The Critical Nature of Merchant Services

Merchant processing is an enormously important service for retailers and other small to medium-sized businesses. Credit, debit and prepaid card purchases far exceed cash, checks and other forms of payment.  Card payments have become the primary method of payment in US retail stores, making up more than 70% of all types of payments.

For some American businesses credit, debit and prepaid cards account for more than 80% of their monthly sales volume.  There are even businesses now that are experimenting with payment only by electronic means.

As e-commerce has grown in importance over the last 20 years, merchant services has become even more important to businesses of all types. There is virtually no way to conduct business online without credit, debit, prepaid card or ACH services through your bank account.  Now more than ever retail merchants depend on the flow of electronic funds from bankcard processing to keep their businesses running.

Most small to medium-sized businesses have to work hard to maintain adequate cash flow.  The rising cost of rent, utilities, payroll and inventories mean that every small business must accelerate the receipt of funds flowing into the business.  Some experts say that 60% of small businesses that fail are profitable, but failed because they ran out of cash to keep their business going.

Of course, your bank has ways to help merchants manage cash flow.  Banks can provide short term financing to bridge gaps in cash flow and long term loans to free up working capital for the small business.

One of the other ways to help small merchants manage cash flow is to accelerate payments into the business.

The normal flow of funds with merchant services has been 24 to 48 hours. That means that a batch of transactions that is closed on a Monday evening will be deposited into the merchants account on the following Wednesday.

This is where a good processor can play a significant role in improving the cash flow of your merchants.  If your merchant closes their batch before 6pm Pacific, some processors will deposit the funds into the merchant’s bank account the very next day.  And this next day funding service is available at no charge to the merchant.  Cutting the time in half that it takes for the merchant to get paid can make a significant improvement in the small business’ cash flow.

Another important method for improving cash flow is to lower the overall cost of running the business.  If you have merchants who have not compared rates lately, you should encourage them to get a competitive quote.  It’s our experience that other payments processors will gradually increase the cost of processing for merchants who have been with them for a long time.
Unless the merchant gets a competitive proposal from another ISO, the owners won’t know if they are over-paying for processing.