The following is a guest post by Sean Harper, one of the co-founders of TransFS an online comparison shopping website that helps business owners quickly and easily compare credit card processors. Here Sean shows you how to be an informed shopper when shipping from credit card processing.
The majority of businesses now accept credit cards, and for many it is the most important financial service - the one that is most mission-critical and most expensive. Unfortunately, the majority of business owners get a really lousy deal on their credit card processing. According to a Federal Reserve publication (P.20) The Merchant-Acquiring Side of the Payment Card Industry: Structure, Operations and Challenges businesses with less than $1M in credit card receipts / year pay between 0.69% and 1.82% more than the wholesale (interchange) price that Visa and Mastercard pay for transactions. Here are my 5 steps for getting a good deal on your credit card processing.
1. Be Professional and Know What you are Looking For
If you need a particular processing setup to work with your POS system or internet gateway know that in advance, you will sound like you know what you are talking about and it will screen out processors that are not expert at dealing with that situation (which costs more in both the short and long run).
2. No Cancel Fee
Never, ever, ever agree to a cancellation fee. The majority of processors will waive their standard cancel fee to seal a deal. Having a cancel fee which often range from $300 to $several thousand gives the processor a terrible incentive to provide you good service and keep your fees constant.
3. Interchange Plus Pricing
- there are a number of structures for credit card processing contracts. Interchange plus is the best because you are charged the visa/mastercard "interchange" or wholesale rate and then a predetermined, constant markup above interchange. It's like buying a car for a set markup over the invoice price, you know that the car dealer is selling you the car for $500 more than they bought it from the manufacturer so you know you are getting a decent deal.
As a friend of ours who runs a software company said: "saying interchange plus is like saying - 'I know better, so don't try to rip me off'". Steer away from ERR (Enhanced Recover Reduced) and Tiered pricing schemes. This blog article has some quotes from an executive at Global Payments, a bit credit card processor, about how they make less money on interchange-plus because it is less confusing .
4. Shop Around
Interchange plus offers are easy to compare to each other, so shop with at least 5 processors, make sure they understand that you are shopping around and they need to be competitive.
5. Don't Rent or Lease Equipment
For the most part credit card processing equipment is quite cheap now. Those little black terminals that you see in small retail stores usually cost $100 - $300 and a full-fledged POS system is a little more than a desktop computer, less than $2000. If you own your own equipment there is less chance for them to sneak in extra profit by padding your lease payments and it also makes it easier to switch if something goes wrong in the relationship.
Want to be our next guest author? Click here for details...
Photo Credit: Andres Rueda
Similar Posts:
- The Insider Truth About Terminal Leases
- Five Very Last Minute Tax Tips
- 5 Mistakes I Made When I Started My Business & How to Avoid Them
- 4 Tips for Using Smart Pricing to Increase Online Sales
- Home Based Business By The Numbers
{ 2 trackbacks }
{ 7 comments… read them below or add one }
Good tips, I know a person that does this for a living. You would be amazes at how easy it is to get ripped off. Most of his business comes from companies that have been taken for a ride on their merchant accounts. He has also said that everything is negotiable.He will do a review on every account to make sure he can give you a better deal before he takes on a client. He is one of the few good guys in that business.
I think that folks just starting get so entranced with the idea of accepting credit cards to make them look like a big boy, that they pretty much sign whatever is put in front of them. This is critically important and warrants a deep breath and some serious negotiation and consideration.
Cheers
George
Great post! A very good advice for small businesses. We will share this!
Best Regards, Alex Hager, Social Business Bank
I think George Angus has a point when he says that accepting credit cards makes you look like a big boy and that most will sign whatever is put in front of them. On the other hand, before you sign you should make sure your business really needs to accept credit cards.
My business took credit cards for at least 8 years. Well, recently I decided to take a good look at how many transactions I was doing monthly, my credit card fees, etc. etc. Was I shocked!
I was doing so few transactions a month, and when I figured that in with the processing fees, it was NOT worth it to continue accepting them in my business. The great majority of my sales were cash and checks so why was I continuing to take the cards?
Yes, it did make me feel like a big boy by accepting them. But I can easily do without that “big boy” feeling if it will save my business money in the long run, and it will.
In a few years I may revisit this issue again, but for now the answer is obvious. On the cancellation form you had to check off why you were doing away with the service. And would you believe one of the answers was “don’t do enough in credit card sales?” Guess what I checked?!
Great post. I’ve been shopping for a merchant account and credit card processor with my new biz (www.EasyCalApp.com) and learned a lot about this side of the industry.
I shared some of my learnings about hidden merchant account fees here:
http://blog.easycalapp.com/2010/01/a-guide-to-hiddenmerchant-account-fees
cheers,
Kareem
great post thank u man. very well:
Great information. Our company, Financial Mitigation Services, finds that over 70% of businesses pay substantially more for credit card processing than is necessary.
If business owners take the time to educate themselves on this topic, they can save substantial dollars on this cost category.