If you run a business, there’s a good chance that you already accept credit cards. If you’re new to starting a business, there are some things you should know about credit card processing that will save you a significant amount of money in the long term.
The first part of pricing that everybody uses to compare one provider against another is the discount rate. Business owners always want to know the discount rate. This is the rate that typically results in the most fees paid by merchants so with good cause is the one that merchants should definitely try to keep low.
Your discount rate is determined by the risk your business may represent to the bank. The more risky your account, the higher the discount rate. The type of cards you process may also influence your discount rate, such as a business credit card vs. a check card, or rewards card for instance.
If you have a lower average ticket item or average transaction, the per transaction fee represents a higher percentage and can even represent a higher percentage of your overall fees than the actual discount rate or percentage. If you have an average ticket item of $10 and a per transaction of $.20, the effective rate on this transaction is 2%. If you add the discount rate of 1.8%, the effective rate on those $10 transactions is 3.8% which is higher than it could be.
If you have a per transaction of $.17, the same $10 transaction would have a 1.7% transaction rate which would reduce your overall effective rate on those smaller ticket items. Your goal should be to get your effective rate as low as you possibly can.
Business owners will typically have a monthly fee, usually in the form of a statement fee, customer service fee, or monthly account maintenance fee. This fee is usually about $10 per month.
If you have a merchant account, you most likely have a monthly minimum which is what a flat fee charged every month based on the discount fees. If the discount fees exceed $25, the monthly minimum is met. If the discount fees are based on a slower month or lower volume month, the minimum is charged still at $25. If your volume is only $500 that month, the $25 represents a 5% effective rate, no matter what the discount rate is. Many providers now will waive this fee, so if you anticipate at all that fee being an issue, work with your provider to make sure that fee is either reduced or waived.
These are the main fees associated with any merchant account. Of course, there are more fees that will apply to certain types of accounts, such as an internet-based account or a wireless account which may have additional fees. There are also some per instance fees such as insufficient funds fee, chargeback, retrieval fees, AVS fees, batch header fees, and other misc. fees. Your sales representative should know and be able to explain any and all of these fees.
Find a good sales representative that you can trust. Your ability to establish a good working relationship with a reliable, trustworthy account manager will insure that you’ll be able to keep your processing costs low for the duration of the account.
Brian is an expert at helping businesses just like yours reduce expenses on their ecommerce merchant accounts. If you’re serious about reducing your expenses and doing so without a major hassle, contact Brian through his website dedicated to internet business merchant accounts.
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