Whatever type of business you run, you’ll need to accept payments for your goods or services. Some B2B businesses let clients pay upon receipt of an invoice, but if you’re dealing with customers (B2C), then accepting card payments will likely be necessary.

What is a Merchant Account?

When customers pay by card, their money is deposited into a holding account – this account is known as a merchant account. Once the transaction has been processed, the money is transferred from the merchant account to your business bank account. 

In essence, a merchant account is just a regular bank account, but it is designed for businesses to handle credit and debit card payments. 

The reason why a merchant account is used is so the customer’s bank has time to capture the card details, authorise the payment, and then process it. This extra time is needed to protect all parties from fraud and ensure the person paying you actually has money in their account. If the payment was sent straight from the customer to your account, it would be very hard to check the transaction and retrieve the money if a payment was sent in error. 

Here’s an example of how a merchant account works in practice:

Let’s say a customer uses their Halifax debit card to pay for some electrical work carried out by your company. Once you swipe their card on a card payment machine, your merchant account provider captures the card details and sends them to Halifax. Halifax authorises the payment, and the money is deducted from the customer’s account and released to your business account. 

Three Main Merchant Accounts

Aggregate merchant accounts are the best for small businesses. Rather than paying a monthly fee, you only pay a fee when a sale is made. Aggregate merchant accounts are ‘shared’ accounts run by a main merchant, which is why the fees are lower.

High-risk businesses where fraud, bumpy cash flow, and frequent chargebacks are an issue need a high-risk merchant account. 

A dedicated merchant account is more suitable if you have a higher sales turnover. This threshold is set by the card company.

Look for a Reputable Merchant Account

Once you’ve decided to accept card payments, you’ll need to apply for a card payment machine from a provider that sets up a merchant account for you. For example, the UTP Group provides card payment machines that can handle all transaction types. As part of the process, UTP sets up a merchant account with Barclaycard Payment Acceptance, which offers Faster Processing and a UK-based tech support team.

Bear in mind that your business’s age and credit history will be factors when applying for a merchant account. 

Before you think of applying for a card machine and merchant account, have a business plan, and check your credit report to make sure there are no black marks. And if you are in a high-risk business, look for a high-risk merchant account provider to avoid wasting time on useless applications.