Credit card processing for nonprofits

By Jeremy Simon

Nowadays, many nonprofit organizations accept donations via credit card, which often means speedier collections of funds and larger donations.  Meanwhile, donors appreciate the convenience of plastic and chance to earn perks if they give using their reward credit cards. 

If you are considering accepting credit card donations for your nonprofit, there are a number of factors to weigh.  First, think about the type of transactions you are most likely to encounter: recurring (such as monthly pledge payments) or one-time only, donor initiated (such as through your Web site) or with payment information entered by staff.

Also, evaluate the likelihood of having a physical credit card for you to swipe, and whether payments are for donations alone or involve a service like an event ticket or fund raising premium.

The type of payments your nonprofit decides to accept will drive your choice of processing technology.  For example, in the case of a recurring monthly gift, you probably will not want to have to enter each donor's credit card information and payment amount into a credit card terminal each month.  One of the most beneficial uses for electronic payment is automating the fulfillment of pledge payments or monthly giving programs.

You probably will want to set up a merchant account for processing credit card donations -- "merchants" referring to anyone who processes a credit card transaction, with merchant accounts being the financial account through which payments are made.

Some solutions for processing credit cards do not require you to have your own merchant account, instead establishing a merchant account in the third-party name to process your transactions.  But unless your organization only processes a few credit card transactions a month, it is generally better to have your own merchant account. 

Potential problems with third-party processing can arise when the name that appears on a donor's credit card does not match that of your nonprofit -- which may result in the donor disputing the charges. 

Other problems include the delayed receipt of funds, since "agent" processors usually only mail payments once or twice a month, as well as the risk of non-payment should the third-party processor fold.  Finally, most third-party processors lack the flexibility to customize their payment forms, which can restrict your organization's ability to collect important information, such as the name of a person being honored for a memorial or honorarium. 

When you compare various merchant account services providers, nonprofits should weigh all the various costs, ranging from the one-time to the ongoing.  These costs may include one-time fees for setting up your merchant account, a monthly account fee, transaction fees per item and a discount rate that is a percentage of the transaction amount, as well as indirect costs such as the time needed for staff to enter credit card data.

Choosing to accept credit card donations can give a major boost to your nonprofit.  As you consider the options, keep in mind that the simplicity, security, and administrative efficiency of your online process are generally the key features of a successful solution when accepting electronic payments.

Published: May 1, 2007