Sunday, June 21, 2009

Credit Card Processing

We are all looking at our budget these days and trying to figure out if we can cut costs anywhere. It seems there is not a lot of ways to trim the fat but one item that a lot of us don’t think too much about is credit card processing. Accepting credit cards is one of those necessary evils in business but it can cost a small business several hundred dollars every month. After spending quite a few days talking to sales folks and reviewing numerous bids I thought not only could I save some monkey but I could also help out other small business owners with what I learned.

Obviously, I do not claim to be an expert but here are some things I learned over the last few days.

The big thing is rates - how much will each transaction cost you.

There are a few systems out there but I would strongly suggest going with the INTERCHANGE SYSTEM. This system is the most transparent and is the most easily deciphered.

As we all know there are lots of different types of cards out there: debit, reward cards, corporate cards, etc. Each of these cards has a different interchange rate and transaction fee associated with it set by the credit card company. The processors can not change these rates. Processors can only add to these base rates in order to create their profit.

You will often get a different quote for credit cards verse debit cards. For credit cards you will see both an interchange rate and a flat transaction fee. For debit cards you may see either an interchange rate with a transaction fee or just one higher flat transaction fee.

Credit Cards
Interchange Rate:

The quote you are given is the amount ABOVE the fees charged by the credit card processors. This rate is set as a percentage of the sales price. It can obviously range widely. An interchange fee between .20% - .30% of sale price is a good quote.

Transaction Fee:
The quote you are given is the amount ABOVE the fees charged by the credit card processors. This rate is set as a flat transaction fee per sale. It can obviously range widely. A transaction fee between $.11 - .$18. per sale is a good quote.

Visa Credit Card Transaction:
(interchange) 1.43% + (transaction)$.05
(This fee can not be changed it is set by the credit card company)

Credit Card Processor:
(interchange).20% + (transaction)$.11
(This is where rates can vary depending on your quote)

Total Charge per sale
1.63% of sale + $.16 transaction fee

Pin Based Debit Cards
(The customer types in their number themselves)

Interchange Rate:
The quote you are given is the amount ABOVE the fees charged by the credit card processors. This rate is set as a percentage of the sales price. This is typically set at the base rate of the credit card company.

Transaction Fee:
If you have a interchange associated with a debit quote it will also have a flat transaction fee associated with it. A good quote is around $.10 per transaction.

Flat Transaction Fee:
For debit cards you may be given a quote of just a flat fee per transaction with no interchange rate included. It will obviously be higher. A flat fee of around $.32 is a good quote.

Example: Debit with Interchange and Transaction Fee:
Visa Debit Transaction
(interchange) .62% + (transaction) $.13
(This fee can not be changed it is set by the credit card company)

Credit Card Processor
(transaction fee) $.10

Total Charge per sale
.62% of sale price + $.23 transaction fee

Example: Debit with Flat Fee
$.32 of any sale

Other than rates things you should keep in mind

Asking the below questions will often get you better rates as the sales person will know you are serious. I reviewed a general quote on a companies web site and then called for a specific quote. It was amazing but most of the items I asked questions about the sales person either cut the cost in half or eliminate the cost all together.

What are your set up fees?
Many companies offer free set up. I did get quotes from several companies asking around $150.00. If they want your business you should not have to pay a set up fee.

I own our credit card processing machine so I can not give too much advice on buying machines but beware of free machine offers. If you do have a machine ask if they can reprogram it and what the charge is? This was typically offered as a free service with over the phone free reprogramming instructions.

How long is your contract?
This can range from 24 - 48 months but many companies offer month to month contracts. The month to month contract is the way to go as if you don’t like the company you can easily leave. The company has more incentive to earn and keep your business. Also who knows what life will bring your way and why add a contract to the mix. Often a contract is in place so they can charge a termination fee if you leave early.

What are your termination fees?
This fee can be big! Several companies quoted me between $500 - $600 to end a contract early. This industry is very competitive and not being able to leave will limit your ability to get better rates or as I mentioned above is just another bill to pay if you want to close up shop. I talked to several companies that offer no termination fees.

If looking to leave your current company and you have a contract see when you need to cancel and how to do so without a termination fee. I needed to write a letter and mail to the closing department. This is a clear way companies try to make it difficult and inconvenient to cancel your service. My most recent provider only gave me a month window to cancel and would renew my contract annually with the same termination fees associated.

Several companies told me that if I was in a contract they could absorb the termination fees of my current provider. You may want to inquire about this possibility but definitely get it in writing if they agree to this term.

Do you have a fee for paper supplies?
Some companies offer free paper others will say yes they have a free paper program if you sign up for their “merchant club”. A merchant club is basically you paying for paper! It can range from $5.00 - $15.00 a month. Some do offer actual free paper programs just be sure to ask if it is associated with any sort of program or fee.

Do you have a fee for statements?
This ranges from $4.00 - $12.00 a month. Also be sure to ask if they have separate statements for credit vs. debit. My recent provider charged me two statement fee. That adds up fast!

Do you have a fee to batch out sales at the end of the day?

At the end of the day your credit card machine totals your sales and processes them to your provider which in turn gets it to your bank. This charge can be anywhere from free to $.20 a day. Personally, I think it should be free - it is what they do!

Do you detail each and every fee I'm responsible for in writing?
This is a good question to ask or to be even more clear ask for a sample statement and you can ask about each line item as a lot of processors will add line items like: Account Adjustment, Assessment Fee or Standard Fee. These all basically mean nothing they are a way to get to more money out of you. You may be able to find them in a contract maybe not.

How long does it take to process transaction to my bank account?
This should take from 24 - 48 hours no more, except American Express which is 3 days.

What kind of customer service do you provide?
I want 24 hour phone service and it is also nice to know if there are any local technicians if you need someone on site to repair your machine.

Other tips:
Be sure your quote matches the actual contract.

Check and see what rating the company has. I am going with one with a AAA rating. No rating is bad as these companies are what the better business bureau is all about as the industry is very competitive and confusing for the buyer.

Be sure you are not running two card processors at the same time. Try to time it so one starts as the other finishes. Once you sign up with a new company the will start you immediately.

www.buyerzone offers one form which is sent out to get you several quotes. Beware the phone calls will start within the hour!

The two companies below use the interchange model. As I have not started with either yet I can’t technically recommend them but I got a good “vibe” from them.


  1. A nice visionary post to enhance my knowledge to properly secure my Credit Card Processing in a better way to increase revenue.

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