Avoid Overpaying for Credit Card Processing

Merchant Warehouse |

December 5, 2010

Credit card processing is an absolute necessity when a merchant has customers who want to spend big and spend fast. Some of the largest and highest volume sales among the millions made through merchants today are impulse buys made by consumers with credit cards. Not only should you not lose those important credit card sales but you should also not lose money by paying too much for the credit card processing that allows such sales in the first place.

So what do you do to make sure that you’ll save money? How can you minimize the merchant service provider rates, fees and benefits that go hand-in-hand with the establishment and use of your merchant account?

If you own a business and accept credit cards for goods or services, you are probably (and unknowingly) paying a lot more than you should for your merchant account. When you find out exactly how much you are overpaying, you just might decide to switch to a new merchant account right away or renegotiate your existing account relationship.

Consider Everything

At the time that merchants go to merchant service providers and do comparative pricing on new accounts, as well as what it will cost to switch over from an old account, most business owners consider the qualified discount rate only. Instead of basing the decision to switch on simply the qualified discount rate alone, merchants should instead make their decision on the effective rate, which is the cost of all of the merchant account fees on the gross volume of sales that are processed.

If you originally chose a merchant account and respective service provider based on the effective rate, you can almost always find a lower rate by modifying some of the other components of the pricing. For example, if your business is paying more than it needs to by a few hundred dollars per month on the non-qualified rates, the other rates and respective types of sales can remain in place while the non-qualified rates and sales types can be eliminated, which can ultimately save you a few thousand dollars per year.

If you are a merchant who processes a great number of transactions rather than only a few transactions per month, then obviously it is a good idea to attempt to lower your per-transaction rate. In addition to a regular per-transaction fee, there is often an Address Verification Service – or AVS – fee that is also charged per transaction any time the address verification system is accessed and used. This happens in the course of card-not-present or online sales transactions and can increase the overall per-transaction amount. If you process credit cards through a traditional physical terminal where the card is swiped, you will not have an AVS fee.

It Adds Up Fast

For all of the merchants out there who process much lower-priced items, the per-transaction fee usually represents a larger percentage of the overall transaction amount. Of course, in this case, keeping this per-transaction rate low is even more important than limiting your discount rate. With some service providers, you can ask to pay a flat monthly rate to cover all of your transactions, which will save you money and guarantee the service provider a monthly minimum in the form of the flat rate.

Merchants who sell more expensive items should be concerned with the discount rates they’re paying far more than with the transaction fees that represent a larger percentage of the overall fees. If you divide the total amount of fees incurred by the gross volume of sales that you process each month, you’ll have the effective rate.

Making the Switch

Changing from one merchant account to another is pretty easy and should come with an option to make sure that you can terminate the deal if the new contract does not ultimately lower your overall effective rate. The whole reason for switching to a new merchant account is to lower your rates and receive the very best and most appropriate services.

Understandably, some small business owners are hesitant to switch to a new merchant services account because they must pay an early termination fee to their current processor. New merchant service providers can help you by offering a reimbursement, essentially a voucher, which will pay your company back for any termination fee that arises.

As merchant service providers offer better deals, merchant processing equipment companies also offer the best and fastest new equipment available on the market today. During the course of a switchover from one service provider to a new one, it often makes good sense to buy or lease new and better equipment as there will be virtually no time lost. If you choose to keep your same equipment, it will, of course, have to be reprogrammed in order to point to your new merchant account. This takes usually less then an hour, depending on Internet connection speeds. The credit card processing terminal will download the new applications over the Internet or telephone line quickly and easily.