Interior design has traditionally been a cash-based industry, and up until recently, it was common practice for designers to accept payment by cash or check only. However, as society and the global economy become increasingly cashless, developing a strategy for accepting payment by debit and credit card has become necessary. While managing a new type of fund flow can be tricky, understanding how merchant banks and credit card processors work is the key to avoiding common mistakes that can lead to account holds, and in some cases, terminations. This article breaks down how to play by the rules of card processing and smoothly manage a merchant account for an interior design business.

What Is a Merchant Account and How Does It Work?

One of the first steps in establishing a new business is to open a business checking account with a commercial bank, allowing for the deposit and withdrawal of cash funds. In order to accept electronic payments, like those made via debit and credit card, a business also needs a merchant account. A merchant account is not a traditional bank account that accumulates a balance or shows a deficit. It merely facilitates the process of moving money electronically from one account to another.  

As the middleman, a merchant bank loses money when a transaction is not completed or when it is completed and then reversed. Therefore, merchant banks and other credit card processing companies set terms of agreement with business clients that attempt to ensure that all initiated transactions are ultimately completed. An important part of these agreements are the processing limits imposed by the merchant bank or card processor. Merchant banks work with their clients to determine these processing boundaries, so it is crucial to analyze your past and expected future transactions to determine realistic volume expectations with the processor. Once the agreement is finalized, these processing limits become a baseline that veering away from, even in the positive direction, can constitute a breach of agreement. A breach of agreement can result in a hold, when a processor withholds a portion of processing volume in a separate bank account as protection, or an account termination. Both are costly consequences that are difficult, and in some cases impossible, to reverse.

How to Stay Within Your Processing Limits

As covered above, the most important rule of card processing is to stay within the limits on individual sales and overall monthly sales set forth in your agreement. The input you provide in the initial negotiation is the most power you will have in crafting and working within the agreement, so while it is impossible to anticipate the future, use past data to make a deeply researched guess. If you have been using an interior design-centric accounting software like Design Manager, you can pull financial reports based on your aggregated data with the click of a button, making it easy to stay in control of the process. Of course, consult with your accountant or a financial advisor to fill in any gaps of your understanding.

Once you are ready to negotiate your credit limits with the processor, slightly overestimate your projected volumes so that you do not exceed the prescribed limits. While exceeding projected volume may initially seem like a good problem to have for an interior designer, it triggers a risk warning to the processor, who wants to stop suspicious activity before it happens. Again, processors only like completed transactions, and even if the processor is not liable for a loss resulting from a fraudulent purchase, their business is still negatively impacted. This is why processors have a low tolerance for even the appearance of fraud, and suspicion of fraud is one of the top reasons a processor will terminate an account. Once a business experiences a merchant account termination, it is very hard to find a new merchant bank or processor willing to open an account for that business, so the consequences can be irreversible.

Consistency is Key

Consistency is key across the board in how you handle your merchant account.  Processors not only monitor volume, but also transaction type, credit scores, and bank account history. So if you are reshaping your design brand and/or expanding your products and services it is important to inform your processor of the change.  Just as important though is making sure that your credit score as the business owner is in a healthy range and your bank account balance on average stays higher than your average credit card processing limit that you established with your processor.

Having an open line of communication with your processor can also help mitigate issues, which is why choosing a partner that understands the business of interior design, like Stripe, is important. Contact your processor to let them know if you expect a change in volume or anticipate some other transaction that may be outside the scope of your business’s processing limits. While this may still result in an account hold, it is always better to communicate and provide your processor with as much information as you have. In some cases, you may be able to apply for an amendment to your existing limits before the breach occurs, which requires foresight and is a good reason to stay current on the financial status of your interior design business.

Protecting Your Business

While managing a merchant account involves forces not entirely in your control, you can take additional measures to further protect your interior design business from potential breaches, chargebacks, and fraud. Keep timely records, have your return policies clearly stated in your contracts, supervise your deliveries and installations to minimize potential damage of merchandise, and keep the communication with your client transparent throughout the project. If a client pays for furniture with a credit card, wait until the purchase is cleared and the money is in your account to order the item.

Setting up a merchant account for your interior design business opens up a world of new opportunity and puts you on the fast track to growth. While merchant banks and credit card processors operate by a strict set of rules, once you understand how to work within their framework, managing the process becomes easy. Remember, staying current on the financial status of your business is imperative to your success, and the right business tools can make sure you are always up to date. If you are not already using Design Manager for your interior design project management and accounting needs, take control and sign up for a free trial today.  And if you aren’t accepting credit cards yet, now is your chance to start!