Small Business
Credit Card Processing
What Every Business Owner Should Know
Talk to any business owner that accepts credit cards about small business credit card processing and they will probably agree that it is not their favorite subject to discuss. Some may get outright frustrated with how much it costs just to accept payments from their customers. Others may voice their sheer frustration with the companies themselves and discuss how unethical some of their practices have been.
These complaints are just a handful of the many problems small business owners face when it comes to their merchant services accounts, also known as merchant account credit card processing. Unfortunately, the industry is filled with companies ready to rip them off. Below are a few things you as a business owner should know before entering into a small business credit card processing agreement with one, in order to level the playing field.
The Initial Contract Presented is Rarely the Best DealThis may seem commonplace for many business owners, as negotiating is part of any contract. Unfortunately not every owner is aware of this. The initial contract proposed by the sales representative is almost never as low as they are willing to go because there is a lot of commission and incentives around increasing percentages as well as fees.
The best way to negotiate each item is to do so individually. Isolate each fee and make the rep explain what it is. Business owners are often shocked at what sales reps try and squeeze in there, and the truth is that a lot of the fees are made up as pure profit for the rep.
Know Your Different Tier Rates
Typical small business credit card processing contracts are broken down into three tiers: Qualified, Mid-Qualified, and Non-Qualified. Each tier has a different transaction rate and every credit card processed will be run at one of these three tiers. Qualified will be the lowest rate and Non-Qualified will be the highest.
Many sales representatives will only quote the Qualified rate since it is the lowest. They may even lower the Qualified rate and inflate the other two since the merchant is focused on the rate being advertised. The problem is that on average more than 50% of all transactions are run outside of the lower Qualified rate. So where someone may be paying 1.4% on Qualified transactions, the other tiers can be upwards of 3% or higher.
Learn about Interchange Pass-Through
Known as the dirty little secret in small business credit card processing, Interchange Pass-Through was reserved for large merchants doing sizeable transaction volumes until recently when it was made available to almost all merchants. The problem is that most reps will not tell you about it because the costs are far lower and therefore they make less commission.
Instead of breaking each transaction into one of three tiers, every card that is run is given the wholesale transaction rate plus a small processor markup. Without going into too much detail, it effectively saves most merchants a noticeable chunk on their annual processing costs.
The bottom line? Processing credit card payments can get pricey but it has become a defacto requirement for small businesses who wish to increase sales by providing different payment options to customers and clients. Know what you are getting into before signing any small business credit card processing agreement and negotiate the best rate possible.
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This guest article is by Eric Stauffer, a small business writer and advocate. His organization reviews credit card processing companies like iTransact and Apex Merchant Group, and provide small business owners with the tools necessary to negotiate decent contracts, whether it be small business credit card processing ones or others.
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