Mar 11, 2019 | Opening a Merchant Account
Opening A Merchant Bank Account? 10 Things You Should Know.
Is your new business ready to start accepting payments from your customers?
If so, you might be ready to open a merchant account so that you can accept credit card payments.
But what exactly is a merchant account? Isn’t a business account good enough?
Before you start looking for a merchant account, you should know a little about them, so you know what to expect.
There are several things you should consider, like:
How long will it take?
How much paperwork is involved?
Will it be underwritten?
Those questions and more will be answered below, as we go over the ten things you should know before you open your merchant account.
Underwriting is the important first step to get your merchant account setup
1. Underwriting
When you’re given a merchant account by a payment processor and their banks, they inherit a certain amount of risk.
Any transaction that is processed through their system could be charged back, and the responsibility for those chargebacks could potentially fall on them.
For example, if for any reason a business processes a transaction, but then they can’t deliver the product or service, the customer will likely issue a chargeback.
The bank is then responsible for issuing a refund for the customer, and most of the time it’s before the recover those funds from the business.
When the banks asses the risk of new accounts, they look at the possibility of chargebacks as well as the legitimacy of the business.
To make sure the underwriting process goes as smoothly as possible for you, it’s always a good idea to work with an experienced partner.
Some merchant account providers even have a department dedicated to helping new merchants set up their accounts.
2. Business Bank Account
Even if you’re just a one pony show operating as a sole proprietorship, you’ll still need a business banking account before setting up your merchant account.
It’s a pretty simple process that can be done in about 15 minutes at your local bank.
All you need is a business license and EIN. If you’re a sole proprietorship, you can replace the EIN with your social.
Your business bank account will be the default account for the funds you transact, as well as the account where the transaction fees will be charged.
You will need to keep a balance in your business account large enough to cover processing fees as well as any monthly fees you incur.
3. Business License
With few exceptions, if you are already running a business, you probably already have some type of business license.
These can range anywhere from a fictitious name statement to the articles of incorporation for your company.
You will need a business license to open your merchant account, as well as many other reasons to do business.
If you don’t have one yet, visit your Secretary Of State’s website to get one.
Your merchant account underwriter will review and file a copy of your license when you open your account.
4. Your Application
Like most things, you’ll need to fill out an application to open your merchant account.
These days most providers will have their application process completely online, so you don’t have to wait for snail mail or find a fax machine.
Most online applications will only take you about 10 minutes to complete, and they even allow you to sign online.
You will need to provide information about your business as well as the authorized signer on the account when you apply.
Have your bank account and routing numbers ready, as well as your EIN and your estimates of how many payments you’ll be processing.
Some other information they’re likely to collect on the application is your business start date and contact information.
5. You May Need Separate Merchant Accounts
If you want to accept credit card as well as ACH payments, you might need to go through two separate procedures with two different processors.
Most credit cards can be transacted through one processor; however, your ACH/eCheck transaction will likely go through another.
Fortunately, this rarely requires a separate application.
When you do apply, you will list all the types of payments you’re planning to accept.
This is when it’s useful to have someone help you because they will compile your submission along with a voided check and send it to the processors.
Be sure to have all your support documents ready
6. Supporting Documents
The more money you plan on transacting, the more documentation you’ll need to provide to the underwriter.
If you estimate that you will only process a couple thousand dollars a month, you will likely only need a voided check and marketing material.
However, if you think you will process larger amounts, you might need to submit several months worth of bank statements.
Sometimes you might even need two years worth of financial statements, including profit and loss statements along with balance sheets.
Once your account is opened, your processor will monitor your activity, so try to be as accurate as possible when giving them your estimates.
7. It Only Takes A Day
Once your application has been completed, and your documents have been submitted, your account is usually ready to go within a day.
Underwriters operate under regular banking hours, so keep that in mind when you apply.
If you submit your application later in the day, there’s a chance it won’t be reviewed until the next day.
Some merchant accounts will even sync your merchant account to your existing software so that you can start processing transactions right away.
8. Your Storefront And Online Accounts Can Be The Same
One of the best things about merchant accounts is that they are transferrable between your physical store and online store.
As long as the platform at the locations is the same, you can use the same merchant account.
If you already have a merchant account for your storefront and want one for your online store, find out if your current account is transferable.
9. Processing Fees And Funding
Your processing fees will vary depending on the type of payments you process and the methods you use to process them.
For example, your eCheck processor might charge a fixed rate, while your credit card processor charges a fixed and a percentage fee.
Credit card fees can vary as well, depending on the card and the payment method.
Funding times also depend on payment types.
eCheck payments can take 3-5 business days to fund, while credit card payments may only take 48 hours.
10. PCI Compliance
Today PCI compliance is a requirement.
The PCI Data Security Standard is a set of rules established by credit card companies to ensure merchants are securely processing their customer’s payments.
You aren’t required to be compliant as soon as you open your account, but you will soon after, so start thinking about it right away.
You need to be sure your business is operating securely.
Shredding documents, using virus protection software, and implementing strong policies will all prove that you are operating securely.
Merchant account setup steps
Ready To Go
After you’ve reviewed the information above, you’ll be ready to open your Merchant Account.