When setting up a payment gateway to receive payments via the internet, you may be required to open a separate merchant account.  Of course, this may be optional as the need for a separate merchant account will depend on many different parameters related to the business and bank setup.  If you are wondering whether this payment setup is something you require, there are considerations you should take into account.  This article will provide information on the reasons why you need a merchant services account for your small business.

What Is A Merchant Services Account?

In its most simplistic form, the payment processing gateway is a method that allows you to get paid online.  Clients or customers pay for services through providers such as Authorize.net, Stripe and PayPal.  The payment arrives in the account but is not transferred directly to a bank account immediately.  For example, when using PayPal, you will need to transfer the funds manually; however, other payment gateway options transfer the funds using a set schedule.  Typical schedules include every two or three business days or each week.

Between the period when the funds are sent by a client and received by the service provider, the amount will sit in something known as a merchant trading account.  Essentially, credit cards are called this because the issuing bank agrees to front payments for merchants on behalf of the credit-carrying consumer.  However, using credit to pay online will involve risk to the payment processing service and the issuing banks.  One of the methods used in the industry to minimize risks is by building the lag time into the movement of the money through the accounts.

Using this method, the merchant account provider acts as a type of escrow attempting to have a minimal number of recall payments.  This is why opening a merchant account requires approval by the account provider’s underwriting department.  By performing a risk analysis, the underwriting department determines whether or not you will cause difficulties for them.

Is There Such A Thing As Not Having A Merchant Account?

All online payment gateways present with some form of merchant service account, but some of the accounts operate in the background.  Many of the accounts are considered ‘aggregated’ and do not need to be set up as separate items, such as PayPal and Stripe accounts.  Using the aggregated merchant provider accounts, your online funds are part of a larger online payment pool belonging to several merchants instead of a single one.

So, when is it a good time to transfer the online funds out of the aggregated account?  This type of ‘behind the scenes’ payment platform is not controlled by you and this can be detrimental despite it seeming convenient.  If the provider wishes to change their processing rules, they can do so and you will not be able to control the account; therefore, it is vital that you pay attention to the contractual terms before signing any agreements.

What Cases Call For Dedicated Merchant Services Accounts?

Companies that want to accept credit cards as direct payment options without using payment gateways are required to open dedicated merchant services accounts.  The online payment platforms offering the shortest money transfer lag times with fee structures are the friendliest option for high levels of transactions.  Of course, you do need to determine whether they are available when opening the merchant account either with the dedicated gateway or best merchant services for small business.

Even if it is not required, you can opt for a dedicated merchant services account to negotiate transfer schedules for the sales and customized commission rates.  If your company works with a high volume of regular sales, then you should be able to determine better rates with the service provider issuing your merchant services account.  If, however, cash flow is a problem for the company or for your freelance career, then the payment schedule will be made according to the billings appearing in your bank balance.

When undergoing an application for a dedicated merchant services account, your company and you will need to withstand an un-depth credit card check by the underwriting department.  This procedure can be tiresome and time-consuming involving faxing of various information, such as bank records.  For many people, particularly those who are just beginning with online banking and are not as committed to online payments, being approved can be complicated.  In this situation, it is highly recommended that you opt for an aggregated merchant services account when paying online.

What Cases Call For An Aggregated Merchant Services Account?

For the majority of businesses accepting online payments, dedicated merchant services accounts are not always necessary.  Small savings involved in these accounts are not always worth the time and effort you will face in the approval procedure.  Moreover, the rates received can be highly complicated making it difficult to calculate how much you will be paying in the end.  It is possible that you will pay more than you initially thought you would.

You should also consider that a new company with little to no credit history may not be able to qualify for this type of merchant services account.  Non-US businesses may also have a more difficult time qualifying for aggregated merchant services account.  The account can be opened easily as an aggregated account and changed to a dedicated merchant services account once the business begins to grow.

What About Online Invoicing Using An Aggregated Merchant Services Account?

One of the simplest online merchant services payment methods is by setting up an automatic aggregated account, such as Stripe or PayPal.  The procedure is extremely straightforward, and you can be ready to accept credit card payments from customers in fewer than twenty minutes.  Many of these gateways present with their own customer support and shopping carts, allowing customers to use various currencies and credit cards.  PayPal also allows customers to use funds stored in aggregated merchant accounts.