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 will depend on which type of merchant you are. If you’re a supermarket, for instance, you’ll pay significantly less than a website dedicated to travel reservations. You’ll also have a lower discount rate if you process mostly check cards vs. corporate cards, for instance.
Another fee charged is the per transaction fee which is typically about $ .20 per transaction. These can get as low as $ .15 to $ .16 per transaction but it wouldn’t be worth negotiating that low unless you have an incredibly low average ticket item. If you have a $ 10 average transaction, a $ .25 per transaction would be a 2.5% effective rate. If you add a 1.5% discount rate, you’d end up with an effective rate of 4%.
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.
There is also a monthly minimum that is usually charged on merchant accounts as well. This is a $ 25 minimum fee based on the discount rate. Any given month, the $ 25 worth of discount fees is charged. So, if you process $ 1000 per month at 1.7%, you’ll be assessed $ 17 worth of discount fees. If your minimum is $ 25, you’d pay the extra $ 8 worth of fees to equal the $ 25.
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.
Be sure to work with a merchant service provider and a sales representative that you can trust. The industry is a lucrative one and attracts both the honest and dishonest sales reps. Having said that, make sure you review the “fine print” and pricing pages for the application before you commit to work with a merchant services provider.
Brian is an expert at helping businesses just like yours reduce expenses on their credit card processing. If you’re serious about reducing your expenses and doing so without a major hassle, contact Brian through his website dedicated to business merchant accounts.
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