Published December 11th, 2015
Whether you haven’t started collecting credit card payments yet, or you want check around to find better service than you currently have, you’ve come to the right place. There’s a lot to consider when deciding if a processing company is right for you, but thankfully, there are many great companies to choose from, and options if you don’t fit in a traditional business model and you need more specialized service.
If you’re debating about credit card processing and wondering if it is worth all the trouble, the following statistics on small business in America might change your mind. According to a study done by Investor’s Business Daily, there are still many small businesses in the US that haven’t began accepting credit or debit. In fact, over half of small businesses only collect cash and/or check, but this detail ends up costing small business owners in America a lot of money.
Because most customers primarily use credit or debit with purchases, it translates into big financial loss for businesses. The sobering fact is that nearly $100B of sales are lost to small businesses in the US annually, which translates to an average of $7000 loss to each business.
The numbers are in: It pays to accept more forms of payment. Although you will incur costs of setup up as well as credit card processing rates and other fees, you should also see an uptick in business to offset those costs.
Credit Card Processing Rates and Fees
You can expect application fees when you’re signing up, and these fees will can vary pretty widely depending on the credit card processing service. Don’t be surprised to see higher fees in companies that are known for top-tier customer service, but that shouldn’t scare you off.
Sometimes this fee can be indicative of better customer service compared to a company that has a dirt-cheap application process but ends up costing you more in convenience and service later on down the road. Checking company profiles and ratings will be your best ally during this stage.
When you’re considering companies, you’ll want to determine what the actual costs are—and sometimes they aren’t broadcasted during the sign-up phase. Here again is where you’ll want to do a little research.
You’ll find these fees common with credit card processing:
- Minimum monthly
- Debit card network fee
- Non-qualified surcharge
- Mid-qualified surcharge
- Wireless transaction fee
Don’t be too worried about these fees—they are relatively low for the most part. Just be sure that you specifically ask about these fees and inquire if there are any other additional fees. Now, here’s a little more about credit card process rates.
Most of the costs you incur from accepting credit and debit cards will come from the transaction processing fees. The way that your rate-per-transaction is figured is by determining your business risk, the percent of card-absent sales, the average amount of each sale, and the total amount of your sales every month. When your transaction risk is low, the rate you pay will also be low—more on high risk businesses will be covered further down below.
Read on to learn more about the different types of credit card processing rates so you can be clear how everything relates to your everyday business.
– This is typically the lowest rate you’ll receive, and normally what you’ll be quoted. The qualified rate is the percent that’s charged during an approved processing of a regular card.
– Refers to the percentage rate charged during acceptance and processing of a card that doesn’t have the lowest rate qualifications such as certain rewards or business cards. You may also see this rate if a card is manually typed in. Keep in mind that swiping offers you security—your staff should swipe instead of manually enter whenever possible.
– This is the percentage rate of processing a card that doesn’t qualify for mid-qualified rates or qualified rates. You could see this if the authorization isn’t cleared within the preset amount of time—typically around 48 hours. You could also see this rate from manually keying a card, if information is missing, or if needed address verification was not completed.
A credit card processing rate increase could occur if your transactions fail to meet the requirements for the qualified rate, and that is referred to as a downgrade
. What you can do as a business owner is invest time to train staff who deals with opening and closing in how to properly audit transaction totals for errors and be sure to close out all daily credit card transactions at the close of the business day. Make sure to train your team in swiping instead of manually keying a card that’s present.
Note: Be sure to “batch out” by the 24-hour mark. Batching refers to settling the charges for the terminal and forwarding all completed transactions each day to the acquiring bank. If you don’t, you risk disputes that could lead to a downgrade.
– You’ll want to avoid chargebacks as much as possible as they affect your overall risk rating. A chargeback happens when the cardholder disputes the transaction and it gets returned back to the acquiring bank. Respond as quickly to these as you can or you may have to pay a fee or lose the sale. Inquire with your credit card processing provider as to how they deal with chargebacks and what associated costs can be expected.
– Percent paid on all transaction to include: covering authorization costs, credit losses, and fraud. Most likely the interchange fee is included bundled in the credit card processing rate, but you can ask about it specifically to see what options you have. Knowing the details can help prevent paying more than you should here, and you’ll be better able to keep track of your transaction costs by looking at the numbers separately.
Checklist: Questions to Ask a Perspective Credit Card Processing Company
When you’re shopping around, here are some questions you’ll want to ask. Don’t hesitate to ask follow-up questions so that you feel comfortable and understand what you’re getting.
Are there any cancellation fees?
Is there a contract and what are the terms?
What are all monthly fees?
What monthly minimums are imposed?
What are the rates for non-qualified purchases?
What are upfront costs for setup, software, and equipment?
How robust is customer support and are there charges for service?
Other things to consider with credit card processing…
Make sure that you are not paying for functions not applicable to your business.
Inquire if it is possible to reprogram the existing terminal you already have.
You also may have considered leasing as opposed to purchasing your terminal, but it may end up costing you more over the long haul, with associated contractual agreements that bind you to service.
Purchasing is often your best long-term bet.
Consider address and voice authorization verifications as they can reduce the risk of fraud in the transaction and be beneficial in avoiding a downgrade.
Why You’ve Been Labeled “High Risk”
There are two categories of businesses that will affect your daily credit card processing rates
, and those are simply “low risk” and “high risk”. If you’re a merchant who has been classified as “high risk”, there are both pros and cons to what that means for business every day.
If you’ve had trouble being approved for credit card processing services, don’t get discouraged. There are many companies that offer secure services. What you can expect is to pay extra fees to compensate for the chargeback risk associated with doing business. You’ll also see higher credit card processing rates and higher chargeback fees.
It is vital that you do your research and compare credit card processing companies before making the decision on who to go with. There are predatory companies that take advantage of a merchant simply because they are high risk.
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Online shopping with merchant[/caption]
While you will have to pay a bit more to cover the added risk of your business, you actually have a lot more freedom than the traditional business model. You’re fee to process more types of currencies, which opens up international commerce opportunities. The way you accept payments also is more flexible—doing business online is covered.
Here are some types of merchants that are classified as high risk:
- Ticket sales
- Debt Collection
- Google / Amazon / Yahoo Stores
- Adult Sites
- High Average Tickets
- Direct Sales Models
Not only the type of business can qualify as high risk, so can incurring a high amount of chargebacks once business gets started, so it’s best to apply due diligence to reducing and preventing these when possible.
For instance, one of the ways you can help mitigate the risk of chargebacks is by improving your overall customer service experience. If you use direct sales in your business model, for example, some training on the front end can go a long way. High-pressure sales oftentimes result in chargebacks, so train your team on building solid sales instead of putting on the pressure for a “yes” that turns into a chargeback later.
Finding the Right Company for You
You’ll want to compare what companies offer—there are a plethora of providers that are competing for your business, so use that to your advantage and shop around until you find the right company.
Investor’s Business Daily, “Businesses Miss Out on Sales,” 23 5 2012.
Merchant Maverick: http://www.merchantmaverick.com/highrisk-merchant/