Credit cards and merchant accounts have changed the way people shop and the way companies do business. Few people remember the days without “plastic.” The earliest credit cards were used back in the 1920s. Hotels and oil firms offered cards to their customers, but they were more like today’s “loyalty” cards than credit cards. The first actual credit card was issued in 1946 by Diners Club. It targeted the restaurant industry and allowed customers to pay for their meals with their Diners Club card. It wasn’t until 1958 that American Express and Bank of America issued credit cards as people know them today. Visa and MasterCard soon followed. Merchants trying to keep up with all of these changes turned to merchant services accounts to provide the equipment, advice and expertise needed to keep up in an ever-changing economy.ImprintersBefore computers were running the world, businesses used manual imprinters to record a customer’s credit card information. All the merchant had to do was place the credit card on the imprinted plate, lay down a carbon copy charge slip and then run the imprinter over the slip. The merchant mailed the slip to the bank and, after a few days, moneys were deposited in the merchant’s account. While this system worked – and, in fact, is still used as a non-electronic back-up system – it proved time consuming. Merchants wanted quicker access to their funds. And they needed to know if the credit card would be accepted or declined before any merchandise was released.Electronic AuthorizationNext up, merchant accounts introduced electronic authorizations. This system offered quicker approval than imprinted slips, but it still took as long as five minutes for a clerk to send in the credit card number over the phone and get approval. For large sales, it was worth the wait, but for smaller sales, it often wasn’t. But, by not waiting, the merchant ran the risk of handing over merchandise without knowing if the card would be accepted, allowing him get paid.TerminalsEnter point of sale terminals in 1979. These were bulkier than what is used today, but they were based on the electronic capture of data used with today’s systems. In 1979, MasterCard was the first to include the magnetic information stripe on the back of its cards. Everyone else soon followed. Each step of the way, merchant services accounts have been working to make the merchant’s job easier – and simpler for the customer. That hasn’t changed, and today’s merchant service accounts can do far more for the business owner than accept credit cards.Check AcceptanceFor those customers who prefer to pay by paper check, a merchant services account has equipment that quickly converts a check into a secure electronic document. The result is that the merchant gets paid immediately, and the days of worrying about bouncing checks are over.Wireless PaymentsMerchant services accounts let business owners accept payments anywhere, from the great outdoors to a basement office. When you have a wireless terminal, you don’t need a bricks and mortar operation to make sales. After all, some businesses are on the road. If you’re an artist who travels the outdoor art show circuit, you can sell your works right from the booth at the fair. Or maybe you sell your wares at trade shows. If so, a wireless terminal lets you make sales on the spot. Stop sales from walking away with a wireless terminal.Even some bricks and mortar shops will benefit from wireless terminals. It is perfect for the business that wants to be able to make sales anywhere inside the building. Let your customers pay for their meal at the table of the restaurant, rather than handing over their credit card to a stranger. You don’t need a landline or power source to process sales.ATM ServiceWhen a business runs a cash-only operation, it is convenient to have an ATM on the premises. It’s also a smart business move. Customers who come in without cash withdraw the funds they need and the business makes the sale. As an added bonus, the business can charge a fee for each ATM transaction.Cash AdvanceThere comes a time when most businesses could use an infusion of cash. When the merchant can’t or won’t turn to a bank for a loan, turn to a merchant services account instead. The merchant account will front the funds based on future credit card transactions. Of course, the approval and the amount of funds will depend on the merchant’s credit card volume, but it could be as much as $250,000 within as few as 72 hours. Then, as the merchant receives credit card payments, the merchant services account is repaid with a small, fixed percent of the daily credit card receipts. Merchant services accounts have been there from the beginning, making the task of exchanging funds easier than ever. Find out how a merchant account could benefit your business.
Opens Doors to the Financial World for Many Retailers. The merchant cash advance industry is growing at an astonishing clip. This growth is because traditional banks are not meeting the needs of small businesses.This product is very unique. It’s a purchase of an asset, not a loan, so we have to use specific language consistent with a purchase of an asset, like retrieval rate and discount rate instead of interest rate. A lot like factoring but it’s of a sale that hasn’t yet happened.A cash advance provider gives merchants a lump sum cash advance up front. In exchange, merchants agree to pay back the principal and fee, by giving the company an agreed percentage of their credit card sales until their balance is zero. This percentage is between 12%-24%. The payback time-frame is only 5-12 months.Merchants generally must use the providers’ credit card processor because the advance is paid back automatically as a percentage of each batch’s proceeds. A small number of merchant cash advance companies do not require the merchant to change credit card processors. So if this would be a problem, make sure to ask the merchant cash advance company you are thinking about working with.Cash advances are very different from traditional funding programs. In essence merchant cash advance providers purchase a small percentage of future MasterCard and Visa revenues, and the merchant repays this as a daily percentage of those revenues.Getting cash from traditional financing institutions can be difficult for some businesses, particularly retail, restaurant, franchisees or seasonal businesses. These merchants most heavily use credit card processing, so merchant cash advance programs offer a number of benefits.Why Do Merchants Like ItThe cash is usually available more quickly than it is with traditional loans. These programs appeal especially to retail and restaurant merchants not only because these types of businesses can rarely get traditional funding, but also because of the immediate liquidity.Most cash advance providers advertise that the cash can be available in about 10 days. Unlike a loan with a fixed rate of interest, amount due and set due date each month, with merchant cash advances the money is paid back as credit card receivables come in.Merchant Cash Advance programs are cash flow friendly, especially during seasonally slow periods. Traditional loans and leases require a set payment every month, whether the business has made a sale or not. Because payments are calculated as a percentage of sales, if sales are growing, the amortization could be quicker, but if the proprietor experiences some interruption or downturn in business, the payments will be lower.In most cases, business owners put up no personal collateral and make no personal guarantee.How Providers Make MoneyFinance charges can vary widely, not just from one provider to another, but from one advance to another. As an example, the range of financing on a $10,000 advance could be as low as $1500 or as high as $4,000. That’s a 60% difference.There is no fixed interest rate; the effective interest rate varies depending on the business. If the merchant’s business is doing well and sales are up, the advance provider collects the money sooner and the interest rate is rather high. Since there is no time limit on paying back the loan, the effective annual rate decreases as the payments are extended over time, although the cash provider typically forecasts a fairly short period for payback, usually less than a year.There’s no question that the merchant’s cost for this kind of financing is going to come in more than a conventional loan, but it’s pretty much a foregone conclusion that a conventional bank will reject this merchant for their much needed loan.The merchants interested in a program like this may have a sketchy or distressed credit history. They’ll have things like past tax issues, a list of delinquencies, collection matters, liens or judgments that would be an automatic red flag for a conventional bank. The merchant cash advance industry caters to businesses that can’t get traditional funding.A Risk Worth TakingThere is a risk to cash advance providers and a fairly high risk (hence the higher cost to the merchant for the money), but they use sophisticated models to determine the future likely credit card purchases. They also offer the cash with relatively short payback periods to help mitigate risk.Although approval isn’t as difficult as it is for most bank loans, few cash advance providers will approve new merchants without a history of credit card transactions. Even fewer will approve sums larger than what merchants can reasonably expect to earn from credit card transactions in a year.The provider of the merchant cash advance takes all of the risk, the risk is high, but since it is paid out of projected future sales, it is typically a risk worth taking. Seasonal businesses that need cash to carry them through lean seasons or merchants who have an unexpected downturn in business (say because of road construction, building repairs or extended illness) might find a need for a cash advance until business picks up again.However, merchant cash advance companies say that ailing businesses are not the only merchants interested in this kind of program. Many types of businesses are often underserved by traditional funding institutions. Take for example a restaurant, it could be a very successful business, but a traditional bank wants to see tangible assets. Perishable foods or used restaurant equipment just won’t make the cut, even if that restaurant is packed every night.There are many examples of times when owners of healthy small businesses could use cash to help build their businesses but can’t get the traditional funding necessary. These include franchisees who have exhausted their savings to purchase their first franchise and want to open a second one; merchants whose competitors have closed and have the chance to buy their competitor’s old inventory or move into a new location; expansions; buyouts; or simply the desire to move quickly on a perceived new opportunity.