Important Credit Card Processing Questions You Should Ask
Although we have heard we are headed towards a cashless society we are not yet at that place but, many businesses still find that they must accept credit cards in order to stay in business.
Consumers, government agencies, and businesses rely so heavily on credit card use that purchases through this method may account for 65 to 100% of many companies sales.
it has be shown that credit card customers often spend more than those who deal with cash or cheques. It also allows the merchant to delve into the world of online purchasing and mail order taking without having to wait for a customer to mail a cheque.
Besides the cost of installing software for online merchants, and equipment for brick and mortar businesses, there are ongoing fees which the business is required to pay for every credit card transaction taken.
Fees such as these can add up to hundreds of dollars a month depending on the volume of sales and which merchant services provider the business owner chooses to provide the credit card processing service. The complex business of credit card processing is important for business owners to keep in mind. Money is made by different companies on every transaction that takes place through your business.
To break down the process, in most cases you are paying two sets of fees: The first is the Interchange fee. This is the fee the credit card company charges per transaction, it is split in two between the credit issuing banks and the credit card network. This fee consists of a per-transaction fee and a percentage of he transaction.
Additional fees are also charged by either the merchant service provider or their ISO (independent service provider), this fee is also a percentage of the transaction and may include a per-transaction fee.
Small and medium sized businesses are often unaware about the Interchange rate because it can be packaged as a single base rate, or 'discount rate'. This includes the Interchange rate, plus whatever additional fee the merchant service provider decides to charge.
Adding to the confusion is the qualification system used to categorize transactions and determine the underlying Interchange rate on each sale. These 125 plus categories are condensed by the merchant service provider into three tiers called Qualified, Mid-Qualified, and Non-Qualified.
With this system the average Interchange rate under each category is usually higher then would be for an individual transaction, much like purchasing something for $.75 with a dollar and not getting any change. Sometimes the margin is quite large, with the 'discount rate' to the merchant that is double or more the Interchange rate.
Mid and non-qualified rates may only go up a few points from the credit card companies end, but through the processing side, go up as high as 200, resulting in the merchant paying 3.5% plus 35 cents per transaction. The bigger the company and the higher the total dollar amount of transactions per month allows some room for negotiating. Companies doing about $20,000 in transaction a month should be able to negotiate a fee under what is called the Interchange Plus fee. With this system you pay the actual Interchange rate for the transaction classification, plus a flat additional fee.
Smaller businesses and those new to credit card processing may have to settle for some sort of three tiered system of pricing.
You wish to provide good service to your customers, and so should the Merchant Service Provider. Look for large companies with a lot of staff. Call the contact a number of times to see if your calls are answered immediately or if they are directed to voicemail. The last thing any business owner wants is for a terminal to go down while there is a line up of customers and not to be able to get anyone on the phone to fix the problem.
It is important to keep in mind that leasing POS equipment can be far more expensive in the long run than buying the equipment out right. In the long run a $400 dollar piece of equipment can end up costing upwards of $1000.
As with every contract it is very important to read the fine print. Be sure you know exactly what fees you are being charged, if there are penalties for cancelling anything, and any other obligations you may have. Should a dispute arise the contract will be the what the issue is decided on, not what a salesperson may have told you over the phone.
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