If you want to be able to accept debit and credit card payments from your customers, you will need to have a merchant account set up.
A merchant account like the one can apply for here, is a specifically designed bank account for holding funds that have been captured from card details provided by customers paying for goods or services.
Having a merchant account is a convenient and generally cost-effective way of taking card payments for your business, and you will have to apply for an account and meet a number of conditions in order to be accepted.
Why you need to apply
There is a very simple reason why you have to apply for merchant account and pass the application process. The merchant account provider is accepting an element of risk every time they accept a card payment on your behalf, so they need to know that your business is sound and the goods or services you offer are acceptable.
When the retailer or services provider fails to deliver or there is a dispute, the customer who has made payment by credit card will sometimes request a refund. The merchant account provider will want to know that you can help to minimise their risk and that your business is financially sound.
Getting approval
There are inevitable hoops to jump through before you get approved for a merchant account, regardless of how risky or risk-free your business is perceived to be.
If you gather the following information and details together before you make your application, there is a much higher chance that you can get signed up and taking card payments as quickly as possible.
Financial statements
A fundamental key to making a successful merchant account application is having the right financial information and statements that help to support your request and demonstrate your suitability.
If you are already an established business, then you will be expected to provide a set of accounts that shows your trading history. If you are a start-up, you will need to produce projected turnover and profit and loss estimates, ideally from your accountant.
Being a start-up business is not necessarily a barrier to getting an account and you expect a low volume of transactions to begin with, that is often better than projecting a high volume of transactions from the beginning, which increases the risk exposure.
Previous processing history
If you already have a history of taking card payments through another provider or alternative method, this will often help support your application.
If you can supply at least three months of processing statements that show the volume and value of the card payments, this can make a big difference to getting approval for your merchant account, without possibly being asked for a security reserve.
Writing your letter of application
Your covering letter of application should be well balanced with the right amount of information and insight into your business, which will help the underwriter get a flavour for your business.
Consider and acknowledge any risk specific to your industry and address how you deal with it to protect the card processor. Never be afraid to draw attention to all the good points about your business and why you would make a good financial partner.
Tackle any high volume issues and explain why there are likely to be a high number of transactions, so that the underwriter can see you understand their point of view. Explain if there are fulfilment duration issues to be aware of. A good example of this is when you are selling a travel package and the duration between payment and fulfilment can be several months.
Outline in your application letter if you are open to the idea of a security reserve and be forthcoming with any adverse credit problems you might have had, before they find out for themselves.
Taking this proactive approach and thinking about what information they might need, will help you to increase your chances of opening a merchant account with the minimum of fuss.
Carl Robinson has had the pleasure of opening more than a few merchant accounts in his long business life. An experienced entrepreneur, he enjoys helping new business start-ups. You can read his informative pieces on a variety of business and marketing blog sites.
