Epic How-To: Setting Up Your Business to Accept Credit Cards February 20, 2010

I’ve written a few posts before about my own experience with accepting credit cards, but I’ve finally put all of info together in one place.  Enjoy!

When I first decided to start taking credit cards, it took me weeks to sort out the fees, the terminology and the parties involved, and even longer to feel secure that I was buying what I needed at a reasonable price.  To save you some of that hassle I’ve laid out the process below.

Step 1: Estimate whether your business can afford to accept credit cards.

For a small business, accepting Visa and Mastercard for in-person or phone/fax/mail sales will cost you around $25 a month, plus 3.5% of each transaction, often with a $20 monthly transaction fee minimum.  If you want to accept credit cards through your web site, add another $20 a month for a gateway, shopping cart, and/or SSL encryption (more on this later).

But how can you tell how much accepting credit cards will increase your sales?  Here are two commonly used rough estimates:

• you can estimate an increase of about 25% (I found this to be true for my own business).
• for in-person sales like those at craft fairs or brick-and mortar stores, you can estimate an increase rate about equal to your average sale.  In other words, if your average sale is $20, you can estimate about a 20% increase in sales from credit cards.

Here’s a quick example: if your monthly sales average $500 and your typical sale is $10, you can expect $50 more each month in sales (a 10% increase), but your processing fees will eat up nearly all of it, so it might make sense to wait a little longer before signing up to take credit cards.

Step 2: Know what you need.

Depending on your business, you may need some merchant services and not others.  It’s important to figure this out before you start searching for a “merchant service provider” so that you don’t end up paying for products you don’t use.

No matter what, you will need a merchant account.  A merchant account is basically an intermediate account between your bank and the customer’s card-issuing bank.  A merchant account is presided over by a merchant acquirer (usually another bank), who is responsible for finding out whether transactions have been accepted or declined. Here’s how it works:

The day of the sale…

1. Susie buys a handmade scarf from you for $50.  She hands you her Washington Mutual Visa card.  You swipe or imprint the card and she signs the receipt.
2. You send the information about the card and the transaction to your merchant acquirer.  You might type this in yourself on a phone or through a website, or it might get sent automatically if you swipe the card using a terminal.
3. The acquirer sends the info to Visa, and then Visa sends the info to Washington Mutual for verification.  If everything is cool (i.e. the card number is valid, Susie hasn’t exceeded her credit limit, etc.), Washington Mutual authorizes the transaction to Visa.
4. Visa tells your acquirer that everything is approved.  Your acquirer keeps a record of the authorization for later (called “batching”).

The next day…

1. Your acquirer takes the batch of all the approved credit card transactions you made that day and sends them back through Visa for payment.
2. Visa sends all of the transactions to the appropriate card-issuing banks, including Susie’s for $50 to Washington Mutual.  Washington Mutual pays Visa the $50, and Visa pays the acquirer.  The batch is now “settled.”
3. Once the acquirer gets paid, they put $50 minus their transaction fee into your merchant account.  Usually, the money is then transferred to your business’s checking or savings account the following day.

Now that you know how it works, it’s time to decide what you need.  You’ll need most basically to decide on your merchant account, equipment, and in some cases, your processing method.

The Merchant Account:

Lots of places offer merchant accounts, including banks, trade associations, and third-party companies.  Unfortunately, fee structures are not consistent from company to company, so it can be tough to comparison shop. Here are the most common charges to check on:

• One-time set-up fees
• Annual or monthly fees (often called “statement” or “reporting” fees)
• Per transaction fees
• Transfer fees (for transferring the money from your merchant account to your bank account)
• Monthly minimums
• Equipment fees (terminal lease, imprinter and name plate, etc.)
• Any other fees they haven’t told you about yet

You might have to do a bit of math to figure out the best combination of fees for your business.  If you have low monthly sales, for example (like if your business is part-time), your best bet is a merchant account with low monthly fees even if it means higher transaction fees.  If, on the other hand, you make a lot of small sales ($10 or less), you’ll want to look for a merchant account with percentage-only transaction fees (3.5%), rather than fees that take a percentage plus a fixed charge (3.0 % + $0.50).  Propay is a popular merchant account with small-volume businesses.

Equipment/processing method:

This is the device you use to collect your customer’s credit card info.  There are three common options:

“Knucklebuster” credit card imprinter:  This is the old-school sliding machine that physically rubs the credit card info onto a receipt.  You need to get the name plates for these directly from your merchant services provider.

Pros: portable, don’t require electricity or a network connection, inexpensive ($25 for machine and name plate and $20 for 100 receipts).

Cons: inconvenient, require manual entry of transaction info, offer no instant authorization.

Best for: craft fair vendors or people who need a cheap, portable device to use occasionally.

Processing method: manual entry of all data via “MOTO” processing (telephone) or “virtual terminal” (online form).  For an extra fee you can sometimes add cell phone processing to get instant authorizations while on the road.

Credit card terminal: this is the machine that you swipe your card into. Some print receipts directly, and others connect to a computer or cash register running “Point-of-Sale” (POS) software, which might cost extra.  They need to be hooked up to a phone or data line, but this can be done wirelessly.

Pros: convenient, offer instant authorization (and therefore cheaper transaction fees), can be integrated directly accounting software like Quickbooks.

Cons: expensive ($300-$1000 per system), require electricity and phone/data line, non-portable

Best for: people with brick-and-mortar stores, offices or studios who process a fair number of credit cards each month.

Shopping cart and payment gateway: these are web tools you need to process credit cards through an eCommerce site.  The shopping cart collects your customers’ information, and the payment gateway transmits it securely to your merchant acquirer.  If the checkout page of your shopping cart isn’t secure, you might also need to add SSL (Secure Socket Layer) encryption to your site. Your web host can usually provide this for about $20/year.

I won’t go into detail about the various e-commerce products now, but here are some examples:

• Shopping cart: Shopify, Zen Cart or Mal’s eCommerce.
• Payment gateways: Authorize, LinkPoint, and Paypal’s PayFlow.
• Combo merchant accounts/shopping carts: Paypal Merchant Services or 2Checkout.

Pros: convenient, offer instant authorization, allow you to take credit cards over the internet.

Cons: requires separate monthly fees, can be complicated to set up, not all shopping carts work with all gateways.

Best for: people who want to set up web stores that move beyond Paypal.

Phew!  That’s a lot of options.  Now that you know what you want to buy and how much you can afford to spend, it’s time to take the plunge.

Step 3: Compare and negotiate

Do some research to find a short list of companies that offer what you need.  You can get suggestions from your bank, your credit card issuer, or your local chamber of commerce.  You can also let your mouse do the walking, but make sure any companies you find through the web are reputable by checking references or the Better Business Bureau.

Call the sales department of each company.  Salesmen will often waive or lower fees, especially if you present them with a competing offer.  You can also negotiate combo deals this way, such as a discount for adding a payment gateway for your web site.  When I did this step I kept the most current rates for each company in a spreadsheet for easy access and comparison.

Be aware that most merchant service providers will run a credit check on you and/or your business before giving you a merchant account.  Your credit can affect the fees that they charge you.

If you don’t have a separate bank account for your business, now is the time to open one.  Even if you’re a sole proprietor, it’s always a good idea to keep business and personal finances separate, and some merchant acquirers will not give you a merchant account without a business bank account.

Get your best offer in writing.  Read it carefully.  If everything looks good go ahead and sign up.

Step 4: Test

Ask a friend or family member to “buy” something from you so that you can run a test transaction.  Make sure everything goes smoothly on both ends before accepting cards from customers.

If you’re accepting credit cards through your web site, make sure every step in the process (shopping cart, gateway and merchant account) is functioning correctly before going “live.”

I hope this helps to remove some of the mystery and confusion from opening a merchant account.  It can be a long process but it’s worth it to do things carefully and correctly the first time.  I’ve had my merchant account and gateway for three years now and I’ve never had a problem or a chargeback.

For more resources, check out some of the links below.

Resources:

Visa’s rules for merchants (pdf): http://usa.visa.com/download/merchants/rules_for_visa_merchants.pdf

Mastercard’s rules for merchants (pdf): http://www.mastercard.com/za/wce/PDF/10071_MasterCard_Merchant_Rules.pdf

Craftster shopping cart poll: http://www.craftster.org/forum/index.php?topic=231406.0

How to Configure SSL With a Merchant Account: http://www.ehow.com/how_5704137_configure-ssl-merchant-account.html

How to Evaluate Credit Card Processing Companies: http://www.businessknowhow.com/money/tips5.htm

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Freelancers: Calculate Your Hourly Rate January 18, 2010

As I transition (hopefully) from managing toy lines to doing more freelance design, I thought it would be good to calculate what my base hourly rate should be.  Once I’ve finished prepping all of my financials for tax time I should have a much more accurate idea of this, but in the meantime I was able to get a decent estimate from the FreelanceSwitch hourly rate calculator.

It only takes three minutes or so fill out, but it’s good to have a calculator handy, because most of the numbers they ask for are annual.  I’ve discovered that to cover my business and living expenses, I will break even at around $35 an hour (hey, San Francisco is expensive, y’all).  You can also enter in ideal annual profits to see how that affects things.  When you’re finished, check out some of their articles on freelancing to get some good tips and advice.

Tip for crafters: when deciding how to price an item, be sure to include the cost of your labor at the aforementioned hourly rate.  Even if I only spend five minutes making a product, at my break-even hourly rate that translates into almost $3 that needs to be built into the wholesale price.

Worth Its Weight: Top Ten Typography Mistakes September 17, 2009

Maybe it’s because I just saw that “Helvetica” movie, but I thought I should share this with you: Brian Hoff’s “10 Common Typography Mistakes.” This is a great primer for anyone DIY-ing the design of their own marketing materials.  Even if you have no professional design training, using these tips will get halfway to having a professional-looking brochure or web site. via swissmiss

More Free Fonts (Handwriting) September 9, 2009

Ever need a handwritten font that doesn’t look like a cheesy cousin to comic sans?  TripWire magazine has come to the rescue, curating a page of over 45 free handwritten fonts that are actually good.  Be careful what you use these for, though.  Each one has its own license, and not all of them are okay for commercial use.

Ever wanted a font that looks like your handwriting?  One that gives you the speed of typing with the thoughtful look of longhand?  You can have that free too, courtesy of fontcapture.com.  Just print out the template, fill it in by hand, then scan and upload it back to the site.  Voila!  Your handwriting is now a downloadable font.  Grandma will never know the difference.

Small Affordable Letterpress Machine? September 7, 2009

This fall, Lifestyle Crafts (a division of QuicKutz, which makes scrapbooking stuff) is due to come out with the “L” Letterpress system, a kit that you use with a tabletop die cutter/embosser like a Cuttlebug or QuicKutz’s Epic 6.  The starter kit will come with impression plates, paper, and some ink, and will retail for $69.99.  A kit including both the L pack and the Epic 6 will be available for $149.99.

At first glance, I was thrilled.  I’ve always wanted to try lettterpress printing, but the only way for me to do it is to spend $300 on classes at the Center for the Book in order to be able to rent time on their presses.  Something like the L would eliminate the travel, education and rent required to use a large press.

On the other hand, I remembered how excited I was to get a Gocco screen printer, which only works well for very specific projects (i.e. greeting cards).  The Gocco is also only compatible with its own proprietary supplies, which became a huge issue the last two times they were discontinued.  The L appears to have a very similar setup.  Only small paper can be rolled through the press, and I can’t find any indication of its compatibility with other manufacturers’ plates and inks, or information about printing on surfaces like cardboard.  One of the reasons I’ve never bought a tabletop die cutter like an Epic 6 is that it’s nearly impossible to make your own dies for it, but you can order custom letterpress plates fairly easily.  Though it’s much more competitively priced than the Gocco, I’m still going to wait for more information before I add the L/Epic 6 to my Christmas list.  Besides, there’s probably a way to hack something similar for a fraction of the cost.  Project, anyone?

Interaction With an Automaton July 20, 2009

Today at the UPS Store

Me:  Hi.  I’d like to ship another of one of these boxes I sent last week.

Clerk:  Oh yes, I remember you (types in my phone number).  Same address?

Me:  Yes, please.

Clerk:  Okay, that will be $37.50.

Me:  $37.50?  It was $13.50 on Friday.

Clerk:  Yeah, but this box is bigger.  See, this box is 14 inches wide, and the one you sent last week was 13 inches wide.

Me:  This is the exact same box, holding the exact same contents.  The dimensions are printed on the side.  See?  Thirteen inches.

Clerk:  Yeah, but it bulges out in the middle here.  I have to measure it at its widest point, not across the top.  I’m not trying to overcharge you, but I have to follow what the computer says.

Me:  It’s just plush toys in here, I can fix this (taking box off scale and smushing in the sides).  Try it now.

Clerk:  Okay, let’s see…. Oh no!  It’s puffing out again!

Me:  Measure it quickly!

Clerk:  Thirteen inches (punches it into the computer).  What do you know?  $13.50.  One inch makes three times the price!

Me:  Does that seem weird to you?

Clerk: It’s not my fault!  It’s the computer!

Me:  I know it’s not you, I just find it amazing.

Clerk:  Yes…it is amazing….