What do you need to know about accepting credit cards in your business?

There are a lot of moving pieces when beginning a business. There is a lot to think about, from getting your physical business ready to choosing providers. All business owners must eventually question themselves, “How do you want to be paid for your goods and services?” Cash is the most cost-effective method of payment. When it comes to your consumers and payment convenience, many businesses choose to accept credit cards.

Here are the things you need to know about accepting credit cards in your business

Reliability– First you need to find a reliable credit card processor. Many new businesses decide to use an aggregator such as Square to get started. The reason they choose a company like Square is because its easy to get signed up and start accepting cards. Businesses run into service issues with Square if they need any type of customer service or hand holding. Squares support infrastructure is based mostly on chat or email. In order to get to a live person, you have to sit on hold and get transferred around. Most new business owners do not like this type of support structure. Often when opening a new business, you need some hand holding to get the process down of accepting cards, reconciling deposits and fees.  When considering the reliability of a processor you can’t just consider the technology you also must consider the customer service. You want to find a processor or sales agent that can take the time to get you accustomed with accept credit cards.

Pricing– Best bang for your buck. When considering a program that best fits your business needs one must consider cost. Typically, the cost ranges from 2.50% to 3.95% depending on the type of pricing structure you choose.

There are 3 main pricing programs available by most processors.

  • Interchange Pass Through Plus- This pricing plan charges the cost of interchange from the card brands plus a markup. The markup should be disclosed on the paperwork from your processor. It is best to try to keep the mark up below .75%. Any markup above this is not a good deal. The best way to gage your rate each month is to take your total fees and divide that into your total sales volume to get the effective rate. Any effective rate over 4% is too high. This is when you need to ask for a rate decrease or start shopping.
  • Tiered Rate– This rate structure is used by companies like Square. They give you a rate for swiped cards and a rate for keyed in cards. This pricing program helps you predict what your fees will be. However, it is not the cheapest way to process. If you have monthly sales volume over $20,000 this program is costing you more than it should.
  • Cash Discount– This pricing program has become extremely popular. This program is different because the business does not pay the processing fee. This ultimately is a zero-processing fee program. All the fees are passed along to the cardholder. The business prices all its good and services as a cash discounted price. If a customer chooses to use a credit card the fee is applied at check out. There are some rules to this program. The business must notify customers of this fee and it must be disclosed on the customers’ receipt. This program by far is the least expensive. Normally the business pays a small monthly fee and 95% or more of the processing fees are passed along to the cardholder

Contract- The contract with a credit card processor can be a complicated document to read. Here is some tips on what to watch out for.

  • Term of contract– This can vary from 2-3 years.
  • Early Termination Fee– Check to see if there is a fee for Early Termination. This can range from $200-$500 depending on how the contract is written. Ask your processor to remove this fee so you are not penalized if you leave before your contract expires.
  • Reserve Language– Its always good to read the reserve language in a merchant contract. A reserve is put in place for high-risk merchants or merchants who get a lot of chargebacks. This is considered risky by most processors so if you have a business model that gets cardholders charging back their purchases be sure to read this language.
  • Ancillary Fees- A merchant contract has several ancillary fees, that may be charged on a monthly basis or per occurrence. Such as returned ach fee, chargeback fee, retrieval fee, annual fee, pci compliance fee, address verification fee. Be sure to review these fees and ask your sales agent when they would be billed.

Choosing a credit card processor can be difficult, and we typically opt for the cheapest option over the finest program. We have a lot more options now than we did just a few years ago. We now have the option to charge the cardholder for the processing fees. Businesses are increasingly opting for a cash discount program as the cost of goods rises and workers become harder to come by. This initiative promotes the use of cash as the most cost-effective mode of payment. Which ever option you choose we hope this information is helpful is finding the right credit card processor.