Always a Price for Processing Credit Sales

Q: I have a small retail business and am asked no more than five or six times a year to accept a credit card payment. All the companies want $300 to $400 for an electronic machine, monthly fees and a percentage of each transaction. Years ago, I had a simple manual imprinter and paid no monthly fee, just a percentage. Do any companies still offer such a service?

--Jeff Coller, Glendale

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A: First, it is hard to imagine a business that sells to the public and gets asked to accept credit cards only five or six times a year. Do you have the Visa and MasterCard logos displayed at your business? Judging by your question, perhaps you don’t want to accept credit cards because you feel it is too expensive. Be aware that studies have shown that if you accepted credit cards more readily, you would experience a 25% to 40% growth in business during your first year. Even if your total costs amounted to 5%, you would still have a net sales gain of at least 20%.

The manual credit card imprinting machines you remember were widely used years ago when the incidence of credit card fraud and theft was nowhere near what it is now. Today, 99% of all credit transactions are done through what is called electronic “draft capture.” The credit card drafts are printed by swiping the card through a credit card terminal or hand-entering the numbers into an electronic system that speeds up the flow of information and the credit approval process.

This method has become the standard because it enables your employees to verify the information on the magnetic strip against the name and number embossed on the card, which is an important security feature. Also, the only mistake they can make is entering the wrong amount of sale. This process is less labor-intensive than the old-fashioned method.

You can still process credit card transactions without an electronic terminal, using programs such as “Phone Pay” and “Fax Pay”(for information, check https://www

.processcreditcards.net). All you need is an imprinter and a telephone or fax machine.

There are major drawbacks to using these programs, however. First, you will have to wait three to five days for your money. Second, your total costs will probably be 5% to 6% higher than with the electronic terminal, because these programs are so-called third-party processors and have additional costs associated with them. Each will limit your maximum transactions to $2,000 a month with about a $300 average ticket. If you go over that limit, you’ll either be declined or held up for two to six weeks while the bank verifies the transaction with the cardholder.

You can buy a used credit card processing terminal, but you must be extremely careful: If you purchase through anyone other than a reputable agent, there are no guarantees on old equipment. Each year, used equipment is being decertified by processors in favor of newer technology. The processors who support older equipment will charge you a premium for doing so. Many retailers wind up with a $300 paperweight.

Finally, due to the nature of the credit card processing industry, you will be charged application fees of $200 to $500, plus monthly statement fees, transaction fees and the discount rate--no matter which method you choose.

--Marc Myerson, president

and chief executive, Premier

Merchant Services Inc., Los Angeles

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If you have a question about starting or operating a small business, mail it to Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. This column is designed to answer questions of general interest. It should not be construed as legal advice.