If I asked you to open your wallet, I suspect you’d be able to show me a few credit cards (some business, some personal), a debit card or two, and maybe a few dollar bills, if any. That’s because, as a culture, we’ve become addicted to paying with plastic. When surveyed, just 9% of Americans say they prefer to pay with cash. Credit card usage is far preferred by consumers. In 2016, the volume of credit card purchases for goods and services grew to exceed $5.14 trillion on credit cards issued in the United States. Cash may be king, but we certainly don’t use it very often.
As a business owner, regardless of your industry, you need to accommodate this growing demand. But how do you do it without drowning in card transaction fees yourself? Costs for accepting credit cards are steep, and few business owners truly understand the complexity of card fees and the impact accepting credit cards has on the profitability of their businesses. It’s not uncommon for us to see clients overpaying for card transactions by as much as 40%! That’s a lot of wasted money.
Unfortunately for you, the sales rep who sold you on their processing company is often the one and only source of information you have. Their knowledge of their product is often surprisingly limited, but their sales game is strong. It’s therefore in your best interest to understand the credit card game better than they do -- how payments flow, the types of transactional and recurring fees, fair contract terms, and how to avoid fraud risks.
Here are our best tips for steering clear of common pitfalls.
- Skip “bundled-rate” programs.Such programs make it very difficult to monitor what you’re being charged. Instead, opt for an Interchange Pass Through program which separates Interchange fees (which vary by card brand) from all other fees like processing and sales channel fees. You want everything to be as separated and transparent as possible so that you can negotiate your fees or better shop for your next provider. Many fees outside of Interchange fees are elective and can be reduced or eliminated completely. Steer clear of any package bundle that makes it impossible to see line item charges.
- Understand “non-qualified” transactions.Certain transactions are classified as non-qualified, and there are additional costs for these transactions. In general, if the terms “mid-qualified” and/or “non-qualified” appear on a your processing statement, opportunities exist for you to save. Typically, a few simple improvements to your business processes will reduce or eliminate the number of non-qualified transactions you have and thereby reduce your costs.
- Remove contract termination penalties.Merchant account contracts are inherently confusing and often punitive. Review your contracts and understand the terms for terminating an account. Renegotiate your existing contract to eliminate any early termination fees, or seek to work only with vendors that do not penalize you for canceling a merchant account.
- Buy, don’t lease.Leasing credit card and check processing equipment is expensive. In many cases, businesses pay five times more for equipment when they lease. It’s usually best to purchase outright.
- Increase security.Compromised data and fraud will cost you money and put a bad taste in your customers’ mouths. Make it necessary to verify a customer’s billing address and zip code when entering a credit card transaction, and check identification, too. The extra step can save you an immeasurable amount.
- Multiple businesses = multiple solutionsCard processing fees vary broadly from industry to industry, particularly for those not in the restaurant or retail industry. So if you run two different kinds of businesses -- an automotive repair shop and a restaurant, for example -- you’ll want to make sure each payment account is optimized for each business. Partnering with an accountant who has specific experience in your industry (or industries) is a critical first step in identifying cost-saving strategies.
- Beware of mobile processing/Point of Sale fees.Thanks to emerging technology, businesses are now able to take themselves “on the road” like never before and still accept credit cards. Be it summer beer fests, farmers’ markets, or block parties, vendors can now accept credit cards using small Point-of-Sale (POS) devices plugged into their smartphones and tablets. But transacting with customers this way invites a new set of fees that vary by provider. Be sure to do your research and be willing to change as your needs do.
Information is power, particularly in the credit and debit card processing industry where fees are easily hidden. Making an educated choice about your transaction provider will allow you to enjoy all the benefits of accepting credit cards without the excessive costs, penalties, and risks. As always, we’re here to help.
What struggles have you faced with card transaction fees? Where do you need clarification? Please leave your comments below!