Cashless banking has helped businesses to increase their profit. The cost of handling cash, like having a dedicated cashier and taking it to deposit at the banks, have been reduced or removed entirely. The amount saved through the reduction in the cost of handling cash is automatically added to the profit line of the business.
Add the reduced cost of handling cash to the fact that most people prefer debit and credit cards over carrying physical cash; then it becomes clear why businesses are exploring every cashless method of payment. Merchant accounts happen to be one of the preferred methods of receiving payments from the customers of a business.
Explained: MERCHANT ACCOUNT
A merchant account is a system of banking that enables businesses to either receive payments directly through the website of a business or through debit and credit cards from their customers. The business is giving a Merchant ID number when a Merchant Account is opened. This Merchant ID Number is used to identify the processor of the business; and it also serves as a link to the banking institution’s upstream which deposits the money received into the bank account of the business after authorizing it. This unique number is used in all the dealings of a business with its Merchant Account provider.
The Merchant Account works under the agreement that the business, known as the acceptor, will have its payment card transactions settled by a bank offering Merchant Account services. In some cases, aggregators like Member Service Providers (MSP) or Independent Sales Organizations (ISO), are a part of the agreement.
After the business opens a Merchant Account and is given a Merchant ID Number, a Credit Card Reader is given to the business at no cost in most cases. The Credit Card Reader can read the storage medium, like a computer chip for instance, of a credit card.
Businesses stand to gain a lot when they open a Merchant Account. Some of the benefits include:
A. INCREASED SALES: Since most consumers carry their debit or credit cards around, there is the tendency for them not to have so much cash on them. However, the consumer may walk into a shop to pick up a $1 item and see an item on a shelf that he or she may desire to buy. This customer may probably have walked away with only the $1 item that was budgeted for; but with the availability of a Credit Card Reader, the customer may end up picking up the item. This has increased sales for the shop owner because if the Credit Card Reader option was not available, the customer may end up buying the same item in another store.
B. INCREASED PROFIT: There is usually a transaction cost of between 2% to 4% when credit cards are accepted as a means of payment. This translates to between $96 to $98 for a $100 sale that is made. What most businesses now do is to make a slight increase of between 2% to 4% in their sales price as a way to offset the credit card transaction cost. More often than not, customers do not notice this price change because it is very negligible.
By so doing, the transaction cost of the credit card is transferred to the customer. There is also the increase in profit when a customer pays cash for a product purchased.
C. SAVES MONEY AND TIME: Keeping excess cash in a store is definitely not advisable. It might be lost through theft or a small fire probably. With a Merchant Account in place, the cost of paying a cashier is saved. Time is also saved because there will not be any cause to shuttle to and fro the bank in order to deposit the cash received from sales.
D. ACCESS TO CREDIT: With a Credit Card Reader in place, some financial institutions will be open to granting the business with the much needed cash advance that will help in the expansion of the business. This increase in cash flow will definitely help in the growth of the business.
Businesses are opened for the sole purpose of making profit. This is what having a Merchant Account offers to businesses. With a Merchant Account, the frequency of an impulse buyer leaving the shop without making a purchase is reduced to the barest minimum. This in turn translates to the sales of more products or services.
With the possibility of getting access to a cash advance that will help in business expansion, there is no reason why any business that does not have a Merchant Account should not get one as soon as possible.