Here's what you need to know to choose a credit card processor for your construction business, including what to look for in contracts, rates and fees.
Selecting a credit card processing company presents a unique set of challenges when you own a construction business because, with the project-based nature of your business, your payments are often large and intermittent. Plus, you may want to accept card payments in a variety of ways to make it convenient for clients to pay you. For example, in addition to accepting payments in person or over the phone in your office, you may want to accept card payments online via invoices and in the field using a card reader connected to your phone.
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1. Get a merchant account.
There are two main types of payment processors. Most processors are ISO/MSPs that can set you up with your own merchant account. This type of processor is best for companies that process more than $3,000 per month, as well as those that have irregular transaction amounts, so it's probably going to be the best fit for your construction business.
The other type of processor is a merchant aggregator or payment facilitator. These companies sponsor multiple businesses under their master merchant accounts. Businesses that process less than $3,000 per month may save money by working with this type of processor, because it usually charges a flat rate with no monthly or annual fees. However, aggregators tend to be more risk-averse than ISO/MSPs, and irregular transaction amounts can trigger a fraud alert that causes the processor to freeze your account and hold your funds.
2. Be upfront about your transaction amounts and volume.
When you're calling for a pricing quote, the sales rep will ask you what your average ticket (invoice) size is and the dollar amount you process, or anticipate processing, each month. It's important to be as accurate as possible with these numbers so the rep can give you accurate pricing and, if you decide to process with this company, set your account up properly. Then, if you have an irregularly large transaction coming up, or if your business is busier than normal and you anticipate processing a higher volume of transactions than usual, you can call the processor ahead of time to get approval.
3. Choose a company that offers month-to-month service.
When it comes to a contract, you're looking for the same quality that other small businesses look for in a payment processor – no lengthy terms. This is important because, if for some reason the processor's services aren't a good fit for your business, you can close your account without penalty.
Processing contracts typically have three-year terms and charge expensive early termination fees if you cancel the service before the term expires. It's important to read the contract to verify the length of the term, the cancellation procedure and any applicable fees before you sign up with a company. When you request the contract to review, the sales rep may send the application only; however, this is only one part of the contract, so you may need to specifically request the terms of service and program guide (which is where information on the cancellation procedure is typically located).
4. Request interchange-plus pricing.
Interchange-plus is the pricing model that industry experts recommend. However, many of the sales reps you call will quote you the starting rate for tiered pricing (called the qualified rate, which only applies to regular cards you accept in person), so you'll have to specifically ask for an interchange-plus rate.
Some sales reps may try to discourage you from choosing an interchange-plus plan because the company makes less money with it than with a tiered pricing plan. Others may require you to meet certain prerequisites before you qualify for their interchange-plus plans. For example, they may require you to process a certain volume of transactions each month or be a customer for a certain amount of time. But the best processors offer interchange-plus pricing to all their customers without these restrictions.
One of the reasons you want interchange-plus pricing is that it gives you a level ground for comparing quotes. This pricing model is based on interchange – a table of rates set by the card networks, and everyone pays the same amounts. The processors add a markup to these rates, and that's the rate you're quoted, so you can easily see which companies offer you the lowest rate.
Tiered pricing is difficult to compare, because processors adds their markups to the interchange rates and then sort the rates into tiers. The number of tiers and the types of cards and transactions sorted into each one vary by processor, though many have three tiers each for credit and debit cards: qualified, midqualified and nonqualified.
5. Find out about fees.
Most credit card processors charge monthly statement and gateway fees, plus an annual PCI compliance fee, and have a monthly minimum. There are also some common incidental fees (batch, voice authorization, AVS, chargeback, retrieval and NSF fees) and network fees (APF, FANF, NABU and data usage).
When you call for a price quote, you want to request a fee schedule. Once you've narrowed down the companies you're considering to your top three or four choices, ask them to send you a full contract (the application, terms of service and program guide) to review. Read it and highlight or list all of the fees it mentions and compare it against the fee schedule. If there are fees that weren't disclosed or sound odd, ask the sales rep about them and see if they're willing to waive them (make sure you get a waiver or an amended contract).
If your business is seasonal, or if there may be months when you process fewer payments than usual, look for a processor that doesn't have a monthly minimum requirement.
6. Look for a processor that offers Level 2 or 3 processing.
When you accept a credit card from a consumer, it's processed as a Level 1 transaction, which requires minimal information to process. However, if your clients are often other businesses and they pay you using corporate cards, you'll pay higher processing rates unless you provide the processor with additional data about the transactions. For example, for Level 2 processing, you'd need to provide your customer's billing address, customer code (or purchase order number) and tax amount. For Level 3 processing, you'd also need to include an invoice number and a description, among other information.
When you're talking with a sales rep, you want to verify that the processor can set you up to accept payments in a variety of ways: on the go, over the phone and online. You also want to see if the processor supports other electronic payments such as eChecks and ACH transfers, which would give your customers additional payment options. If you use accounting or invoicing software, you should look for a processor that integrates with it, especially if it means you can add a payment button to your electronic invoices, allowing your customers to pay online.