This is a three part article about credit card processing. We expect that any businesses that accept credit card payments for goods and services rendered will benefit from reading our thoughts. This information is intended as informational and is an incomplete compilation of some practices that can be found in the market place. It should not be assumed that any one processor uses any or all practices related herein. Any business, small or large, should always be vigilant about merchant services and be sure to seek an annual evaluation of merchant services.
EQUIPMENT FOR PROCESSING (Step One)When a business is considering accepting credit card payments for goods and services, care should be given to type(s) of equipment they will need.
There are basically three ways to accept credit cards, the traditional plug-in, through the internet, and wireless. It is not unusual for a business to need two or all three methods to best serve their business model. As a general rule each type of processing will require a different piece of hardware, or software and security is of paramount concern. Further complicating the selection is that newer hardware, and even software, has multiple capabilities that can allow more flexibility within your business.
Paying for the hardware will be the next consideration and here is where the business person must be especially careful. There are three traditional ways to pay for equipment needs, cash purchase, rental, or lease/purchase programs. The best way is to pay cash, while rentals and lease/purchase programs as offered by processors are absolutely the worst. Even if a processor offers FREE hardware the business owner must be very cognizant of surcharges that will dramatically increase his merchant service fees.
The best piece of advice I can offer is look for a merchant services representative who will carefully answer your questions, and offer options that can be explained and understood.
MERCHANT SERVICES CONTRACTS (Step Two)Do not be influenced by what sounds like really low processing fees or rates. Generally speaking a merchant service contract will have no guarantees about maintaining original pricing as rates can change any time interchange rates change.
If you have signed a contract that locks you in for a three year period of time, you will be totally at the mercy of the processor because all contracts carry an early termination penalty. The good news is not every processor requires long term agreements. There are actually some processors that want to keep you as a customer because of good service.
Besides rates and contract lengths there are other possible charge items to be aware of, such as agreement set-up charges, monthly minimums, statement fees, header charges, annual charges, chargeback fees, NSF fees, support fees, and the list goes on. Then there are the dreaded surcharges that will be on statements when transactions are not swiped.
There are only two ways a business can effect a credit card transaction, either swiped, or not swiped. Surcharges occur when a card is not swiped. After you have determined what equipment you will need, and the merchant service company you want to do business with, you are ready for Step Three (the processing fees and rates you will actually have to pay.)
PROCESSING RATES: (Step Three)Business people have been conditioned to make decisions based on a rate. In truth that rate is the rate for swiped credit cards. I have seen contracts that has a rate listed that was way too low for the processor to make any money. It is not unusual to see a contract with no concession for debit/check cards which carry a much lower rate than credit cards. Nor will there be clearly stated rates for corporate cards or rewards cards which must carry a higher rate. Far too often the business owner makes his/her decision based on the one rate quoted that gets his attention.
Here I will relate a true story of a sale I was able to sign to give you an example of just how tricky decisions can be. This prospect already had a proposal in his hand and all he could tell me was the rate was 1.32%, which I thought was impossible. I asked him about other charges and that, of course, prompted him to show me the proposal. Hidden in that proposal was $40 of monthly recurring charges that would be charged to him even if he never accepted one card. To make things worse, the hardware they recommended insured that he would never see a swiped rate.
The bottom line is, consider the total picture of credit card processing and realize that you should know what you are signing. It is unfortunate that these games exist, but they do, and the more you can learn about how the process works, the better decision you can make.
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