10 Ways to Save on Credit Card Processing Fees

Posted by on March 6, 2013 in Business Start Up Advice, Credit Card Processing, POS Systems [ 0 Comments ]

If you’re small business owner, don’t fear the credit card (or it’s many, many fees). We’ll help you trim them down.

If you need more evidence that all those dead presidents in your wallet are … well … dead, consider this: In 2011 just 27 percent of point-of-purchase sales were made using cash, compared with 66 percent made using plastic, according to a survey by Javelin Strategy & Research.

If your business has been avoiding credit cards so that you don’t have to deal with POS upgrades and annoying credit card processing fees, now is the time to reconsider. As everything from parking meters to toll booths now accept plastic, fewer Americans will carry cash … which means you’re at risk of losing valuable business, both in your bricks-and-mortar store and online.

And there’s no need to be intimidated by the process of transitioning to credit card sales. Sure, you will be faced with fees (hey, the merchant service provider, processor, issuing bank and credit associations all need to eat, right?). For the most part, merchant service providers bundle the fees into a single combined rate based on a percentage of the sale plus a flat fee per transaction (for instance you might pay 2 percent plus 10 cents per transaction).

Depending on your provider, you might face a variety of additional fees — everything from setup fees to statement fees to monthly minimum fees. Chances are if you find a company offering low transaction fees (say less than 2 percent) they’re making up the difference by tacking on these extra fees.

If you’re already getting hives over the thought of all these fees, calm down. Here are 10 ways to save:

1. Shop around: While it might make sense to use your bank for credit card processing, it doesn’t necessarily have the most competitive rates. New York City dress seller Yvonne Chu told Forbes that started out using Capital One for her credit card processing, which charged her a 2 percent base fee, plus 23 cents per swipe. Hoping to pinch pennies, she researched alternatives and found Merchant Processing Services, which charges her a 1.61 percent base fee and just 20 cents per swipe. You also might find vendors who provide the equipment needed for credit card processing, which can run anywhere from $500-$800, offering you initial savings.

2. Read the contract: Third-party vendors might offer great savings for monthly rates and swipe fees, but that could come with caveats. For instance, many charge extra for “nonqualified” rates on certain types of transactions. Accepting a credit card over the phone, for example, might be charged 5 to 8 percent versus a standard transaction when the card is swiped. Other things to be on the look out for, according to Intuit.com, are termination fees, charges for using customer services, fees for printed account statements and account updates, and monthly minimums and maximums. Finally, be wary of any company offering you rock-bottom rates (say 1 percent); they could try to raise your rates midway through the contract, according to Forbes.

3. Bundle the transactions: While most vendors will probably charge you a processing fee and a transaction fee, some are willing to bundle all of them and charge you a single fee flat percentage rate. These can make for fewer headaches for bookkeeping purposes and can offer some savings to a business that processes a high volume of low-dollar transactions (for instance, fast food restaurants) or businesses that have a very predictable (i.e. steady) ticket size.

4. Be willing to bargain: If you’re a start-up without a proven track record, it will be difficult to get the lowest rates available. But as your business grows and your reputation improves, it could be worth it to check back in with your processor to renegotiate your rates or find out if they’d be willing to waive other fees in exchange for keeping your business. You never know until you ask.

5. Charge your customers: As of Jan. 27, merchants are now allowed to charge customers for using  a credit card in all but 10 states as a result of an antitrust settlement between merchants and Visa and MasterCard. Previously, businesses were not permitted to charge customers swipe fees as a way to compensate for the cost of accepting credit cards. Now, as long as you post a sign alerting customers to the added fees, a merchant can charge between 1 to 4 percent of the total bill. Of course, before you tack on the extra fee, you should consider whether it’s worth the potential loss in business.

6. Take advantage of the Durbin Amendment: Passed as part of the Dodd – Frank Wall Street Reform and Consumer Protection Act of 2010, the Durbin Amendment allows the federal government to set the processing rates for debit cards, according to an article on Score.org. Previously, these rates were determined by credit card companies which charged anywhere from .95 to 1.05 percent for a base rate and 15 to 20 cents per swipe. Under the amendment, rates have been reduced to .05 percent/22 cents — offering up to a 50 percent savings on debit card transactions. However, in some cases the processor, not the merchant, is getting the savings. To take advantage of the Durbin Amendment, find out if your vendor is offering interchange plus pricing. If they’re not, consider switching processors to one that does.

7. Limit chargebacks: Chargebacks are “returns from a merchant account or funds that are ‘charged back’ to a purchaser,” according to Score.org. They’re usually linked to fraudulent and unauthorized purchases and can come with penalties or fees. To avoid them, always make sure to verify the identity of cardholders at the time of purchase and ask for the three- or four-digit verification code located on the card for online purchases.

8.  Read your monthly statement: If you don’t understand all of the charges on your bill, call your processing company and have them walk you through your statement line by line so you have a good understanding of what you’re paying for. Then, make sure to review your bill each month so you can be on the lookout for added charges and unannounced rate hikes.

9. Avoid downgrades: Your rates will increase when you process transactions that don’t meet the requirements specified for the lowest qualified rates in your contract. These types of transactions include cards that are manually keyed in instead of swiped, or ones with which there’s no address verification, information is missing, or the transaction isn’t authorized within the allotted time frame. Make sure that you and all of your sales associates understand how to process all transactions so that they meet the terms required for the lowest qualified rate and that credit card transactions are closed out at the end of every business day.

10. Offer discounts: One way to encourage customers to use cash — is especially if your business sells a high volume of low-cost items — is to offer discounts to customers who pay in cash or low-fee card purchases (just make sure you’re not violating the terms of agreement with any of the credit card companies you work with).

Learn more about credit card processing on ResourceNation.com.

Photo courtesy of Stock.Xchng


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