Credit Card Processing

By Dylan Mazeika

Setting up a business isn't easy. And when you factor in the many nuances of credit card processing, it gets even trickier. If negotiated smartly, credit card processing contracts can be cost-effective and extremely beneficial to your business, enabling you to accept credit card payment for any product or service at a fixed, pre-determined fee schedule. In the same way, if you fail to read the fine print, they can just as easily end up costing you a fortune in hidden fees and percentages.

When evaluating credit card processing contracts, here's where you should focus your attention.

"Free" isn't the same as "no fees"

One of the emerging trends in the credit card processing industry is the provision of free equipment, even including mobile credit card readers and other wireless hardware. But while the equipment may be provided free of charge with a contract agreement, it's not exempt from the many charges that accompany credit card processing. Companies typically recoup their loss on the equipment through a variety of fees like the .35% to 3% taken from each purchase, a per-transaction fee of $0.10 to $0.50, and a monthly service fee.

Plus, there are "add-on" costs which can include annual fees, programming fees, Internet processing fees, shipping and handling, software/online gateway fees, customer support fees, and statement fees. Read every word of the contract and know exactly what you'll be on the hook for based on your estimated monthly credit card payment totals.

No matter how simplified the language is, contracts are never entirely transparent. To make sure you have a complete picture of your financial liabilities, ask for a sample monthly statement that provides an itemized list of every transaction and its related fees.

Ask about "interchange plus"

Interchange plus remains the most transparent pricing structure for credit card processing by ensuring that the processor gets paid a set amount regardless of the transaction. In situations with tiered pricing, like rewards-card transactions, purchases are charged a higher interchange rate and processor markup. But with interchange plus, the percentages remain the same for every card swiped, making it far easier to estimate your processing costs for the month.

When comparing providers, make sure you ask about the rate for rewards cards and commercial cards. If it's higher than the advertised percentage that drew your attention (1% is a popular come-on), ask about interchange plus.

Avoid fees wherever possible, and one in particular.

Though the sales rep may initially tell you otherwise, credit card processors can omit certain fees when negotiating a contract. And one of the most common ones to draw a line through is the cancellation fee, assessing a penalty for the early cancellation of your contract (which typically extends from 1 to 3 years).

As your business fluctuates, so will your credit card processing needs. Don't get hit with needless charges if you need to modify your level of merchant account services. The majority of merchant contracts will list the termination fee within the fine print of the agreement. Sometimes it's printed directly on the account application. But if it's not, don't assume there isn't one. If you can't find mention of it in either the application or the agreement, ask the processor where you can verify whether there is or is not an early termination fee and what that amount would be.

It's also important to note that state and local laws impact the specifics of a merchant account contract. For that reason, check the laws in your state regarding early termination and cancellation fees.

Watch out for "non-qualified" rates.

Certain types of transactions, like MOTO transactions (mail order, telephone order) in which you manually type the number into the processing system can result in fees that range from 5% to 8%. These non-qualified charges are largely unique to each provider, and the list can be extensive. So make sure you get a list of non-qualified charges before signing your agreement.

It doesn't have to be intimidating.

At BuyerZone, we've partnered with a wide variety of reputable national merchants located throughout the United States. So take it from us: a credit card processing contract doesn't have to be intimidating. Our quality providers specialize in working with businesses of every size and variety. And most, if not all, are more than willing to walk you through the contract to ensure you're getting the best deal for your line of business.