Credit card processing is one of the most complex and confusing services businesses buy today. However, this vital payment solution increases in importance each year as more customers use cards to make purchases. The current economic climate makes it even more important for a business to understand credit card processing and how to manage the process in the most cost-effective manner. Below are strategies to help your business lower their processing costs and avoid paying excessive fees.
1. Increase Payment Options
Merchants that accept three or more payment alternatives receive up to a 14 percent increase in sales, according to one survey
. Consumers prefer choices in payment options and it can be a key driver in their purchase decision. Consider offering options such as credit cards, PIN debit cards, gift cards, ACH, and non-traditional options such as Paypal or BillMeLater.
2. Promote PIN-Debit Acceptance
If you have face-to-face interaction with your customers, you should consider offering and promoting PIN-debit acceptance. When customers enter their pin number to complete a transaction merchants are charged about 60 cents for a $50 sale, whereas, when customers sign to complete the transaction the merchant can be charged over $1.00. The customer gets to choose how they want the transaction processed. Train cashiers to ask customers to enter their PIN number and use signage to promote it. Depending on average transaction size, PIN transactions will reduce your fees significantly over signature transactions. Companies where the average transaction is less than $15.00 should analyze to determine if this strategy is beneficial.
3. Eliminate Paper Checks
If you take paper checks, you no longer have to take them to the bank. Electronic Check Conversion (ECS) deposits your checks using a check reader that interfaces with your credit card processor. Typically, you get next day funds availability and access to your funds sooner than depositing paper checks. There are costs associated with purchasing a check imager and for check conversion. An added benefit is ECS can be paired with a check guarantee service, lowering losses from bad checks.
4. Request Unbundled Pricing
Most payment processors offer bundled pricing whereby you are shown a low “Qualified Rate” but a majority of your transactions are charged a higher “Mid-Qualified Rate” or an even higher “Non-Qualified Rate”. Bundled pricing hides the true cost of processing and is typically higher than unbundled or pass-through pricing.
5. Calculate Your Effective Rate
Most business owners think they are paying a lower rate for credit card processing then they really are. Take one of your monthly statements and add up all the fee and charges from your payment processor and divide by your net sales (total sales minus credit or refunds) and calculate your effective rate. If your rate is over 3.0% then you are definitely overpaying and if you are paying below 2.0% then you are in great shape, and if you fall between 2.0% - 3.0% then there may be some cost saving opportunities worth investigating.
6. Review Your Monthly Statements
Credit card processing statement are confusing because they are lengthy, are laden with industry jargon, have a complex layout, and have numerous fees and charges that are not easy to understand or reconcile. It is very important for someone at your company to take the time to understand and monitor this service. Processors are known for regularly increasing their pricing so it pays to be vigilant.
7. Question What You Are Charged
Credit card companies pile on many fees such as communication fees, statement fees, network fees, etc. Ask your processor what exactly those fees cover and why they may charge those fees when competing companies may not. Often these fees are nothing more than ways for the processor to add margin to their bottom line and cost to your company.
Investing the time to understand the nuances of the electronic payments industry can improve your bottom line now -- and pay significant dividends when the economy picks up.