Credit card processing refers to the procedure that takes place when a credit card is swiped or a customer enters their billing information. Processing can happen in a number of different ways depending upon who you are doing business with and the type of machine being used. You have probably seen many different types of machines but all will have certain things in common. Most machines have a card swipe slot, keypad for typing in numbers and a display screen.
Once the credit card is swiped or entered the credit card number will go from the machine to a processor that then routes it through networks such as Visa or MasterCard where your customer’s account information resides. Once this process is complete your business will either get a “transaction approved” message or an “authorization only” message.
Once you have received your authorization it is put through your company’s merchant account where it can be either be deposited into your bank account by direct deposit instantly, credited towards the end of the business day, credited at the end of that month or processed as a charge.
A transaction approved message will put the credit card information through your merchant account as a “credit” and not as a charge. There is no actual money processed until that order is filled with your customer. The funds from those sales are deposited into your business bank account by direct deposit at the end of each day, credited to you at the end of that day, at the end of that month or as a charge against your account.
How much will it cost?
There are many different fees and rates associated with processing credit cards. You can choose to do business with flat rate processors or percentage based processors. Flat rate costs per transaction and percentage-based transactions take a percentage of the total amount charged to your customer’s credit card.
Most business owners have a preference, but it really makes sense to take a look at both options and decide which is the most effective way for you to operate your company. Generally speaking flat rate credit card processing seems like it would be less expensive, however this is not always the case. There are many hidden costs that go into credit card processing. These fees are included in your flat rate plan, but you do not realize it until your statement comes at the end of the month.
You may find that percentage-based credit card processing is more cost effective. Percentage based plans can be either tiered or non-tiered. A tiered percentage plan will have a different percentage based on the type of transaction you are processing. These plans can be very complex and include many different types of rates for all types of transactions from retail to restaurant, from e-commerce to mail order telephone order (MOTO) and keyed credit card transactions.
A non-tiered percentage plan will have one percentage for all types of transactions. This may be the best option for most businesses. It is important to find out what type of interchange schedule your processor uses before you sign on with them. If they do not offer this information then it is probably a good idea to go elsewhere.