Tweak Your Biz » Finance » 8 Must-Know Credit Card Payment Definitions For Small Businesses

8 Must-Know Credit Card Payment Definitions For Small Businesses



If you’re considering accepting credit cards for your small business, the world of merchant payment processing might be a bit scary, but with a little knowledge, you’ll be more confident to choose the best provider for your business.

Here are 8 terms you should know before getting started.

8 Must-Know Credit Card Payment Definitions For Small Businesses

#1. Payment Gateway

If you plan to accept payments on your website, you need a payment gateway. Essentially, this is a service that will authorize credit card payments on your behalf, and include companies like: CyberSource, Litle, Authorize.net, BrainTree and Stripe.

#2. Wholesale Business Transactions

If you will have more than 500 transactions in a given month, your business is considered a wholesale business. You will need a payment gateway that can process larger numbers of transactions.

If you process large dollar amounts, both Visa and MasterCard offer special lower rates for your transaction fees if you submit additional data with your transactions. The rate can range from 2.65% to as little as 0.50% based on the card type and average transaction.

If your transactions are lower than 500 a month, you won’t need a special gateway.

#3. Lowest Fee Structure

The most effective fee structure is referred to as “Interchange Plus. It breaks out card types by industry and gives you the greatest amount of transparency; you can take advantage of better rates with this fee structure.

#4. Convenience Fee

If you process credit cards through your website, you can charge a convenience fee for each transaction you process on your website if your website is not the main channel through which you receive your payments. If you’ve purchased concert tickets online and noticed a $5 convenience fee, this is what we’re talking about. Because you could technically make that purchase in person, you’re paying for the convenience of buying your Justin Bieber tickets online.

As a merchant, you have to disclose the amount of the convenience fee to your customers.

#5. Chargeback

Chargebacks can be time-consuming and costly to deal with for merchants. In the event that a customer goes to his or her credit card company to dispute a charge made with your business, you will not only lose that revenue (without the product necessarily being returned), but you may also incur chargeback fees and risk your reputation.

#6. Refund Policy

It is imperative you have your refund policy visible and easy to understand on your website. Oftentimes, a customer’s issues with an order can turn into a dispute or chargeback. Chargebacks usually costs your business $25 per occurrence. Have a lenient refund policy that is readily accessible and clearly visible in order to minimize your exposure to chargeback fees.

#7. Cardholder Data

As a merchant, you are processing sensitive cardholder data, including cardholder’s name, expiration date, and/or service code every time you process a transaction. Understandably, your customers want to feel this information is secure. If you need to store cardholder data for recurring payments on the gateway, make sure your gateway provider will give this data back if you decide to switch to a different processor or gateway provider. Ask your gateway provider to validate this in your contract.

#8. Credit Card Fraud

Fraud is rampant; in 2013, there were more than 11 million credit card fraud victims in the US alone. Having the right technology in place, as well as training your staff to make the right decisions, is essential for retaining revenue and preventing fraudulent transactions. Leverage tools you can use with your payment gateway that can flag multiple purchases made within seconds of one another or other suspicious transactions.

Educate yourself about credit card transactions so that you can be a savvy business owner who accepts them, either on your website or at your physical location.

Images: ”close up of woman hand holding credit card Shutterstock.com

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The Author:

Jaimie Yun has more than 15 years experience across financial sectors of public accounting, corporate finance and more. She is on the advisory board of PayDemand.com, a credit card processing marketplace that allows businesses to compare multiple credit card processing rates and get the best offer while remaining anonymous to processors. Connect with Jaimie on Google+ and follow PayDemand on Twitter. https://paydemand.com

Add Your Comment

  • http://www.tweakyourbiz.com/ Sian Phillips

    Welcome to Tweak your Biz, Jaimie, and a great first post. All the different phrases used for merchant payments can be confusing so thanks for clarifying them. I look forward to your next post

  • http://growthforce.com/ GrowthForce

    Fantastic posts! While utilizing credit card payments for your accounts receivable process is a good way to speed up how fast you get money from your customers, there are some specialized fees and risks involved with accepting plastic. This is a great resource for clarifying just what all of the terms in the fine print mean!