Ever sold old clothes or furniture on eBay or Facebook Marketplace? That makes you a merchant… at least technically. When most people use the term, however, they’re almost always thinking of retail businesses.
Regardless of size, any entity that sells goods or services could be considered a merchant. A small-scale solopreneur dropshipping items on Shopify is a merchant. A two-person bakery that takes in-store payments through Square is a merchant.
Of course, large businesses are also merchants. Defined by the US Small Business Administration as companies with over 500 employees, these firms range from regional enterprises like your city’s electric company to global distinct ways. Today, we’re taking a closer look at what merchants are and what they do. We also address merchant costs, and what it takes to become one. We also explain merchant accounts, risk management tools, and other parts of the process.
While an individual person can technically be considered a merchant, we’re primarily looking at sellers who operate as a business. A merchant’s business structure can be as simple as a sole proprietorship or as complex as a corporation. Each entity comes with different legal parameters that you’ll need to familiarize yourself with.
This is especially true when it comes to taxes. As a merchant, you’ll likely be handling federal taxes, state or county taxes, and sales taxes, not to mention potentially dealing with tax-exempt organizations. You can try to manage these obligations on your own, or partner with a merchant of record (MoR) to free up your time.
Read MoreMerchants primarily exist for one reason: to sell products or services for a profit. Success depends on your ability to serve your customers. At the same time, you’ll need to forge mutually beneficial relationships with your buyers, suppliers, acquirers, and others in the broader marketplace.
Part of being a merchant is accepting the responsibility to treat all stakeholders fairly. That responsibility also extends to members of your community who aren’t associated with your business (but may be in the future!).
Read MoreIt’s nearly impossible to operate a modern business without accepting credit or debit cards. That capability, however, comes with a large array of processing expenses.
These include setup fees, transaction-based interchange fees, and various costs from acquirers. There will also be processor markups and potential early termination fees for merchant accounts. Finally, you may be looking at chargeback fees and other losses.
Read MoreWhether you do business in-person, online, or both, you’ll need the right technology. This includes hard- and software to help you with operations, plus manage your supplier, vendor, and customer relationships. Critical components of your tech set-up include point of sale (POS) systems, payment gateways, and processors for handling card payments.
Customer-facing eCommerce platforms will be required up front. On the backend, you’ll need to invest in inventory management software, fraud prevention tools, and reporting solutions. These will enable you to fulfill orders, keep your checkout environment secure, and confidently make data-driven decisions.
Read MoreA merchant account isn’t a bank account. It’s more like a sort of temporary holding account where money from credit and debit card purchases sits until the associated transactions are cleared. At that point, the funds are transferred to your regular bank account.
All businesses that accept card payments will need to have (or have access to) a merchant account. They’ll also need to comply with the strict standards and risk control that accompany such accounts.
Read MoreMerchants face a wide range of financial, operational, and reputational risks. Lost revenue, supply chain disruptions, and negative word-of-mouth, for example, can harm your prospects. Being labeled a low-risk or high-risk merchant can significantly impact the payment processing fees and merchant account restrictions you may face.
Using fraud prevention tools like 3-D Secure and machine learning — along with chargeback management tactics such as using alerts and clear billing descriptors — is key to preserving revenue and customer trust.
Read MoreWhile every business is different, the process for becoming a merchant is fairly universal. Assuming you’ve already decided on a business model and arranged for suppliers and shippers, you’ll need to consider your operational structure. This includes sources of financing, along with tax and operational challenges. Legal issues and technology decisions will also have to be handled.
To get off on the right foot, merchants should strive to avoid common pitfalls and make use of valuable mentorship opportunities and online resources.
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The benefits of being a merchant are easy to see. Before getting started, however, you’ll need to do extensive research on the less obvious elements that also come into play.
Examples of merchants include consumer technology companies like Apple, wholesale clubs like Costco, and eCommerce merchants like Amazon. Smaller, locally owned businesses also qualify.
Other names for merchants include retailers, traders, wholesalers, vendors, suppliers, operators, or sellers.
Merchant services encompass a number of financial products and services that allow sellers to transact. Some examples include payment gateways, physical and virtual point-of-sale (POS) systems, credit and debit card processing services, mobile payment systems, and loyalty programs.
Being classified as a merchant means that you operate a business where you sell (either online or in-person) goods or services to other individuals, businesses, or both.
