriting process takes two steps.

Step 1: You fill out an application online and an initial verification is done to make sure your business is a good fit for the payment gateway you’re partnering with (PaySimple or similar). If you meet the initial criteria, you can start processing payments. But take caution here because this does not mean you are fully approved yet.

Step 2: Further information (specific documentation) will be required to ensure that the payment processors are able to support your business type. Some businesses are considered higher risk and may not be supported by your payment gateway’s processing partners.

After you are approved for a merchant account (whether ACH or credit card) and start collecting payments from customers, you might find that you’re not receiving funds in the normal two-business day timeframe. When you investigate this, you might learn that you are on an underwriting hold.

What does an underwriting hold mean and what are the next steps?

You will be alerted to the hold and what documents you need to send to the processor to verify your business.

Typically, the processor will request:

  • An invoice, receipt or contract with your customer that proves the first few transactions you processed were authorized by your customer
  • Marketing materials that prove you are a legitimate business
  • Information on your business identity and address

This process can be a little confusing but it’s important to understand that this verification process is necessary to protect against fraud. The easiest way to approach this step with your customer is to let them know about the process and what they can expect.

I’m not a fraudulent business, why do I have to undergo this authorization process?

Your business might not be a fraudulent, but fraud is out there everywhere. Everyone has to go through some scrutiny so fraudsters don’t slip through the cracks and gain access to sensitive information by pretending to be a real business. The system is in place and necessary to keep all consumers (including you!) safe from someone getting your secure credit card data and using it for fraudulent activity.

For the majority of businesses, after you provide the proof of authorization documentation and the processor verifies your business, your funds will be released and you should see them in your bank account the next business day. The easiest way to get through the underwriting process as quickly as possible is to be prepared and respond to questions promptly.

RISK HOLDS:

Has your bank or credit card company ever called you to verify a transaction? Maybe you were out of state, out of the country, or the transaction they are checking on ends up being something completely bizarre and unknown to you. This is an example of a risk hold.

With risk holds, the funds are being held from the merchant until they can verify the transaction. They exist to protect the consumer, which is all of us.

So what does it mean that my funds are being held?

Risk holds can be caused a couple of ways such as abnormal behavior from a customer (they are traveling or have never purchased from you before) or abnormal behavior from you, the merchant. A risk hold often occurs when you process outside of the initial limits you were approved for during underwriting.

Even though a processor might not know your business, they do try to establish typical behavior and they do this by asking your average transaction amounts and processing volumes.

For example:

If you are approved for an average transaction of $100 and an average monthly volume of $10,000 and you process a single transaction for $30,000, you might be put on a risk hold. This is why it is so important when you fill out your application to ensure you are submitting appropriate processing volumes and estimated amounts and to read all email communication from your payment partner.

Risk holds can also occur by random audit and can happen when you:

  • Process a payment for more than six months in advance
  • Process multiple transactions for the same customer on the same card in a row
  • Have a high number of chargebacks associated with your account
  • Have an issue with your bank receiving the funds for your account

Risk holds can happen for a variety of reasons at any time during the life of your account. The processor tends to monitor account activity to make sure everything is running smoothly, and if they feel there is a pattern of unusual activity they may put your account on a hold until they get more information.

That all makes sense, what type of information do they request?

While not an exhaustive list, these are some commonly requested documents:

  • Proof of authorization of the charge just like in the underwriting hold, which would include a contract, invoice or receipt detailing your customer’s information and authorization for the charge
  • They will verify that the charge was authorized by your customer
  • They may also request two months of your most recent bank statements, proof of address such as a utility bill or lease agreement, marketing materials or a business license

What is the best way to avoid a risk hold?

Great question!

Two Tips to Avoid a Risk Hold:

1. Be transparent

The easiest way to avoid a risk hold is to be as transparent as possible about your business and make sure everything you do from the underwriting process, to everyday transactions, is within your normal processing behavior. If you are expecting a large transaction that is outside of your normal processing, it is good to have proof of authorization from your customer ready in case you are put on a hold.

2. Get smart on processing

Another great tip is to be as knowledgeable as possible about what the processor expects your activity to be and the different ways your account can be flagged.

Make sure you are covering your bases by obtaining authorization for your charges, never collect for services provided more than six months in advance, and be familiar with your approved limits to ensure you are staying on track for your average processing volumes.

Make sure you have a contract or authorization with every one of your customers on hand to expedite any sort of hold process.

Any sort of funding hold can hurt your business by disrupting your cash flow, we encourage you to use the information in this article to help you avoid holds from happening.

How to Avoid Declined Credit Card Transactions

Just about everyone has dealt with the frustration of having a credit card transaction declined.

As a small business owner, you not only need to worry about the embarrassment of having your card declined when you’re out with a customer, you also need to have a strategy for those uncomfortable conversations with customers whose own cards are declined while trying to purchase from you.

THE CHALLENGE

Adding to the confusion is that not all credit card declines are due to a problem with the card or with the cardholder’s credit. Sometimes they are unilateral decisions by the issuing bank based on their risk protocols. For online transactions where you enter card data, they can often be simply errors when typing in your account number.

A recent Kiplinger post, 7 Reasons Your Credit Card Can Be Declined, lists common causes for rejected transactions and things you can do to head them off. Along with the common problems of exceeded credit limits, delinquent payments, and expired cards, the post highlights some less obvious issues such as card issuer-initiated account freezes due to international purchases and other unusual buying patterns. It suggests contacting your card issuer beforehand if you are planning purchasing activity outside your norm such as traveling overseas, buying a large amount of electronic equipment online, or making a big ATM withdrawal.

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CREATING A PLAN

As a small business owner, it is important to have a plan for dealing with your customers’ credit card declines as well. You need to balance good customer relationships with prudently rejecting potentially fraudulent transactions. You should also have a decline strategy in place that cultivates good customers and gracefully turns away troublesome and ultimately unprofitable risks.

Your fraud-radar should go up if you get a decline code that indicates the card has been lost or stolen, or any other response that instructs you to “pick-up” the card from the customer. If you see one of these decline codes and the customer is there with you, you are supposed to call your credit card processor’s authorization line and ask for a “Code 10 authorization.” You will then receive further instructions over the phone.

If you have an online or other MOTO (card not present) transaction, you do not need to take any action for this type of decline. But, you should be very wary of doing business with the customer especially if you do not have a previously existing relationship. There are perfectly innocent reasons why you might see this type of decline in a card-not present environment such as your customer reporting a card stolen that you have on file for recurring billing transactions.

INNOCENT DECLINES

Other types of decline may just be problems that a customer needs to work out with their card issuer. In fact, in many cases the customer will be as mystified by the decline as you are. The easiest thing to do in those situations is to simply request a different form of payment. That may be another credit card, an ACH debit from the customer’s bank account, a check, or even cash. You can also give the customer the opportunity to call their card issuer, work out any problems, and get your transaction pre-approved. Then you can run it again, and it should be successful.

THE COST OF DECLINED TRANSACTIONS

Each declined transaction costs you the authorization fee for submitting it for approval. While this is typically only a few cents per transaction, if you have lots of declines and re-submissions the costs can add up.

This is largely an issue with online payment forms where a customer can submit a transaction multiple times to correct mistakes. While you can’t eliminate data entry errors, you can take steps to help prevent them such as making sure that your form is easy to read and easy to use. For example, make it simple to enter the correct card expiration date, and auto-select the card type based on the account number entered.

WHAT COMES NEXT?

Now, that you've learned the in's and out's of accepting credit cards for your business, it's time to get started. We highly recommend doing your research to determine which type of merchant account and tools will be right for your business.

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If you're interested in learning more about how PaySimple can help you accept payments, market your business and manage your customers, all from one easy-to-use platform, then give us a try.

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