Choosing a credit card processor can be a confusing experience to most merchants. Making it more difficult to make informed decisions is the mystery of what exactly your credit card processor does for you. Accepting credit card payments from your customers in today’s cashless world is just smart business.
Working with a credit card processor that has knowledge and understanding of your industry is also a smart business decision. Working with a credit card processor that the participates in your industry trade shows is a great place to start the vetting process and could help you avoid a few critical mistakes that many business owners make when selecting a credit card processor. Selecting a processor that is not familiar with your industry could end up potentially costing thousands more each year.
Here are a few mistakes that merchants make on a regular basis:
Failing to Read the Contract
This is by far the most critical mistake made. While the technical terms and legal jargon can be confusing, knowing what your processor and acquiring bank are responsible for and what you are responsible for makes the relationship between the involved partners flow smoothly. Understanding who the acquiring bank is and what their role is in the relationship is also very important. There are five parties involved in every transaction. They are your customer, the acquiring bank, the issuing bank, your processor and of course, you. Take time to read the contract to know who does what. This is the same regardless of who your processor is.
Who Does What
You may be wondering what an “acquiring bank” is. An “acquiring bank” essentially performs a short term loan on behalf of the “issuing bank” that issued your customers credit card. As an example, let’s say a customer pays you $3000 with a Wells Fargo Visa. At the moment you complete the transaction, the acquiring bank begins the process of depositing the $3000 into your bank account so it will be there by morning. In the meantime, the acquiring bank will reach out to Wells Fargo and let them know they have “funded” the transaction and put the money in your bank. Wells Fargo, the bank that issued your customer’s Visa card will then transfer the money to the acquiring bank to pay them in full. Your credit card processor is the link between you and the acquiring bank and facilitates the transaction by providing your credit card terminal and keeping track of your transactions and payments as they occur. They will generate a monthly statement for you and be your ambassador should anything go wrong. Your credit card processor is the guard of your money as it moves through the pipeline.
About Fees and Costs
Credit card processing charges are made up of fees and costs. Fees are things you are charged for that may or may not be negotiable but go directly to your processor. “Costs” are the actual cost of processing a card. Those costs are set by the card brands such as Visa, MasterCard and others. They are exactly the same no matter who your credit card processor is. Some processors are sneaky about hidden fees or raising fees that the processor hopes you either won’t read or won’t understand and therefore won’t question them. Always ask for “transparent pricing” so you see exactly what the card brand charged you for a particular transaction and also what your processor charged you for an individual transaction. If you don’t understand a fee, ask your Account Executive to explain it. By the way, if you don’t have a dedicated Account Executive with your merchant processor, you should ask for one. An Account Executive who understands your industry is much better than a random person answering your call. You need to be able to trust your credit card processor and have a business relationship.
About Volume Commitments
Some processors may require you to process a certain amount of monthly transactions to avoid a penalty fee. They might even charge an additional fee for a large transaction above your maximum limit. Imagine how happy you might be to land a $20,000 order and how that mood might easily turn to frustration when you find out you were charged an additional fee for running a transaction larger than $15,000. The work-around for this is to run the transaction as two transactions. But, why should you have to do this? Ask what happens if you complete a transaction larger than the maximum you stated on your initial application. If you agree to a minimum monthly volume or a maximum transaction amount it can seriously cut into your profits. Look for a credit card processor that will work with you instead of penalizing you.
Do Your Homework
Many merchants don’t know how to do their homework because they feel like talking about credit card processing is almost like speaking in a foreign language. Here is a primer on what to ask for during your discussions:
- Fees – Ask a potential credit card processor to reveal all recurring monthly fees and any other fees you can expect during a given month
- Penalties – Ask if there are any penalties ever assessed, how the penalty amount is calculated and when you might expect a penalty fee
- Contract Term – Ask if there is a contract term, when it ends and what happens if you want to get out of the contract
- Online Access – Ask about an online dashboard that lets you do business on the day and time that you want to do business
- Benefits & Services – Ask about other benefits provided by the processor and what type of services are offered, such as chargeback assistance
Obviously you must have equipment to accept credit cards or some type of online portal. This is a place where many unscrupulous credit card processors take advantage of unsuspecting business owners by asking them to sign equipment lease agreements or monthly rental agreements. The truth is, credit card terminals typically can be purchased for $250 to $400 depending on the bells and whistles that come with it. A typical lease agreement is $40 per month for four years. Over the term of the lease a merchant would end up paying more than $1900. Once the lease expires you would either need to return the equipment or buy it from the leasing company for the fair market value at the time the lease ends. This likely pushes the actual cost for the terminal to an amount well over $2000.
By reviewing these Top Five mistakes merchants make, you can avoid costing yourself more money when accepting credit and debit cards from your customers. Your credit card processor should always be looking for ways to improve your bottom line profitability as opposed to cutting into it with unnecessary and exorbitant fees. Chosen Payments is a trusted credit card processor.
For more information about reducing the cost of your credit card processing, obtaining check guarantee service or credit card processing questions in general, call Chosen Payments. 855-4CHOSEN.