Money Matters

How To Open A Merchant Account For Your Business

how to open a business bank account

In order to accept major credit cards from customers you first need a merchant account at a bank. Applying for American Express and Discover is probably the easiest because you can contact them directly and fill out an application.

However, you will also want to accept Mastercard and VISA because they are the most frequently used credit cards. You cannot apply directly to Visa or MasterCard because they are bank associations and you have to establish a merchant account through one of the thousands of bank that set up such accounts. These banks are known as acquiring banks.

Setting up a merchant account for the business takes some doing. The way the bank views it, it is an extension of credit. The reason is that when a customer uses a credit card to make payment on merchandise, it could be another 30 to 45 before he makes the actual payment on his bill.

Whereas the business receives the payment within the 3 to 5 days from the bank. So it is the bank bearing the risk for the payment till the time that the consumer actually pays his/her credit card bill. So in reality, the business is getting paid on credit.

Typically, the longer you have been in business and more credentials you can provide the easier is to get a merchant account opened.

However, as long as business startups can provide documentation for their business model, viability and financial status, it is not too difficult to get a merchant account. Once again, this is somewhere that a business plan comes extremely handy. If you have been reading our other posts you will know that we have been stressing the need for making a business plan when starting out.

A well made business tells a bank a lot about your business such as potential sales, future sales, profit potential in the absence of actual numbers that can only be got once the business has operation history.

The kinds of business startups that may have a problem in getting a merchant account are a home-based business or mail order business. These businesses are considered risky.

Think of applying for a merchant account with the credit payment facilities as applying for a loan. You need to have strong presentation and backup your application with the documents. You will need to provide bank with references, estimate credit card sales volume, and the average size of your transactions.

Bring your business plan, financial statements as well as the advertisement and marketing strategies. Show the bank your business brochures, catalogs to give them a better picture of your business.

You can even invite the bankers to visit your store or site of operation. Provide testimonials from satisfied customers or product samples to convince the bank that your customers will be satisfied with your purchase. Show that your product is priced fairly.

Business startups often get approved for merchant accounts as long as they can provide a sound financial picture.

It is not so difficult to spot a potentially successful business start up. A bank looks at things like personal tax returns and the source of funding for the business. If everything matches up and is according to the book, a bank does not have a problem with opening a merchant account for the business.

You can increase your chances of getting approved for a merchant status by approaching a bank that already handles your business accounts. You can also look in the Yellow Pages for the businesses in the same category as yours and call them to ask for references for their bankers.

Know that incase you open a merchant account with a bank who is not your current banker, you might need to shift your other business accounts to that bank as well.

Another option when you get turned down for a merchant account is to use independent credit card processing companies. These can be found in the Yellow Pages. While independent credit card processing companies can give you lower rates because they have lower overhead their application process can be more time-consuming and startup fees higher.

You can also go through an Independent Sales Organization, ISO to get a business merchant account. ISOs can help you find representatives from out-of-town banks who for commission helps businesses find banks who will grant them merchant status.

Your bank may be able to recommend an Independent Sales Organization or you can look in the Yellow Pages or online. An independent sales organizations, ISO, can match your needs to the right bank without requiring you to go through the application process.

Charges And Fees For Opening A Current Business Bank Account

You can boost your chances of getting approved for a merchant account with a bank by giving them are accurate and good representation of the amount of money that they hope to make with your volume of sales.

Since the bank takes a certain percentage of any payment that you receive through a consumer credit card, known as merchant discount fee, the more sales that you make the more money the bank stands to make as well.

The bank or the credit card company deducts the percentage of the sale from the merchant payment and then credits your account with the rest of the sale amount. If the bank understands that by approving you for a merchant account and credit card payment facility, they will be quick to understand that they can make a good profit from your business, improving your chances of getting approved for the merchant account.

Here is a list of some of the fee that you can expect to pay the bank for a merchant account and credit card payment facility. Almost all these charges and negotiate with except for the merchant discount fee.

  • Equipment cost of $100 to $1000.
  • Monthly statement fee of $10 or less.
  • Transaction fee of $.20-$.70 per purchase.
  • The discount rate fee which is the actual percentage the bank will charge per transaction based on the projected card sales volume, degree of risk and other factors. The percentage rate v
    aries from 2 to 4% and is higher for new and and less established business.
  • Chargeback fee of around $25 per transaction.

There may also be some extra charges for using active phone line for authorization and processing the credit card payment.

Take a careful look at all these charges and evaluate whether the anticipated sales are worth the extra cost.

It is possible that once your business has been established and has a proven track history, the bank and the credit card company might be willing to lower certain charges.

You should be on constant lookout of taking full advantage of various offers and discounts that your bank or credit card company offers. Keep a lookout for better deals and cheap rates. If you find another service provider who offers low rates, make your bank aware of it and see if they can match the offer.

One reply on “How To Open A Merchant Account For Your Business”

A merchant account is almost always needed because the savings accounts have a limit on the amount of cash that can be deposited in the account. This limit is usually not sufficient even for small businesses that do cash transactions for sales.
A business account is also needed for the purpose of accepting credit and debit card payments from the customers.