To save on credit card processing fees, you must choose a payment processor with the right fee structure. Indeed, the price must be lower but is not the only factor to choose a company that offers credit card processing service. Many small businesses believe that other factors are perhaps more important.
Time-consuming processing systems can frustrate customers who could go elsewhere, and it would affect the business bottom line. The system must be easy to use for both businesses and customers. The task of finding a suitable credit card processing company might not be so difficult, but the biggest challenge is to work out an acceptable fee structure that helps to take home most of the profit and if possible, the whole of it.
Credit card processing can be expensive, and things can go grossly wrong if you make any mistakes in selecting favorable pricing for credit card processing. While there are some fees like those payable to card networks and banks that are non-negotiable, you can always negotiate fees that the credit card processing company collects. And to keep costs under control, you must first ensure that you choose the right type of credit card processor by considering the fee structure.
Know your options
Credit card processing companies can broadly come under two categories based on the price structure – flat rate processors and standard payment processors.
Flat rate processors –
Credit card processing companies that come under this category follow a transparent business model and offer its customers the pricing structure upfront with fees and terms completely visible and you can see it on their websites too. There are no contracts or commitments for such services based on the pay-as-you-go model, and you are at liberty of terminating the services anytime without any penalty. Flat rate processors are ideal for small businesses that have a modest turnover of around $3000 per month, or average ticket size does not exceed $10 as they need not pay any additional fees. Although the rates are higher than what standard payment processors would charge, the absence of annual and monthly fees make its cost effective for the business size.
Standard payment processors –
Companies that do not follow a transparent business model come under this category.
Use the tips below to find out a company with competitive rates and terms that match with your business objectives.
Avoid long term contracts
The norm of the industry is to offer a three-year contract for availing credit card payment services that include a penalty for termination and other fees. However, many companies are willing to provide services on a month to month basis without entering into long term contract, and such companies are your best bet as you can move out whenever you feel like. If you are not happy with the services or feel that you have made a wrong choice, you can look elsewhere for alternatives without incurring any cost. For terminating long term contracts, you must pay cancellation charges for pre-mature closing and even liquidated damages. Companies that offer month to month services are confident about the quality of services and know that they can retain customers without entering into long term contracts.
Look for interchange plus pricing
Interchange plus pricing model suits most businesses, and you must specifically mention it in your inquiry because credit card processing companies would usually offer tiered pricing by default. Since processing companies make less money from interchange plus pricing, they are reluctant to offer it to customers unless pressed hard. Some companies might even impose conditions like achieving some business value or waiting for one or two years to switch over to the pricing model that you seek.
It is easy to compare rates of the interchange plus pricing model because the processor’s markup is visible over and above the interchange rate of card networks that remains fixed. Tiered pricing is not easy to compare as the processor’s markup remains fused with many other cost elements like qualified, mid-qualified and non-qualified price brackets. Since each company creates its buckets in its own way, you can never compare the rates against any benchmark.
Read the fine print
The contracts come in a standard three-part format and consist of the application along with the terms and conditions of service, and lastly, there is a program guide. Check that you receive the three components of the contract and read it very carefully with emphasis on the fine print to understand in details the terms and conditions as well as services and pricing. All fees and rates should be visible with no add-ons or extras payable later. Pay attention to the cancellation clause and see if any payment is necessary to cancel the contract anytime.
Avoid companies that charge non-standard fees
Insist for standard fees that most processors would typically charge and should include monthly fees, gateway fee (monthly), minimum monthly fee, incidental fees, card network fees, and PCI compliance and non-compliance fees. Non-standard fees would include different elements that can vary between companies and might consist of the annual fee, application fee, fees for additional services, postage and handling fee, online reporting and regulatory compliance fee and security fees. Make a list of all fees mentioned in the contracts and highlight the standard ones so that you can make out the non-standard ones and negotiate to waive it.
Avoid the lure of free equipment
If some company offers you a free replacement program of free equipment as an incentive for signing up the contract be careful because the contract may contain something that can be detrimental for you. Moreover, the equipment could be on a returnable basis that you must give back at the end of the contract.
Unless you are sure of what you agree to and what could be the cost implications, you must not sign on the dotted line. Do not put your signature anywhere until you make up your mind that you will go with the company.