Credit card processing can be expensive. Here are seven tips you can use to save money on rates and avoid unnecessary fees.
No matter which type of store you have, your customers expect you to accept credit and debit cards. But choosing a credit card processing company can be difficult. There are many factors to consider, including fees, contractual terms and hardware costs. It can be hard to know when you're getting a good deal and when you're not.
To avoid paying more than you have to for payment processing services, keep the following tips in mind as you choose a company to work with.
Choose the right type of processor.
If you process less than $3,000 per month, or if your average ticket size is $10 or less, consider a flat-rate processor that doesn't charge any additional fees. Even though processing rates for flat-rate processors are higher than what standard payment processing companies charge, your overall cost will be lower, because you won't have to pay monthly and annual fees. However, if you process more than $3,000 per month or your average ticket size is high, you may save money using a standard credit card processor.
- Flat-rate processors are usually upfront with their pricing and post their rates, fees and terms on their websites, making it easy to compare services. Most offer their services on a pay-as-you-go basis, so there's no lengthy contract to worry about and you can cancel your account without penalty if the service isn't meeting your needs.
- Standard payment processors are often less transparent with their pricing and terms, so you'll need to call these companies for information. The seven tips below can help you select a company with competitive rates, fees and terms.
1. Ask for interchange-plus pricing.
You want to call several companies for pricing quotes. Most will provide tiered pricing, so you may have to specifically ask for interchange-plus rates.
Some sales reps may try to discourage you from this pricing model because the company doesn't make as much money from it. They may even stipulate that you must process a certain dollar amount per month or work with the company for a certain amount of time before you qualify for this type of pricing. In such cases, you'll want to look elsewhere.
With interchange-plus price quotes in hand, you can easily compare rates. Because the rate is the processor's markup that will be added to the card networks' interchange rates that everyone pays, you have even ground for comparing rates. Tiered pricing, on the other hand, is difficult to compare because companies add their markup to the hundreds of interchange rates and then divide them into qualified, midqualified and nonqualified buckets. Each company can sort their buckets differently, so there's no way to know if the comparison is accurate when you're comparing rates between companies.
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2. Look for a company that offers month-to-month service.
The average payment processing contract has a three-year term, but the best companies provide their services on a monthly basis because they're confident enough in their product that they don't feel the need to lock you in.
Monthly service gives you the freedom to move on without penalty if the service isn't meeting your needs or you find a better deal somewhere else. If you sign a three-year contract and want to exit before your term expires, you'll be charged an early cancellation fee and, in some cases, liquidated damages.
3. Don't sign the application until you're ready to sign up.
Some sales reps will ask you to fill out the application so they can give you a more specific quote. Be aware that the application is part of the contract and signing it signs you up for the service. Don't sign the application or provide your Social Security or bank account numbers until you're ready to sign up with a company.
4. Read all three parts of the contract before signing it.
After you receive price quotes, you want to request full contracts from the three or four companies you like best. Most contracts have three parts: application, terms of service and a program guide. Make sure you receive and read all three so you know exactly what you're agreeing to, which fees you're expected to pay and what you need to do to cancel your account.
5. Avoid signing up with a company that charges nonstandard fees.
As you read through the contracts provided by your top picks, pay close attention to all of the fees they mention. Consider highlighting them or making a list to help you keep track. If you otherwise like a company that charges a nonstandard fee, ask the sales rep if it can be waived. If it can, request a waiver or an amended contract.
- Standard fees charged by most processors include a monthly/statement fee, monthly gateway fee (if you want to accept payments online), monthly minimum, PCI compliance and noncompliance fees. Incidental fees (batch, AVS, voice authorization, chargeback, retrieval, NSF) and card network fees (APF, NABU, FANF, data usage) are also common.
- Nonstandard fees include (but are not limited to) additional services, application, annual, audit, cancellation, club, monthly or quarterly regulatory compliance, online reporting, postage and handling, monthly or quarterly technology, and security fees.
6. Be wary of free equipment.
Many credit card processing companies offer free equipment or a free placement program if you sign up with them. However, most require you to sign a lengthy contract in exchange, and in many cases, you'll be required to return the equipment at the end of the term or renew your contract.
Make sure you understand exactly what you're agreeing to and what it's really going to cost you if you accept this type of offer. Ask how much it costs to buy the equipment outright; most card readers and basic terminals are fairly inexpensive. You need to consider whether you're willing to give up the flexibility of a monthly contract in exchange for equipment.
7. Never lease equipment.
Although paying less upfront on equipment costs is tempting, leasing contracts are notoriously punitive. Most are noncancelable and include personal guarantees, which means that even if you go out of business and return the equipment, you're personally obligated to continue making lease payments until the end of the term.
Most leasing contracts have terms of three to five years, and in addition to the lease payment, you may be required to pay a monthly replacement or warranty fee. At the end of the term, if you want to keep the equipment, you may have to renew your lease or pay another fee to buy out the equipment.
If you're considering leasing, do the math. Add up all payments and fees for the length of the lease and compare the number to the purchase price of the equipment. In most cases, you'll find that you could purchase the equipment several times for what you pay over the life of the lease.
These tips can help you compare rates, spot nonstandard fees, and avoid lengthy contracts so you can choose the best credit card processing company for your store and feel confident that you're getting a good value.