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Accepting credit cards can be a tough decision

August 10, 2008|By AUTUMN PAPAJOHN

Some small businesses are still scratching their heads over whether to allow customers to pay with credit, while other companies insist that credit sales bring more revenue.

A retail merchant account might sound like a fancy business term, but it's simply an account set up by the merchant with a bank, credit card agency or processing company. This allows the business to accept and process credit card transactions.

All kinds of businesses use merchant accounts, from retail stores to online sellers. Fees and rates differ depending on the type of account the merchant wants. For example, retail merchant fees are lower than that of online companies because fraud is less likely.

For many small businesses, the problems with accepting credit cards are high transaction fees and the steep price of the swipe terminals. According to a report created by Jim Conley II, a representative for the processing company merchants, swipe terminal hardware on average costs $300 or more. As far as transaction fees go, on average, processing companies will absorb 20 to 25 cents a transaction, Conley said, but for processing companies like First Data Merchant Services, the fee could be as high as 35 to 50 cents per transaction.

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Other businesses are finding that allowing credit purchases increases their profit revenues, earning enough to cover swipe fees.

Michael Little said he got a good deal from processing companies by holding out. As owner of Bagel-Lisious, a full-service deli and catering business in Hagerstown, Little only accepted cash during the first eight of his 19 years in business. At the same time, he continuously received offers from processing and credit card companies.

"I told them I was stingy, and if they wanted a piece of my pie, they'd have to make me a bargain. I knew if they wanted my business that badly, they'd meet my requirements," Little said. By negotiating the terms of his contract, he got free card terminals, he said.

While Little still has about 100 cash transactions a day, his credit card sales are at about 50 to 80 per day, much higher than they used to be, he said.

"Consumers are much more likely to buy more with plastic because, unlike cash, they can't see the green slipping through their fingers," Little said. "At the end of the day, you really do make more money by allowing credit."

Little explained that although fees are high, everyone needs a business plan and they must be open to all avenues of profit, negotiating for the best deal.

Dave Crowell, general manager of Crowell's Village Store in Martinsburg, W.Va., said his average sale is $3 to $8. Crowell explained that he once tried to work with processing companies and when someone charged a dollar purchase, the transaction fee gobbled on average, 38 cents to 43 cents off that dollar. Because of small purchases, Crowell decided against accepting credit because it did not benefit him. If customers complain about his no-credit policy, Crowell just sends them to the ATM across the street.

Crowell explained using cash keeps people from going in debt and his prices are lower than other grocery stores because he doesn't have to increase prices to absorb profit lost by transaction fees. He said his no-credit policy also limits his amount of paperwork and makes it easier to balance his budget.

Martin Boscolo, president of Mikie's Ice Cream and Green Cow Gift Shop in Greencastle, Pa., said every month, the ratio of credit to cash keeps favoring credit. Boscolo's shop has been in business for 21 years, and when he started accepting credit cards 14 years ago, the card usage only made up 5 percent of sales. Now, credit sales have increased to 40 percent, he said.

Stephen Trapnell, the corporate communications manager of Susquehanna Branchshares Inc., said people are used to making purchases without the need for carrying large sums of cash.

"Using debit and credit cards is convenient and it provides a measure of protection to the consumer in the event that the card is lost or stolen," Trapnell added.

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