One of your goals as a small business owner is to keep profits high while keeping expenses low. Choosing to accept credit cards can be a huge challenge to keeping your expenses down. Credit card processing fees can eat a small business alive if they are not properly understood. Some credit card processors make it difficult for the small business owner by having contracts that totally boggle the mind and monthly statements that need a forensic breakdown to be fully understood. Becoming educated in all costs related to credit card processing will allow you to pick the right credit card processor and lower your credit card processing fees in the long run. To get a better understanding of credit card processing costs you need to understand the three components that makeup the processing fee: interchange, assessments and markups. The Non-Negotiables
Interchange Fees: These fees account for the biggest expense you will have when it comes to accepting credit cards and there is no way to get out of paying them. There is, however, a way to keep these fees low. To do so you need to look at the following factors:
Processing Method: The best way to keep fees low is to make sure the card is present and that the magnetic stripe of the card is read electronically.
Transaction Data: Provide as much transaction data as possible. This includes the cardholder’s billing address and zip code. This is extremely important to do if you are completing a transaction where the card was not present or you are dealing with a corporate or government credit card.
Merchant Category Code (MCC): Make sure your business is correctly classified and know where it falls under MCC designations.
Assessments: These are fees that are charged by Visa, MasterCard and Discover for every transaction involving their card. Current Assessment Rates
Markups: This is the fee you pay to have your merchant account. It is the one place that you can really put an effort into to lower your processing fees.
Understand your Price Model: This is how the credit card processors pass their costs on to merchants. The amount charged is based on the transaction amount, transaction type and the risk profile of your business. Normally most agreements are bundled and the fees are dependent on what pricing tier the transaction falls under (qualified, mid-qualified or non-qualified). To avoid this you should negotiate for interchange plus (pass through) pricing. This pricing model passes actual interchange fees and assessments directly to your business and the credit card processor’s markup is added to the actual cost. This is the least expensive and most transparent pricing method.
Understanding the makeup of fees is just one part of the equation for keeping your credit card processing costs low. Here are some additional ways to keep your costs down:
Batch Out at the End of the Day – Always do a transaction settlement at the end of the day. Not only will you reduce your risk but you will benefit from being charged the lowest fees.
Read the Fine Print – Take the time to read through the contract. This will allow for you to find potential red flags that could be costly to your business. If you are pressured to sign the agreement without reading walkaway and find a more reputable credit card processor to work with.
Get it in Writing – Never just cross an item out on a contract. Make sure that anything that is agreed to or changed be written down. An email from the credit card processor counts as written.
Own Your Own Credit Card Machine – It’s always cheaper to pay for the machine outright then to lease it out for several years. Make sure any purchased equipment is not proprietary. This way you can use it with any processing company you choose to use.
Always Check Your Statements – This will allow you to make sure you are being charged the proper fees every month.
Never Leave Blank Fields on A Contract – If you do, you are giving the credit card processing company carte blanch to charge you more fees.
Credit Card Processing Fees Are Tax Deductible – Claim them on your tax return since they are a business expense.
Know That American Express Sets its Own Rates Which Are Higher – Since American Express is both the issuing bank and the acquiring bank they can do this.
Now that you have a better understanding of credit card processing costs you will be able to do your due diligence in choosing the best credit card processor for your business. Need some help in researching credit card processors, check out CardFellow. This is a free website that allows you to receive quotes from leading credit card processors instantly. Get In On The Conversation – What has been your experience when it comes to credit card processing costs? Leave your remarks in the comment section below.
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