"I have been running a small online service business for several years. Up to now we've accepted only checks or cash, but a number of our customers are now asking to pay by credit card. It seems to be a lot of hassle to maintain merchant accounts with all four major credit card companies (American Express, Discover, MasterCard and Visa). Would it be better for me just to open an account with PayPal, where my customers can pay me using their credit cards but I only have to deal with one bill each month?"

Once upon a time, if you wanted to accept credit card payments in your Web-based business, you had no choice: You had to open merchant accounts with all four of the major credit card companies, pay (in some cases) minimum monthly fees for their services, pay for a credit card "swiper" and other equipment (which, as an online business, you seldom, if ever, used), and reconcile four detailed statements each month.

By using an online payment service such as PayPal (www.paypal.com), your customers can pay for your products and services using their credit cards, but you do not have to maintain merchant accounts with any credit card company. PayPal charges the buyer's credit card, deducts its fees and deposits the balance into your PayPal account.

For all its convenience, however, PayPal hasn't completely eliminated the need to establish your own merchant accounts with credit card companies, according to Michael Guerin of Automated Merchant Processing, LLC (www.ampyourcashflow.com), which helps small businesses set up merchant accounts and audit them for accuracy.

"PayPal works great if you're running a sideline business and not expecting a regular volume of transactions on a consistent basis," says Guerin, pointing out that PayPal is easy to set up, extremely convenient to use and does not charge a "gateway" or minimum monthly fee, as credit card processing companies do — you are charged fees only when someone buys something from you using PayPal.

But Guerin points out that using only an online payment service like PayPal to process credit card transactions has its limitations, which you will encounter sooner or later as your business grows. For example:

Before allowing your customers to pay by credit card, PayPal will prompt them to at least consider using their PayPal account or bank account for payment. While PayPal legitimately wants to discourage people from incurring unnecessary credit card debt, Guerin says, "the extra steps might deter some impulse buyers, who will lose heart and exit the service before making their payment."

If you are selling information products (such as e-books), you will want to automatically redirect the customer to your website after they make their purchase, but PayPal will do that only if someone pays directly from their PayPal account rather than use their credit card.

If you are selling physical, tangible products and want to outsource your packing and shipping to an outside order fulfillment center, Guerin says, you can link to one with a merchant account, but you can't do that with PayPal.

But probably the biggest shortcoming of online payment services, according to Guerin, is their inability to help you deal with credit card "chargebacks," where a customer pays for something using a credit card, and then retracts or cancels the transaction after you have shipped the item.

"In any chargeback dispute involving a credit card payment, PayPal will almost always side with the buyer, because that's what the credit card company will do, and you can't really blame them," says Guerin. "If you don't have a merchant account, you have no customer relationship with the credit card company, whereas the buyer does. Even if PayPal goes to bat for you, whose side do you think the credit card company will take in the dispute?"

Guerin advises opening several merchant accounts in addition to your PayPal account if you expect, or when you have, consistent monthly credit card transactions. Here are some of Guerin's tips for dealing with merchant accounts:

— Ask lots of upfront questions about the fee structure, because "it's more complicated than you might think";

— Know the monthly volume limits on your Visa and MasterCard accounts, and make sure you stay within them;

— If customers fax you orders using a credit card authorization form, be sure to save it as it will protect you in the event of a chargeback, but "use a Magic Marker to black out the credit card number (except for the last four digits)" to prevent identity theft;

— If you think a customer is going to "charge back" an order, call the credit card company, warn them it's coming, and explain the situation so they don't automatically approve it; and

— "If you have a brick and mortar store and you're also selling online, get two separate merchant accounts with each credit card company, and tie one to your terminal, the other to your website — your bookkeeper will love you for that," says Guerin.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.

COPYRIGHT 2008 CLIFFORD R. ENNICO.

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