The “monthly minimum” is the specific dollar figure in processing fees that must be generated by a merchant account in a particular month. Many of today’s merchant accounts stipulate the payment of a monthly minimum fee, with the typical amount charged by most companies on a standard merchant account being $25. Even such a seemingly small amount can affect your business in numerous ways, and it is always wise to understand every cost associated with your payment processing.
There are many misconceptions concerning the monthly minimum charged by most merchant account providers. Perhaps the primary misconception is that the monthly minimum refers either to a “minimum charge” for an individual transaction, or the “minimum amount charged” on a monthly basis. Confusion on this topic is understandable, and it is unfortunately true that some merchant service sales agents purposely confuse account applicants with the terminology.
In the worst possible scenario, you will have $0 in credit card transactions for the given month. In that case, you would be billed $25, the stipulated fee, for the monthly minimum. Now, if your business did $1000 in charges for that month and your processing rate was 1.69%, then the monthly minimum would be calculated thus: $1000 x 1.69% = $16.90 in processing fees.
Assuming the $25 minimum, you would be $8.10 short. Therefore, on your month-end statement, you would find an adjustment in that amount to get your account to the $25 minimum. You would remit the difference, $8.10, to bring the fee to the full monthly minimum amount.
On the other hand, let’s assume your business did a robust $5000 in volume in that particular month. At your processing rate of 1.69%, that $5000 yields $84.50 in processing fees, well beyond the $25 minimum, so you are thereby unaffected by the minimum fee requirement.
Shopping Around and Starting Out
Monthly minimum fees typically do not affect merchants doing $1500+ a month in credit card volume on a continuing basis. Of course, the monthly minimum can affect new businesses that are still “ramping up,” as well as other small or seasonal businesses whose charge volumes fluctuate.
When shopping around for a merchant account, make sure to ask specifically about the monthly minimum fee. There are many different merchant account providers available, and even within a single company there are multiple account plans and options. Take enough time to research the best programs for your particular business. Check out recommendations for the best merchant account providers on any of the many Internet sites that compare these services. With a little work, you should certainly be able to find several providers who can set you up without a monthly minimum attached.
Remember, a monthly minimum fee is not an additional, static fee. Instead, it is a minimum level of generated fees that the processor or merchant account provider needs to collect. As long as your calculated fees meet or exceed the minimum, you are charged nothing. Only when your monthly fees add up to less than the minimum will you be charged the difference – and, of course, only up to the minimum.
Interestingly, Visa and MasterCard do not require this kind of fee in order to have an account with them. It is an optional charge of the service provider or processing firm. Since many of them offer merchant accounts with excellent rates and no monthly minimums, a little effort on your part should result in avoiding the fee entirely. If you are told, while shopping around for a merchant account, that there will be a monthly minimum fee, you can safely say, “Thanks, but no thanks,” and continue with your provider search.