By doing your homework about payment processing, you can save thousands of dollars a year. Whether your business is small and growing or large and established, you need to understand how the payment processing industry works and what fees are involved. Once you grasp the basic concepts, you can more effectively cut your costs. Make sure you understand these concepts before you commit to a merchant services provider, and you’ll feel confident that you’re getting the best possible deal on payment processing.
Choose the Right Provider
What makes the “right” provider depends on the size and type of your business and the most common payment types in your industry. However, there are a few points that will put you on the right track to finding a company that charges reasonable fees and gives you the service you need. First, use common sense. Does the company charge for customer services calls? Does the sales person return calls in a timely manner and give you clear and complete information? If this isn’t happening before you sign a contract, it certainly won’t happen afterward. Generally speaking, you’re also going to better off using a merchant services company rather than an independent provider. They’ll provide you with a wealth of information about the industry that it’s difficult to find in an independent provider. This is especially important for newer business owners, who may not yet have a thorough understanding of industry standards.
Lastly, be sure you’re choosing a provider that will be good for the long haul. Be wary of providers that offer a “honeymoon” period, where your rates start off low and jump up after a set amount of time. It may be tempting to get that initially low rate, especially if you’re daunted by the costs involved, but don’t be hoodwinked. In the end, you’ll lose far more money than you saved. The provider should also be flexible enough that your account can evolve and change as your business does. As the quantity of transactions increase, you should have more bargaining power with the provider, so be sure to talk with them about how they can grow with you over time.
Make Sure you Understand the Fees
Surely the most daunting thing about trying to lower your credit card processing fees is understanding what they are in the first place. A standard agreement will include:
- • An Interchange fee. This is the flat fee for each transaction, and it is set by the credit card network and goes to the network and the credit card issuing bank. It consists of a percentage of the transaction plus a per-transaction fee. The percentage of the transaction is widely variable and depends on the type of credit card, the type of purchase, and who issued the credit card, among other things.
- • The additional fee, which is charged by your merchant service provider, which is typical either the merchant bank or an authorized independent sales organization (or ISO) of the merchant bank. Just like the interchange fee, it’s a combination of a per transaction flat fee, and a percentage of the transaction.
Clearly the area where there’s the most room for negotiating savings is in that percentage of the transaction present in both types of charges. Often, you’ll only be quoted the “qualified rate,” which is the lowest rate they offer. However, there are also the mid-qualified rate and the non-qualified rate. Which rate is used on a given transaction can depend on how the transaction is processed and the type of card being used. Be sure to ask the provider what their mid-qualified and non-qualified rates are. Being aware of these can help you choose the provider that will help you save the most money for your business. In order to understand all the fees, you should also be sure to ask about monthly minimums and any contract or cancellation fees.
One quick way to cut into your profits is to get downgraded. This occurs when your business fails to qualify for the qualified rate and gets downgraded to the mid-qualified or non-qualified rate. In order to avoid this, ensure that your transactions meet the requirements to keep the lowest rate. Part of this is training your staff well, so that they audit the transactions for errors and close out each day properly.
Taking your business from a great idea to a profitable endeavor requires a thorough understanding of the nuts and bolts involved in the money making process. Asking the right questions and being will to negotiate with the merchant services provider to procure the lowest possible rate will go a long way toward making your brilliant idea a successful enterprise.
Author Tony Alvarez writes for Merchant Maverick, where you can find comparison charts, as well as reviews for services such as Bancard USA.