Credit Card Processing Fees and Your Business: How To Save Money
If you’re running a modern retail business, you’ll likely accept credit cards as one of your payment methods. As you’re more likely to pay for your expenses through your credit cards, then you should also allow your customers to use it when doing business with you. However, deciding to accept credit card payments may come with some complications. That’s why you need to understand the different credit card processing fees involved in the process.
Here are the things you need to know about credit card processing fees and how your business can save money on them.
What Do You Mean By Credit Card Processing Fees?
In its simplest definition, credit card processing fees refer to the costs that you, as a business owner, will pay for accepting credit card payments. However, the determination of these costs involves a lot of variables, such as flat fees, incidental fees, and transaction fees. Typically, the charge for credit card processing fees range from 1.7% to 3.5% per business transaction. Also, the payment processor you select can influence the costs your company pays for processing credit cards.
Below are the most common fees involved in credit card processing:
- Transaction Fees – These are the set of costs a business owner will pay for every transaction you make using credit card payments. Transaction fees, for instance, are composed of the assessment fees, the payment processor markup, and the interchange rate.
- Assessment Fee – This is a fixed fee that the card network charges on top of the interchange rate for each transaction made. Since it comes from the card network, an assessment fee is still non-negotiable and fixed no matter what kind of processor you’re using.
- Interchange Rate – It’s a fee that the issuing bank bills the receiving bank every time a customer uses a credit card for payments. By asking for an interchange rate, the issuing bank can gain profit from the credit card processes. As a merchant, you’ll need to pay some or all of the rate through a reimbursement. However, the interchange rate is fixed regardless of the processor you choose.
- Payment Processor Markup – Even if you can’t get rid of the fixed costs for both assessment and interchange fees, you can control, on the other hand, the costs pertaining to the payment processor markup. It’s a fee that you need to pay to the payment processing company on top of the interchange fee. The markup rates you’re charged with may depend on the specific pricing plans provided by the individual payment processor. Hence, it’s best not to enter into long-term contracts, so you can compare plans and change processors at any time when it’s beneficial.
- Incidental Fees – These are the fees your payment processor charges for the occurrence of particular situations, such as in the case of non-sufficient funds or even a chargeback.
- Flat Fees – These are the fees you’re required to pay as a result of working with a merchant service provider. Flat fees are usually the costs being paid monthly for using their services.
If you’re looking for the best card processing providers for your business in the UK and other countries, price comparison websites like Cardswitcher by Stephen Hart can help you choose the right one for you.
How Can You Save On The Credit Card Processing Fees For Your Business?
By now, you already know the most common credit card processing fees you may have to pay for accepting credit card payments for your business. However, even if you have adequate knowledge about these fees, they can still quickly add up as you get to process many transactions each day.
If you find it a bit burdensome, below are some ways on how you can save on credit card processing fees for your business:
- Negotiate Lower Rates
If you’re working with your current payment processor and you have an increased sales volume, then take that opportunity to negotiate for lower rates. Your service provider will be willing to negotiate with you since it can’t afford to lose a business relationship with a company that’s booming these days.
- Look For A New Processor
If you’ve decided to end your business relationship with your current processor, it’s time to find a new one. It can be one of the fastest ways to save more money on your credit card processing fees. Generally, most merchant service providers offer additional services to compete with other providers. Given that situation, shopping around for a new processor can help you save your business from paying higher processing rates.
If you’re looking for a new processor, it’s essential to look beyond the credit card processing fees so you can make a sound decision. Below are the uncommon fees you need to watch out for when finding a new processor:
- Chargeback Fees – You may be asked to pay a chargeback fee if the charges disputed by customers lead to a refund.
- Dispute Fees – When your processor is required to investigate a transaction due to a customer complaint, you may be billed with a dispute fee.
- Account Maintenance Fees – They’re usually known as monthly or annual fees that you have to pay for to keep your account always active.
- Terminal Rental Fees – If your processor asks you to use a terminal from them, this is the rental fee you may have to pay to the processor.
- Batch Payment Processing Fees – If you need to submit credit card purchases in groups many times each day, your processor may charge you for it.
- Settle Your Credit Card Transactions As Soon As Possible
Another way to save money on your credit card processing fees is to settle your credit card transactions quickly. If you want to get the best interchange rates, you’ll want to finish the deals within 24 hours. For instance, using a POS system when accepting credit and credit cards can be a great way to settle your transactions as soon as possible. That’s because it can be automated within the specified time frame.
- Set A Minimum Amount Of Credit Card Purchases
Again, the processing fees you have to pay for depend upon the costs of the items sold in your business. Thus, if you accept credit card payments without any limitations, you’ll more likely pay higher fees. Considering that situation, it’s best to impose a minimum purchase amount for credit cards.
In addition to setting up a restriction on credit card purchases, you can also encourage your customers to use debit cards instead of credit cards. By using a debit card, your customers’ funds will be withdrawn quickly as it only requires a PIN for verification.
- Implement Security Measures
When it comes to credit card payments, you may have to deal with a higher rate of credit card fraud. And when the security risk posed to the business owner is higher, there may also be higher credit card processing fees to pay. You can reduce the chances of fraud by asking for a piece of security information that will safeguard the cardholder and confirm the transaction. This can be done by entering the security code and the billing ZIP code.
- Set Up Your Account And Terminal Properly
In some cases, a simple mistake can affect the credit card processing fees you pay. If you set up your account incorrectly, you may incur higher processing fees due to providing improper business information. Fortunately, you can avoid this problem by properly setting up the account and terminal. The way you set up your account and handle important information such as the type and frequency of transactions can help you save money.
- Charge Fees To Your Customers
In recent years, businesses are allowed to charge customers a checkout fee for using credit cards for payment. However, it’s essential to observe some rules to do this right. For example, you can’t apply a surcharge to most debit card transactions, but you can require a small fee from the customer for using the credit cards. Another option is to apply a small percentage for the prices.
- Talk To A Credit Card Processing Expert
You may not know everything about credit card processing fees. To safeguard your business and make sound business decisions, consulting a credit card processing expert can be a perfect idea. That way, you can get in-depth understanding of how to get lower fees and save money for your business. Remember, the knowledge and expertise you can obtain from an expert can be your edge against other vendors.
What Are The Best Credit Card Processing Pricing Model Options?
Generally, most credit card processing companies provide different pricing models to determine the transaction fees. It’s important to note that the pricing model that suits your company may depend upon the volume of cards you handle every month, the type of cards you cater to most, and the average size of your business transactions. Here are the best credit card processing pricing models to choose from:
- Tiered Pricing
This is sometimes known as bucket pricing since the processor organizes the rates into buckets and then provides a price for each bucket. The most common bucket structure is composed of three buckets each for the debit and credit cards. They’re typically labeled as qualified, mid-qualified, or non-qualified, which imply the type of card and the way it should be processed and verified.
- Flat-Rate Pricing
This is used by mobile credit card processors. A flat-rate pricing model is one whereby the processor charges you with a flat rate for every transaction made no matter what type of credit card was used by the customers. It means that if regular debit cards have higher markups, other cards, such as premium cards, have smaller profit. Moreover, flat-rate pricing can be the best pricing plan to choose when you’re finding a new processor.
- Interchange-Plus Pricing
This is a pricing model that allows you to see the percentage of the costs that are going to the processor, regardless of the type of card you accept. Due to its nature, an interchange-plus pricing model can be the best option for small businesses. However, if you’re looking for this model, you need to specifically ask for it from the processors as most of them want you to set up with tiered pricing.
What Are The Advantages Of Using Credit Cards As A Payment Method?
Like other financial tools and services, using credit cards also comes with several advantages for your business. Below are the benefits of using credit cards as a payment method:
- Purchasing Power and Easy Sales – You can use credit cards to increase your customers’ purchasing power. As a result, you can get more sales through the big-ticket purchases made by your customers.
- Convenience – Using credit cards as an e-payment method can provide convenience. It allows you to cater to online purchases and provides a faster way of settling payments. Moreover, it reduces the need to handle or carry cash on your vaults because everything will be done electronically.
- Trackability – When it comes to accounting for your business finances, credit card payments can be beneficial. The electronic record that comes from the payment process can be used to track expenses and prevent identity fraud.
- Legitimacy – Accepting credit card payments can help establish your legal status in the business industry. By giving your customers credit card options, they’ll be more satisfied and pleased with the services your business provides.
- Time Savings – Using credit card payments can save you a lot of time. Unlike checks and money orders, payments made through credit cards are quickly authorized and verified, which isn’t a time-consuming process. Also, even if your actual sales aren’t growing, you can still earn some profit through the credit card sale sent to your bank account immediately.
As you can see, dealing with credit card processing fees can be a complex and challenging thing to understand. Therefore, you need to have a better understanding of this topic to get the most out of your money. If you’re accepting credit card payments for the first time, keep this information in mind to drive your company to grow and boost the level of service your customers get from your business.