Deciding whether or not your business should accept credit cards can be tough. On one hand, by accepting credit cards, you'll increase your customer base. However, there is also the additional expense to consider. Chargebacks resulting from unauthorized credit card purchases, as well as the cost of credit card processing equipment and other associated costs, might deter a smaller business from accepting credit cards.

One of the most crucial factors in deciding whether you should accept credit cards is the amount of potential fraud that you might be subjected to. Fraud often results in chargebacks, which can be quite costly for the merchant. A chargeback is a reversal of charges, and usually occurs when someone makes a purchase with a stolen card number, or if the customer is not authorized to use the card. In order to avoid a chargeback, you must be able to prove that the goods or services were provided to the customer. In most cases, it is much more difficult to prove that services have been provided.

Requirements for Credit Card Processing

Your business will also need to qualify with a credit card merchant in order to start accepting credit cards. Credit card merchants will designate your level of risk, depending on the transactions you will be processing. "Card present" transactions, where the customer physically provides the card to the merchant, who swipes it though a magnetic strip reader, are considered less of a risk. These transactions not only require the card to be present, but they also verify the customer's identity by requiring a signature and a driver's license. "Card absent" transactions, such as those conducted over the phone or online, are considered high-risk, as there is a much higher possibility of fraud.

When you apply with a credit card merchant, they will also conduct a check of your credit history, as well as of any officers cited on the application. You should also be prepared to provide up to three business references. If you've processed credit cards in the past, you will be required to provide your old merchant statements as well.