9 Merchant Account Operation

Merchant Account Operation

Most businesses that accept credit, debit, and other back cards as a form of payment do not use their merchant accounts properly, and they pay higher rates and fees because of it. Furthermore, most business people are not even aware of the fact that they are paying these higher rates and fees because they seldom look at their monthly merchant processing statements.

The following section of this guide will bring to light the most common mistakes that business people make when processing credit card transactions. When corrected, many businesses will save hundreds or thousands of dollars in lost processing fees.

The exact operation of your processing equipment will vary depending on the front-end processor that will or does handle your merchant processing. Each processor or bank has a unique program that they load in to credit card machines or equipment that enables them to function.

Only your processor or merchant service provider will be able to tell you exactly how to operate your processing equipment. If you have any questions regarding how to perform any of the tasks we describe below, you will need to contact your merchant service provider directly to get instructions.

9-1 Merchant Account Functionality

Before we can tell you how to use your merchant account to properly charge credit cards, we have to explain how a merchant account works and what actually happens when you charge a customer's card. The process of transacting electronic bank cards is very complicated. In the interest of simplicity, we have left some of the finer points out of this description in order to give you a basic fundamental understanding of how a transaction operates.

When you transact a credit card by swiping the card through a machine, manually entering credit card numbers into a terminal keypad, or by routing numbers through an online gateway or wireless system, you are initiating the credit card transaction process. From start to finish the whole process takes only a matter of moments, with most transactions reaching completion in under a minute. After you run a customer's credit card, your processing equipment electronically transmits information about the transaction and the card that is being charged to the processor.

Your processing equipment will always send as much information to the processor as it can such as the credit card number, expiration date, billing address, amount being charged, and so forth. Once the processor receives the transaction information, they will send an authorization request to the issuing bank of the credit card to obtain an authorization . If the credit card has sufficient balance and everything else is in-check, the bank issues and authorization for the merchant to charge the customer's credit card in the amount that they have requested. This authorization is sent back to the processor, which in-turn sends an authorization response to your credit card equipment letting you know that the transaction has been approved.

This is where a lot of the confusion about credit card processing comes from. At this point you have not actually charged the customer's credit card, you have only placed an authorization on their available balance. An authorization only reserves the funds on a customer's balance to keep them from using those funds for other purchases, and ultimately charging over the available limit on their account.

Once your credit card equipment receives an authorization, it is stored in memory along with the authorization code that has been issued for the transaction. The credit card machine stores each transaction that is run throughout a business day within its memory in something called a batch .

At the end of the business day (or when you wish) you must close or clear your batch . When this is done the credit card machine contacts the processor to transmit the batch information that consists of all of the approved transactions that you have processed, each identified by the authorization number that was previously transmitted to the terminal when the credit card was initially run. At this point is when the processor transmits the transaction information to the banks to actually have funds moved from the customer's credit account to your bank account. You will not be paid for credit card transactions until you clear your batch.

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