If you are a business owner still turning away customers because you do not have any electronic payment infrastructure in place, let me give it to you straight – you are not doing yourself and your company any favors.
It is 2015, people! Time to wake up and smell the coffee, or in this case, get that credit card processing system in order, don’t you think?
Small business owners face many challenges without you adding to it by refusing to hop onto the electronic payment bandwagon. If you’re anxious about the added cost it means for your company, it’s a valid worry. But there are many ways to save money on credit card processing and in this post, I’ll guide you through some of the best ones.
However, before we get down to these golden money-saving tips, let’s take a moment to understand what credit card processing actually means. In very layman and broad terms, credit card processing is a system that allows your business to accept credit and debit card payments.
Without getting in too deep (let’s just say it’s not just about swiping a card in a slot), the important thing to understand is that several players come together to make electronic payments possible. The six key players here are:
- The Cardholder: Your customer who owns a credit or debit card and presents it to make payment.
- The Merchant: The business owner (you, in this case) is the merchant who accepts electronic payment for the goods or services provided.
- The Merchant Bank: Banks that provide businesses with a merchant account into which they deposit funds from credit card transactions at a fee.
- The Processor: Third parties that provide processing services required for accepting credit card payments. These services may range from data transmission to software & equipment.
- The Issuing Bank: The financial institution or bank that issues the credit or debit card to the customer.
- The Card Associations: These include associations like Visa, MasterCard, and AMEX that act as arbitrators between the issuing and the merchant bank and set the guidelines on the basis of which the entire industry operates.
As a merchant, you should know the various fees that you are entitled to pay for using a credit card processing system. CreditCardProcessing.com opines that in a haste to start accepting card payments, some companies miss out on the opportunity to save money early on and end up paying preposterous amounts for a credit card processing account.
The acquiring or merchant bank issues a fee called discount rate, which also includes the processor’s fee and is typically a percentage of the transaction. The issuing bank levies what is known as the interchange fee, also a percentage of the transaction. But there are many “hidden costs” that may take you by surprise when you get your first bill.
Why is it important to know this? Because only when you can make complete sense of why and how much it costs to use a merchant account system will you be able to save money on it and here’s how to do that:
- Some providers charge merchants a setup fee to install their credit card processing system, but it’s not a given. With a little bit of comparison shopping, you may be able to find providers who do not charge a joining fee and save yourself some precious dollars.
- Different transaction types carry different rates, so it’s important to understand your business and customer profile. For example, if you do not get many foreign customers, it doesn’t make sense to have a system that accepts foreign cards.
- Read the fine print. Are you liable to pay a termination fee if you want to change processors? Has your vendor included a minimum monthly fee in the contract? Will you have to pay a penalty in case you decide to stop accepting credit card payments?
- Don’t get blind-sided into leasing credit card equipment and software. Leasing a credit card terminal, for example, can easily cost upwards of $50 per month. A better option is to purchase it for a few hundred dollars.
- You might want to consider signing a month-to-month lease instead of a long-term contract as that may leave you vulnerable to rate hikes by vendors.
Shop around, negotiate hard, and trust your instinct when it comes to choosing a vendor – the key is finding one who doesn’t go overboard with the fees and is the perfect fit for your business needs.
Start saving money now! Happy hunting!
Written by Jordan Greer.
Jordan Greer, a pro gamer, a great baker, and a tech-savvy entrepreneur with an insatiable appetite for the good life, so to speak — that’s Jordan Greer for you! But more importantly, he indulges in writing blog posts to express his thoughts on business and technology and other related aspects — investment, personal finance, credit cards, and payment processing. Apart from managing his small business with aplomb, Jordan keeps himself busy by keeping a close eye on the new technology in the market and tracking business trends. With a fresh outlook and a young soul (like many entrepreneurs looking to make it big in the business world), Jordan shares his professional experiences and the knowledge he’s gained from them through his posts. Young, single, and ambitious, you’ll find Jordan cooking up a storm in the kitchen or talking about his love for cars in his spare time. You can connect with him on: Google+ and Twitter.