The Importance of Credit Card Processing for Small Business Owners

Credit Card Processing for Small Business Owners
Credit Card Processing for Small Business Owners

According to the Washington Post, about 47% of the world is now connected to the internet. The Business Insider puts that number closer to two-thirds of the entire global population. Whether it is 47% or 66.6% of the population is somewhat inconsequential. It is the fact that so much of the world is connected via the internet now that has opened up a whole new market for small business owners such as yourself.

This means more money if you play your cards right, and one way to do that is to ensure that your small business is always 'open for business'! Accepting credit cards as a payment method is by far one of the most efficient ways to position your business as a global contender. If someone from Asia can buy something for you and pay for it with their Visa card, then you would not need to lose that client because of payment processing problems.

Research shows that businesses which do not accept credit card payments stand to lose about 11.8 million customers. To put that in financial figures: imagine your small business has an annual turnover of approximately $2 million. If you choose not to accept credit card payments or plastic of any kind, then you stand to lose about $73,000 in annual revenue!

Here is another set of numbers that should send chills down your spine if you still do not want to consider credit card processing for your small business:

11%!! That is the only piece of the business pie that you would get if you chose not to accept plastic at your establishment. Remember, you will not have a monopoly on that 11% which drives your numbers even further into the ground.

They say numbers do not lie! The truth of the matter is that your business stands a better chance of making more money if you have credit card processing facilities at your establishment.

What Type of Merchant Services Are Important for Small Businesses?

To successfully run a business that can effectively compete in the current global market, there are certain merchant services that you simply must provide for your customers. It is absolutely critical for any small business owner to understand these services and their importance to the success of their business venture.

Without this knowledge and the merchant services mentioned below, small business owners may end up wasting thousands of dollars in man hours and losing valuable clients in the process.

What You Need to Know about Merchant Services

Credit Card Processing for Small Business Owners

Simply put, merchant services are a wide variety of financial services that most businesses use to accept and process customer payments for their services or products. The most common merchant services include:

  • Credit card and debit card processing
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    POS (point of sales) systems
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    ACH (Automated Clearing House) transactions for check drafting
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    Payment gateways

While it is true that every business needs a means through which it will accept and process customer payments, the exact type of merchant service that you choose will depend on a few things:

  • The size of your business
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    The revenue volume or sales volume you need to process
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    The type of business you own
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    The type of billing you prefer

Statistically, however, credit card and debit card processing are by far the most common and most popular type of merchant service in the world today, both on-land and online. That, however, does not mean that your business cannot profit or gain from using the other forms of merchant services at your disposal.

The Merchant Services That Your Business Needs

While all these merchant services are important in one way or another for small businesses, not all business will utilize each one of them. Let us take a closer look at each one so you can get a good feel for them and decide which ones apart from the credit card and debit card processing your business might need:

  • Credit card and debit card processing: There are no two ways about it, as long as you sell goods or services both on-land and online, you need this merchant service. For years now, small businesses the world over have been processing customer payments through various credit card and debit card processing facilities. In 2009, the inventor of Twitter came up with SQUARE, an innovative credit and debit card processing service that allows small businesses to accept all kinds of cards at a flat rate of 2.75%. This is one of the best options for businesses that do low volume sales and card processing since they can avoid hefty monthly equipment costs. Larger businesses, however, will need to shop around to find a merchant service provider with better rates for the credit and debit card processing needs.
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    POS (point of sales) systems: These are systems that are typically used in a retail setting. You will likely find them in restaurants as well as other food service provider establishments. They are perfectly designed for brick-and-mortar businesses that would typically include a cash register as a form of payment processing. A POS system keeps track of your incoming sales and processes each one by type of payment. Some have credit and debit card processing capabilities while others may have ACH check drafting features. This allows business owners to eliminate the risk of bad checks.
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    ACH Transactions: This is an automated bank draft that allows your customers to set up an automatic billing cycle for your services. This kind of processing can also be used to clear paper checks at the cash register. The electronic process eliminates the risk that comes with accepting personal checks that might not go through. It also negates the need to carry those checks to the bank to make deposits.
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    Payment Gateways: These are the POS systems designed for online sales. Although Payment Gateways are fairly new in the market, they are quickly becoming an integral part of e-commerce. They allow a webmaster to accept payments from his/her customers directly through their business website. They are coded in such a way that they encrypt sensitive information and ensure that the transfer is secure between the customer and the business owner.

These are the most important merchant services in the market today. As we mentioned earlier, it is the size, type, and scope of your business that will determine which options you choose. However, the credit card and debit card processing option should be among them.

What You Need to Know about Accepting Credit Cards

As the numbers have proven, accepting credit and debit cards at your establishment, be it a brick-and-mortar shop or an online shop is one way to attract and retain customers. This is mainly because a large percentage of consumers now do not carry cash around and would be glad to have the option of paying by plastic.

As a small business owner, this could only spell good tidings for you. However, to take advantage of this fact you still need to educate yourself on credit card processing for small businesses. With that in mind, here are some things that you would need to know about credit and debit card processing for small businesses.

Credit Card Processing vs. Merchant Services

As we have already mentioned here, every small business needs to have a way to accept and process payments. This entire process calls for a wide variety of merchant services. While you might hear the term credit card processing and merchant services and think that they are the same thing, the truth is that one encompasses a wider field than the other.

  • Merchant services: An entire field that deals with processing payments for businesses and includes things like POSs, Credit Card Processing, ACH Transfers and such.
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    Credit card processing: This is just one type of payment processing that specifically deals with accepting and processing credit card and debit card payments.

While merchant services allow you to accept almost every kind of payment at your establishment, credit card processing only deals with that specific form of payment. The right merchant service can give you software also to accept online as well as mobile payment, all of which come with their own set of benefits as well as security issues.

Understanding How Credit Card Processing Fees Affect Your Bottom Line

As you can probably tell by now, credit card processing is a service and a convenience offered by a third party. This means that there has to be someone making money in all of this otherwise what would be the point of adhering to strict government financial regulations and dealing with millions of clients globally?

That is why every company offering merchant services imposes a small fee to use their facilities. There can be a rather long list of fees associated with debit and credit card processing. Of course, how long that list is certainly depends on the company you choose to be your merchant service provider. While some fees may remain fixed and necessary, others can be negotiated down depending on your volume of transactions. You can even completely eliminate some!

Some examples of the kind of credit card processing fees you may come across include:

  • Startup fees: This can be charged in the first year of your joining the service or may be imposed as annual maintenance fees.
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    Statement fees: This is a small fee that you are charged whenever you want to view your merchant account statements (paper or digital).
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    Termination fees: Some companies will charge you a termination fee when you want to close your merchant services account. This is particularly true if you had signed a contract in the beginning but for some reason would like to get out of it.
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    Transaction fees: This is a minimum fee that is charged on every transaction that is processed at your establishment. Typically, this tends to vary greatly depending on the company you choose, the number of dollars being transacted and the volume of transactions your business processes using the credit and debit card terminals. Usually, it goes a little something like this: the lower your credit card processing transactions, the higher your transaction fees. Unless you are a using a service like the aforementioned SQUARE that only charges a flat rate despite the number or volume of transactions.
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    Equipment leasing or maintenance fees: This typically applies to brick-and-mortar establishments. When signing up with a merchant service to access their credit and debit card processing facilities, you will be given some equipment that goes towards making that possible. In many cases, there will be a small fee levied to install that equipment as well as maintain it month and month out. However, if you are an online trader or entrepreneur, this fee might not apply to you since you will not need this equipment but a software version of things to accept digital payments.
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    Chargeback fees: Sometimes referred to as 'friendly fraud,' chargeback fees come into play any time one of your customers logs a complaint with their credit card company about specific transactions on their credit card statement. If the transaction in question has to do with a payment that was made to your business, you might have to pay that money back if the issue is not resolved amicably. This leads to lost revenue, a whole lot of inconvenience and a potentially lost client as well as returned products and or canceled service.

Depending on the kind of business you run and how well you relate to your customers as well as your value proposition vis-a-vis your value delivery, these chargeback fees could get very expensive. That is why it is advisable to make sure that all your customers know what they are paying for and not to oversell your products or services as something they are not to your customers.

What You Need to Know about Credit Card Processing Equipment

Credit Card Processing for Small Business Owners

The kind of credit card processing equipment you will need depends on the kind of business you run. As already mentioned, most brick-and-mortar stores, including restaurants and food service establishments will need to have Point-of-Sale equipment (POS) of some kind. This will probably include a credit card terminal.

However, if you do not have a storefront and operate something like a food truck, for example, you might not need to have these terminals set up. That, however, doesn't mean that you cannot accept credit cards, all you would need would be a mobile card reader for your smartphone. This will act as your credit card terminal and allow you to accept these kinds of payments.

Online businesses, on the other hand, do not need credit card terminals of any kind. To accept credit and debit card payments, they would have to pay a payment gateway fee that helps them to establish a shopping cart and card system.

What Kind of Risks Are Associated with Credit Card Processing?

To be honest, whenever you are dealing with money and sensitive financial information such as the ones you would have to handle when accepting credit cards, there is an element of risk that is associated with the whole transaction.

Several factors come into play when determining the amount of risk associated with credit card processing. For example, you may be in an industry that experiences a lot of chargebacks and as such will be labeled a 'high-risk customer.' Some industries that are considered high risk include:

  • Online gaming
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    International merchandise
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    Online pharmaceutical sales

Another thing that credit card companies look for when trying to assess the level of risk to attach to your business will include things like how long you have been in business as well as your own credit score. These factors have far-reaching implications as they will dictate the cost or fee at which credit card processing companies will hire out their services to your business.

What about Hacks and Scams?

This is yet another major issue in the credit card processing industry. Lately, there have been more and more cases of identity theft, data hacks and phishing schemes affecting businesses across the globe. Hackers are becoming more sophisticated and are always looking for loopholes to exploit in any form of payment system.

Credit card payment systems, in particular, are quite vulnerable due to the sheer number of people dealing with this highly sensitive data. Risk management is, therefore, an integral part of the entire processing chain. You will need additional security tools to ensure that your business is as protected from the possibility of being hacked. Most merchant service providers know this and often provide these services at an additional cost.

Determining the Value of Credit Card Processing for Your Small Business

While cash might still be King, fewer and fewer customers carry it around anymore. According to statistics the average American carries about three cards with them at all times, and they are not shy about using them either! Without the ability to accept and process credit card payments, you will be losing out on a more than healthy chunk of your potential market.

Once you open an account with the right merchant service provider, you will quickly see how that step streamlines your entire business payment processes.

The Pros and Cons of Credit Card Process for Small Businesses

The benefits that come with expanding your payment options as a business owner are rather obvious: you will get to accept a bigger percentage of your potential clientele which will then see your business grow. However, as we all know, each good thing has its own flip side and credit card processing is no exception to this rule. Here are the pros and cons that come with accepting credit card payments as a small business owner.

The Cons of Accepting Credit Card Payments

There is a long list of processing fees

As we have already touched on earlier, there is a list of fees associated with credit card processing. SQUARE, for example, takes 2.5%, but other merchant service providers take a lot more or a lot less. The trick is in figuring out who to use and how to make the most of the situation, so it doesn't eat up into your profits too much. This isn't something you would have to worry about when dealing in cash, but then again, if you deal only in cash you will lock out a large percentage of your potential customers who only want to pay via card.

There is a myriad of accounting issues

The right merchant service provider will set you up with a proper payment processing system that accepts all kinds of payments or at the very least, the major options. With this comes an assortment of accounting issues. Some forms of payments take a day to mature while others may take two weeks, a month or even 45 days. All of these will need to be accounted for and recorded for tax and revenue reconciliation purposes. It can get very confusing.

There is a cash flow issue

You have to deal with account receivable issues as it ties down your cash flow while you wait for the credit card swipes to be processed and deposited into your account.

There are chargeback issues to consider

If you mostly sell goods, whether online or in a brick-and-mortar store, there is a good chance that you will have to deal with chargeback issues every now and again. Should your clients complain to their credit card company about a purchase they made at your establishment or return something you sold them, you would have to pay them back that money. This is costly, time-consuming and puts your business at risk of losing a client.

You are at risk of fraud, identity theft, and scams

As long as you are handling sensitive data such as credit card details and customer names as well as billing addresses, you will always be a prime target for hackers who are looking to steal that information. This means that you have to take extra care to protect this information; meaning extra costs for firewalls and such. Plus, you could very well get sued for losing that information like the Ashley Madison hack that cost the site's owners more than $11 million in settlement money.

If you think about it, these cons are not that painful to bare considering the fact that 73% of your potential customers would walk out of your establishment if you do not offer credit card payment options.

The Pros of Accepting Credit Card Payments

It is safer than cash

Most establishments that get robbed deal in cash sales. If you provide credit card processing, there is likely to be no cash on-premise to steal. Therefore, this kind of paperless transaction is generally much safer than most.

It offers you flexibility

By hiring the right kind of merchant service provider, you will have a whole list of payment processing option available for your customers. This gives you an excellent amount of flexibility that will allow you to make more sales. Check, credit, debit, problem. You will process it all.

It is highly convenient

Your customers do not have to worry about running to the ATM every time they want to do business with you. As soon as people realize you accept multiple kinds of payments at your establishment, you will quickly become their go-to shopping center because of the kind of convenience you have provided for them.

It is in keeping with the times

The world has gone digital. From how we interact to how we shop and even how we work. Soon enough, very few people will carry paper cash on them. If your business is to stay ahead of the curve or at the very least with it, then you need to accept all other forms of digital payment options.

It will not be a surprise when more and more businesses begin to accept digital currency such as Bitcoin in their establishments. Such is the world we live in today. But before you even get there, you need to be able to accept credit card payments (this will soon be the base minimum for almost every business venture).

Five Factors to Consider When Choosing a Credit Card Processing Company

Now that we have established the value of and how important it is to offer credit card processing services in your small business, let us look at the next, most crucial step. Choosing a credit card processing company. As we mentioned earlier, the kind of fees you pay for this service depends on a number of things and the merchant service provider you choose is one of those things. With that in mind, here are five important factors to consider when choosing a credit card processing company:

The kind of security they offer

This comes at the top of the list because it is by far the most important aspect of this entire transaction. Besides actually being able to process credit card payments, digital security is the next most important aspect of any merchant service provider. Both parties (the service provider and you, the business owner) are responsible for the protection of the sensitive data that your customers share with you when they pay using their credit card. The service provider you choose should have, at the very least:

  • Point-to-point Encryption (P2PE) which ensures that the transmission of the data between the involved parties is secure.
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    Tokenization technology that protects you from any fraudulent activity.

In a single transaction; which starts from the swiping of the card at the terminal in your store to the authorization point from the credit card company, P2PE comes into play. The data transmitted is instantly encrypted from the terminal to the authorization point. Tokenization comes into play as it is used to submit the PAN (Primary Account Number) of any customer using a token. This makes the information transmitted worthless to a hacker and thus keeping the transaction safe from any breach.

Their PCI compliance

There is something called the 'PCI Data Security Standard.' These are a set of rules developed by the PCI Security Council which encompass internationally accepted regulations for credit card data security. These rules are updated each year and being in compliance with them shows that the merchant takes data security seriously. The very least requirement demanded by the Council on credit card processing service providers is to complete a rigorous Self-Assessment Questionnaire (SAQ). Choosing a merchant service provider that complies with the PCI guidelines is a good start.

How many days it takes them to collect on outstanding funds

Designated 'DSO' or Days Sales Outstanding, the longer it takes a processing company to reconcile this the more of a cash flow issue your business will have in the long run. As soon as a customer buys something from you pays by check, you have a waiting period of anywhere from 30 to 90 days before you actually get the cash in your account. Although credit card payment and eCheck options are faster, finding a merchant service provider who can minimize the amount of time it takes for the full transactional cycle to go through will increase your cash flow and business growth potential.

Customer support

Because this is a service that you will be using every single day in your business, you need it to be properly supported should you have any issues. Finding a company that has a responsive customer and technical support system is your best bet for streamlining the entire process. This is particularly important since you will have to deal with issues such as chargebacks at some point in your entrepreneurial career. If these issues are not immediately resolved or result in automatic chargebacks as soon as a customer complains, not only will you be in the dark about most of your transactions, but you will also quickly run low on operational funds.

The best way to see if you have found the right merchant service provider in terms of customer service, just try reaching out to a number of them and get a feel of how they handle customer complaints and how quickly they resolve these matters. That should be a good indicator of how they would deal with you in the future.

Reconciliation and reporting

As we mentioned earlier, one of the biggest disadvantages of being able to accept different forms of payments in your small business including credit cards is the reporting and reconciliation end of things. You need to find a service that offers you detailed reports in one convenient and easy to read location. The fact that most payments go through multiple channels within the processing chain means that there are very many different forms of reporting methods involved. You shouldn't have to be a qualified CPA to understand your own sales statements.

The company you choose as your credit card processing partner will greatly determine just how happy or frustrated you are when accepting money from your clients. Pick wisely and remember to try out several options before signing any contracts that might end up costing you more money to get out of should they prove unsatisfactory.

10 Helpful Credit Card Processing Tips for Small Businesses

Credit Card Processing for Small Business Owners

It is now clear that in order to successfully and efficiently compete in today's marketplace, you need to offer your potential customers what they want and need. Credit card payment options are right up there with the most important of those needs. But just because your business should be focused on finding your customers the most convenient payment method for them does not mean that your own convenience should be put on the back banner.

With the right know-how, the right research and the right choice of merchant service provider, you can easily find a balance between making your customers happy by giving them more than just one payment option and keeping yourself sane by finding a payment processing system that isn't frustrating or insecure. Here are some tips that you should take into consideration while trying to set up a credit card processing system in your small business:

1. Shop around before you sign anything

Let's be clear, the process of applying and getting approved for a merchant account can be lengthy, tiresome and downright frustrating. But if you want to start accepting credit card payments in your small business (and we strongly recommend it), you will have to go through it all. The mistake most business owners make is assuming that every merchant service provider is the same. This is far from the truth. Every single one of them is very different. In fact, signing on to a merchant service provider is very much like signing on to a credit card company. Each one comes with its:

  • Set of fees
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    Rates of service
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    Terms and conditions
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    Advantages and disadvantages

While others may be a good fit for your business but too expensive, another might not be a good fit at all no matter how affordable they seem. You need to choose one that is not only affordable but efficient and a good fit for the kind of business you intend to run. Something that will work for you instead of the other way around.

2. Look for options that offer you more freedom

It is natural for every service provider to try and keep their customers for as long as possible. That is why many merchant service providers will try to lock you into a long-term contract right off the bat. They will also attach hefty cancellation fees to these contracts, and if you are not careful, you may end up stuck with someone who isn't really working for you but is too expensive to get rid of when you want to.

Be sure to read all the terms and conditions before signing anything. This shouldn't be like buying a phone or signing up for a website where you click 'accept' on the terms and conditions without really reading them. You will be dealing with sensitive financial information and processes. You need to read the fine print, no matter how boring it may seem.

What most small business owners do not understand is that many of these terms and conditions are actually more flexible than they may seem at first. If you like everything else about the company but are hung up on a few terms, you can easily ask to negotiate those terms. Very many companies will be open to this but if you find that they are not, then maybe you should keep looking.

3. Always follow the rules to the letter

Again, you are dealing with sensitive customer data here and having a cavalier attitude towards that momentous responsibility can only lead to losses and possible lawsuits. Following the rules, as set forth by your merchant service provider, is one way to ensure that you are complying with both security protocols and terms of service from these providers. Although everyone will have a different set of rules and regulations, take the time to learn them all front and back. This way, should you ever have a complaint, as you will from time to time, you will be covered and clear of any wrongdoing.

4. Always obtain valid authorization before completing a sale

The best businesses offer their clients a wide range of options when it comes to payment methods. From:

  • Debit cards
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    Credit cards
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    Prepaid cards
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    Gift cards
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    Loyalty cards

The list is virtually endless depending on the creativity of the business owner in question. The problem with having such a huge array of payment options is that not all of them as good as gold or cash. Unless you get express authorization from the processor of the payment method in question, do not close that sale.

Otherwise you stand a very good chance of never getting paid. If they are using a credit card, make sure the terminal receives valid authorization from the card company before closing the sale. The same goes for every other payment method.

5. Tell your customers you accept credit cards by putting up the appropriate signage

Although a huge percentage of your customers will automatically assume that you accept credit or debit cards these days, having the signage up cannot hurt your business. In fact, if you do not accept a certain type of payment then having this signage up will greatly help with dispute resolution should you meet that one client who insists on using the one payment method that you do not accept.

Place these signs on the door, at the point of sale locations, on your websites, on your brochures and really anywhere else that your customers can prominently see that you accept credit card payments.

6. Your payment descriptors should be as clear as day

This is in an attempt to avoid unnecessarily expensive chargebacks that come with simple misunderstandings of the payment descriptors. Ensure that your:

  • Merchant name
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    Business account where necessary

As well as any other piece of information that you feel will be important for the transaction to go through without a hitch. Think of it this way; the average customer uses their credit card probably a few dozen times in every week and a few hundred times every month. They will certainly forget some transactions and have issues with that when the credit card statement comes around. Having clear descriptors that will describe your transaction to them in the card statement will jog their memory and keep them from flagging that transaction as possible fraud and triggering a chargeback on your account.

7. Always clarify your refund policy

As a small business owner, you will have to deal with satisfied and unsatisfied customers alike. When it comes to things like refunds, discounts, and sales, there is no such thing as too much clarity. You will absolutely come across that one customer who wants to return something and get their money back. Make sure that your return and refund policy is clearly stated in prominent locations such as the point of sales or on your receipts. This is to ensure that you are covered in case of any complaints. Plus, it makes these refund matters easy to resolve as opposed to when there is no clearly stated policy, and everyone is allowed to make their own assumptions.

8. Learn how to spot any potential fraud cases early

Vigilance is the name of this game. Identity theft is a clear and present danger that every credit card user must face at some point or another. As a business owner dealing with dozens of credit card payments every day, you must ensure that you have done everything in your power to minimize your exposure to fraudulent transactions and activity.

Because you really have no way of stopping any hackers from stealing credit card information online or in any other location, the best you can do is to try and protect your establishment as much as possible. You can start by training yourself to spot fraudulent chargebacks on your credit card processing statements and purchases. Here are some things that you should look for:

  • Ensure that the billing and shipping addresses match on both website and phone purchases
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    Keep an eye out for the security code on the cards used by your clients
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    What about the names on the card and I.D?

If there is anything that seems amiss to you, always call the customer to confirm that they made the purchase. For the most part, genuine customers will be grateful that you take such precautions when dealing with their money. If they didn't authorize the payments, then you know that you are probably dealing with a fraud case.

This not only helps you help a customer who is a potential victim of identity theft, but it also saves you from the pain of having to deal with a chargeback somewhere down the line once that customer realizes that someone has been making unauthorized purchases on their credit card.

9. Keep records of everything

Keeping impeccably detailed books on all your business financial transactions is not only good for business in terms of tax payment issues, but it is also beneficial when it comes to dealing with credit card payments, chargebacks, and fraud cases. You need to keep excellent records of every purchase, and we are talking about as much detail as you can get. From:

  • Customer name
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    Product purchased
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    Purchase time
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    Credit card details
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    Customer contacts

All these details will help you immensely when it comes to fighting those pesky chargeback claims.

10. Make it easy for your customers to reach you

Most reasonable customers would not want to go through the credit card company to resolve any complaints that they may have about a purchase they made at your establishment. They would only resort to this option if you were unresponsive on unhelpful. Make it easy for your customers to reach you and there is a good chance that many of these issues can be resolved without necessarily going down the chargeback route.

When it comes to placing yourself in a position to offer your clients convenience in terms of payment options, there are a lot of factors that you will need to consider. Most importantly, however, is the kind of relationship you will have with your credit card processing company or merchant service provider.

You need to clearly illustrate to them the unique nature of your business, so they can try as much as possible to tailor their services to your needs. This way, you, the customer and the merchant service provider will all be happy with that business relationship.

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