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A merchant account can be invaluable for your business. It is how you can accept credit card payments from your customers. If you have an established customer base, it is a no-brainer to set up a merchant account.
However, if you don’t have steady revenue yet, you may be intimidated by the fees and setup costs associated with a merchant account. If you find yourself in this situation, you will probably quickly come across providers claiming to offer a free merchant account. You may be skeptical about this, and you should be. Is a free account a real thing?
Can a Merchant Account Be Free?
The answer to this question is a little more complex than you may expect. The important thing to remember is that merchant account providers are businesses. They are not in the industry to provide charity to growing companies like yours. So, while there are plenty of accounts advertised as being free, it is going to be a relative term at best. At some point, the provider will need to make money off you.
Be wary of anyone who claims to offer a free account with low fees. If something sounds too good to be true, chances are that it is. This doesn’t mean that you can’t get a good deal on a merchant account. However, it is important to understand the full deal before diving in.
Typically, supposedly free accounts come with a catch. Some providers are upfront about the drawbacks of their free options. Other providers try to sell you sunshine and rainbows. Make sure you fully understand the costs associated with the account. Be especially careful with providers that try to hide the downsides of their free services. This is likely a sign that there are hidden fees.
Free Provider Claims vs. Reality
Keep in mind that no one works for free. No matter how much a provider tries to convince you an account is free or cheap, you will always end up paying to use the merchant services. In fact, you are likely to pay more on accounts that claim to be free. These are some of the claims that providers make and the reality behind them:
- Claim: There are no setup or subscription fees.
- Reality: Although this may be true, you will more than make up for it in higher transaction fees.
- Claim: No credit check is required.
- Reality: They may not run a credit check, but you can be certain the provider is managing its risks. Chances are the provider will hold onto some of your profits to use against returns.
- Claim: There are no minimums each month.
- Reality: If there are no minimums, the provider needs to ensure its profits another way. That is going to be through steep fees while you are getting started.
Clearly, whether a merchant account can be free is dependent on how you define the word. Depending on the status of your business, a free account may be the best option for you. It may help you avoid shelling out fees when you aren’t using the account.
However, realize that it isn’t some sort of charity case. A free account will always come with higher transaction fees. This can significantly eat into your profits just as your business is getting started.
In some cases, free accounts have transaction maximums. In this arrangement, you can only use the account up to a certain amount of monthly revenue. Even if yours doesn’t, there is a good chance that the provider will not be able to support you once you reach a high volume of sales. Free accounts rarely have the customer service options of paid accounts.
How To Get a Good Deal on a Merchant Account
Depending on your needs, a free merchant account may make sense. Carefully review the fees and rates to determine if it makes financial sense. Consider making a budget of what the merchant costs would be for a month’s worth of sales. Do the same thing for what the monthly costs would be six months from now assuming realistic growth. If you are going to need to upgrade in half a year, it doesn’t make sense to get a free account.
For many businesses, it makes more sense to set up a paid merchant account with lower transaction fees. A small monthly fee can help you save significantly if you have even a moderate sales volume. Furthermore, most paid accounts come with greater protections and superior service.
Small business owners that consider free accounts typically think they are cleverly avoiding paying a monthly fee when their sales volumes are low. Although this may be the case, the reality more often than not is that businesses with free accounts tend to end up paying more each month.
Carefully consider all your options before making a choice. You may be surprised at how much a “free” merchant account can cost.