Why Your Business Needs to Set Up a Merchant Account

Most customers expect businesses to accept debit and credit card payments. That’s just the default expectation nowadays. For businesses to adapt to that behavior, they need to have a merchant account. If you’re not sure what a merchant account is and how it can help you with your business, here’s a simple little guide that explains everything you need to know about it.

What is a Merchant Account?

A merchant account serves as an intermediary between customers’ bank accounts and your own business bank account as electronic payments, including credit and debit transactions, are processed. This is different from a typical business bank account, and you can’t actually access it directly. Basically, a merchant account is where the transaction money “rests” until it reaches your business bank account.

During a sale, the merchant account works behind the scenes to withdraw money from the customer’s bank and deposit it directly into the business’s checking account. This is the typical process involved when using a merchant account. In the case of refunds, it works the other way around.

Why Do I Need a Merchant Account?

In essence, a merchant account prevents you from having to wait for the proceeds from credit card transactions. This is because of the delay between the moment your customer pays for your goods or services with a credit card and the moment they pay their credit card bills. You don’t want to wait for a couple of months just to get the full amount for whatever it is you sold, right? As much as possible, you need to get paid as quickly as possible to keep your business running smoothly. This is where your merchant account comes in. We can break down the process of accepting credit card payments like this:

1. After one of your customers has paid for the item you sold them, the card processor will then send the transaction details to your merchant account.
2. Next, your merchant provider will then send the transaction details through the card processor to the customer’s card issuer.
3. The customer’s card issuer needs to confirm first that they do have enough money to cover the cost of the transaction. Once that’s done, the issuer then contacts the processor, who, in turn, contacts the merchant account with approval.
4. After all of that back-and-forth between the issuer and the processor, your merchant account will finally begin to front your business with the proceeds of the card transaction, minus all the fees, to your business bank account.

How Can I Get a Merchant Account?

To get a merchant account, all you need to do is look for a provider and send an application. When you apply, your prospective processor should be able to provide clear answers on the type of documentation required and how long the approval process might take.

It’s also important to remember that merchant service providers require fees for every transaction that goes through them. This is because they need to fortify themselves against the risk they take on by fronting your business your revenues. Merchant account fees vary greatly between providers, so it’s best to do a little research first before opening an account.

Conclusion

Merchant accounts are a must for businesses that want to accept debit and credit card payments. As a business owner, you should definitely consider allowing as many payment options as possible if you want more customers to come to you and make a purchase.

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