Business startups face many battles. Business founders can leap some with enough money, know-how, or influence. Some look for alternatives or end runs. But, cash flow is the life’s blood of any functioning business system.
For a retail business, credit card processing is the first gateway. Businesses can’t make it for long if they cannot process credit cards securely, quickly, and effectively. For example, the huge potential in the cannabis industry is at the mercy of banking rules that affect their ability to process credit cards.
The problem always starts at the top, and that goes for the cannabis retail dispensaries. Because the FDA has listed cannabis as a Schedule I Drug, this prohibits banks from doing business with what the federal government considers “illegal” activity. Since all banks, even those in states where cannabis has been legalized, use systems integrated with federal banks, they are reluctant to do process cannabis-related credit cards. As Forbes reported, “Being unable to bank puts business owners in the cannabis space in a quandary on how to conduct business like other merchants.”
Most retail businesses in physical and online venues depend on merchant services to verify and speed credit card processing. But, socially-stigmatized businesses, including cannabis, firearms and weapons, payday loan business, and others, have difficulty expediting sales driving some to conduct business on a “cash only” basis. Such businesses must implement best practices if they expect to secure the service they need to survive.
Here are 10 keys to making it work:
- Avoid bank processing. Most commercial banks and credit unions are ill-prepared to process credit cards. There is always a third-party provider involved. The bank sells your business on a claim to process credit cards, but it actually passes those functions onto a processing business at a cost to your business. The bank profits from charges or tiered pricing added to their charges to you.
- Keep your eye on reports. Business owners must audit monthly credit card reports with a keen eye and business savvy. Any financial system can swallow or leak money. Start reviewing your merchant account statement monthly. Regardless of the business’ size, it needs an Accounts Receivable and Accounts Payable discipline. In a startup, the business owner takes on these duties. So, you have to monitor statements tightly monthly, quarterly, and annually looking for patterns, hidden fees, unexpected automatic increases, and more.
- Demand full transparency. You need easily read yet fully-detailed agreement and statements. If you put yourself in the processor’s shoes, you can appreciate how complicated the processing and reporting can be. You are feeding them thousands of transactions on hundreds of different credit cards, each of which has different rates for customer and merchant. Nonetheless, you want the provider who offers statements you can read comfortably without assistance.
- Call your lawyer. It’s worth the lawyer’s charge to review any agreement or contract before you sign it. In fact, if possible, you would benefit from the lawyer’s presence when you sign any agreement with the sales agent. Between you and your attorney, you want to check for details on any long-term contract including early termination fees,
- Watch what’s “free.” Many processing businesses will offer free equipment. Some of it can be impressive and a deal breaker for many merchants. But, it will cost you in the end. Free or leased equipment clauses are something else your lawyer should double check. You must be wary of hidden charges and penalties for damaged, lost, or stolen equipment.
- Batching transactions counts. Your business will pay a fee for each transaction. You must know the fee and how their equipment is geared to transact. The equipment they provide your business to accept credit cards at Point of Sale (POS), but the frequency of reporting can be controlled. You can batch all charges during the day and transmit them at once at the end of the day for one transaction fee. If your business does a high volume in credit cards, you may want the immediate feed to the processor, but you must determine if that increased cost makes good business sense.
- Train, train, and re-train. Employees must do more than operate the equipment. And, where the business has employee turnover like restaurants, bars, and service stations, it seems enough to keep up with the operations training. But, you must bring employees into the entire process and what it means to the business and to them as employees. If you also point out how their work is monitored, they should understand what it means to them. It helps if the equipment prompts them on verification requirements.
- Keep your high-risk business low-risk. Your CBD merchant account may list as high-risk. The risk may be high because of the service offered. But, it is high-risk if it has a poor record of past credit card processing, if there are financial regulations in your industry sector, or if you do not have good business practices in place. Because cannabis merchants deal with difficult banking issues in the first place, they must lower their risk exposure in other areas. You can reduce the fear of your business by managing charge-backs and showing enough cash available to prove your creditworthiness.
- Manage the front end. Problems can start with your handling of the process. Card-present transactions are those where the cardholder and card are in front of you. It’s up to your business to enter that transaction correctly. If your setup permits, you make the chip reader accessible to the cardholder. The card must be submitted chip forward and remain there until the transaction is authorized or declined. If the customer does not know their PIN number, you should require another form of payment. If the transaction requires a signature, you must verify it against the signature on the back. If there is no signature, you should reject the card and transaction. Without your discipline at the start, the credit card processing cannot fix it.
- Get it right online. If your business depends on internet, mail, or telephone orders, you have different verification issues. Without seeing the cardholder and card, you are open to fraud. You need all the information provided on the card: number, name, expiration date, security code. You also need the billing address and shipping address for certain orders. Offline, you can use the Address Verification Service (AVS) or Card Verification Value 2 (CVV2) apparatus to confirm the authenticity of the account.
Effective Credit Card Processing
Credit card leaders like PayPal refuse to honor any charges for alcohol, tobacco, cannabis, or CBD purchases. So, what are merchants to do? Being a cash-only business has some benefits. It certainly improves the business’ liquidity, and it makes some operational transactions easier. It even floods the state’s tax offices with much-desired cash (as Time has pointed out).
But, it discourages purchasing and opens the business to massive security issues and costs to contain them. As the CBD and related merchants expand and the market determines the processing solutions, making it work takes some effort and research to find a trusted credit card processor.
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