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By Tim Knox

Q: I’m opening a gift shop and want to be able to accept credit cards. I talked to the branch manager at my bank, but he didn’t seem to know much about how it all worked. He did say that I would need something called “a merchant account” and something else called “a credit card processor.” Beyond that he seemed as clueless as I am. I’m thinking about going to another bank. Can you explain how that all works?

— Mary Ann G.

A: Mary Ann, I’m going to give your banker the benefit of the doubt and say that a lack of knowledge regarding the specifics of credit card processing is not necessarily a reflection of the banker’s competence. I have found over the years that most bankers, no matter how experienced or knowledgeable about the banking business they my be, don’t really know much about how credit card processing and acceptance really works. That’s because the task of accepting and verifying credit card purchases is handled by third party service companies who process and deposit (or settle) the funds into a bank merchant account.

The decision to accept credit cards is a wise one for any retailer. I agree with financial guru Dave Ramsey’s teachings regarding the use and abuse of credit cards. Many people dig deep holes with credit cards that are hard to climb out of.

But, from a practical business point of view, any retail business that does not accept credit cards is leaving money on the table. Research has shown that accepting credit cards increases revenue and helps with cash flow since you receive the money within a couple of days instead of waiting up to a week for a check to clear.

Credit cards don’t bounce, as some checks have a tendency to do. Credit card users are also more likely to buy on impulse and spend more when they do. Bad news for them, but good news for you. If you have a social conscience concerning the use of consumer credit cards, a retail operation probably isn’t the business for you.

To accept credit cards at a brick and mortar location you typically need four things. The requirements may vary a little, but the following applies in most cases.

You will need: (1) A way to enter the customer’s credit card information into a verification and processing system. This can be done with a swipe terminal, point of sale system, or by calling the credit card in by phone; (2) A credit card gateway company to verify the credit card’s validity and process the payments; (3) A credit card merchant account in which the gateway company will deposit payments made to you; and (4) A business bank account into which the settled funds will ultimately be deposited for your use.

Here’s how the process works. (1) You make a sale and the customer pays by credit card. (2) Using a card swipe machine or telephone, you contact what is known as a “gateway company” who takes the card information you submit and verifies that the card is valid and the charge can be made against the card account. The gateway company returns an approval code for the purchase.

With a swipe machine or point of sale terminal the verification process happens in a matter of seconds. If you’re doing telephone verification it can take a couple of minutes. You call the gateway company, give them the credit card number and expiration date and they give you an approval code that you write on the credit card charge slip. Either way, the money is typically deposited in your merchant account within 24 to 48 hours (less fees, of course).

You’ll also need to apply for merchant status with each credit card company whose card you want to accept. To do business with American Express and Discover all you have to do is fill out an application, but to accept Visa and MasterCard you must have a merchant account. A merchant account is a special bank account set up for the expressed purpose of accepting credit card payments processed by the gateway company. Merchant accounts are usually associated with banks, though you can also use credit card merchant account service companies to perform the same function if you can not get approved for a bank merchant account.

Applying for a merchant account at a bank is much the same as applying for a loan. The only difference is sometimes a loan is easier to get. There is the prerequisite paperwork to complete and pledging of the first born, followed by an approval process that can take up to several weeks. And you are not guaranteed that the bank will approve your merchant account, even if you have been a favored customer for many years. Banks have strict regulations regarding the granting of merchant accounts and if issuing you a merchant account in anyway puts the bank at risk of losing money, you will be turned down. Banks always make decisions based on economics, not relationships (no matter what your banker tells you).

Requirements for qualifying for a merchant account varies among banks, but in general the bank will look at the following criteria:

How long have you been in business? Business longevity suggests a history of stability, efficient management, and good financial health.

What is your product or service? Does your product lend itself to a high rate of returns and chargebacks? A chargeback is a disputed credit card charge that is refunded to the buyer and charged against your account. You are accessed a chargeback fee that can be as much as $20 per event. If your business lends itself to high chargebacks, you will not get the merchant account.

How’s your credit report? Banks always look at how much you owe and how you pay your bills, so it’s important to have good financial and trade references. If you have a history of late payments or defaults to vendors, it will count against you.

What is your anticipated volume of sales and average transaction amount? The more money you make, the more money the bank makes. If you anticipate just a few credit card charges per week it may not be enough to justify the merchant account in the bank’s eyes.

Is your business categorized as a “high risk merchant?” High risk merchants are those with the highest instances of credit card fraud and chargebacks. High risk merchants include many types of internet-based businesses, telemarketers, travel and cruise businesses, and membership clubs. Being a high risk merchant dramatically decreases your chances of getting a merchant account with a bank.

Being a high risk merchant doesn’t mean that you can’t get a merchant account from somewhere else. Thanks to the growth of ecommerce in recent years there are a number of alternative companies that will provide you with a merchant account, sometimes with more perks than a traditional account, but almost always with higher fees.

Also, not all banks support internet merchant accounts. If yours does not, shop around for one that does. We’ll take a look at accepting credit cards online in next week’s column.

Here’s to your success.

Tim Knox

tim@dropshipwholesale.net

About the Author: Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs. Related Links: prosperityandprofits.comsmallbusinessqa.comdropshipwholesale.net

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By Simon Volkov

Buying property through foreclosure auction can be a good way to obtain real estate at discount prices. However, it is crucial to understand how the auction process works before submitting bids. Otherwise, buyers could end up with a cheap house that ends up breaking the bank.

Properties sold through foreclosure auction often require substantial repairs to return them to livable condition. Attendees do not have the opportunity to have properties inspected to estimate repair costs.

While a home might be sold for pennies on the dollar, repair costs can quickly add up. In many cases, repairs cost as much as it would to buy a home in good condition from a private seller. Additionally, many foreclosure homes have creditor judgments, tax liens, and second or third mortgages attached which must be removed by the buyer before property titles can be transferred.

Another consideration of buying houses through public auction is there are times when evicted homeowners refuse to leave. If buyers purchase a home that property owners still reside in they will be responsible for the cost of the eviction process.

Buyers should research their states’ foreclosure laws to determine if a redemption period is offered. Some states allow foreclosed property owners the option to repurchase their home from auction buyers within 30 days of the sale.

Although this rarely happens, it can be devastating to lose real estate. While buyers recoup the cost of the property purchase they may not be entitled to refunds for repairs initiated prior to the homeowner reclaiming the house.

Submitting bids at foreclosure auctions can be somewhat intimidating for those new to the process. It’s important to establish a maximum purchase price and stick with it. It is easy to become enthralled with the bidding process and bid more than desired. Once a bid is placed it cannot be retracted, so be cautious.

Auction policies and procedures can vary greatly. Much depends on the auction company hosting the sale. When possible, obtain copies of auctioneer’s policies prior to attendance. It can be helpful to attend an auction or two before bidding on properties. Better yet, attend with a person who is familiar with buying property through auctions.

Foreclosure auctions can take place at a variety of locales. Some are conducted at public venues such as local fairgrounds. Others take place in courtrooms or in front of the foreclosure property. Public auctions are often published in real estate magazines or local newspapers. Most are listed through each states real estate commission or county Trustee.

It auction properties are listed prior to the sale it can be beneficial to obtain comparable sales reports to evaluate current market values of property listings. This information can be obtained from local real estate agents or realty websites such as Realtor.com. Comp reports can be invaluable in determining if prices of foreclosure listings are a good deal.

Once buyers present the winning bid on auction real estate they must record property transfers through local courts. The length of time required to transfer property deeds depends on the state where real estate is located.

Many states allow instantaneous transfer while others entail court confirmation of the sale. Others require buyers to wait out the redemption period which grants foreclosed property owners time to reclaim their house.

It might be necessary to consult with a lawyer or foreclosure specialist to ensure property deeds are transferred and recorded according to state law. As long as buyers conduct due diligence and become familiar with policies and procedures, buying real estate through foreclosure auction can be rewarding and profitable.

About the Author: Real estate investor, Simon Volkov shares industry-secrets for buying houses at

foreclosure auction

, along with real estate investing strategies to generate profits in a downturned market. Learn more about the different types of investment properties and financing techniques at

SimonVolkov.com

.

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