Ideal Cost Reacts: Part 1 – Business 2 Community’s “25 Mistakes Businesses Make When Starting to Accept Credit Cards”
We chose to review this comprehensive article because it lays out what merchants should realize when dealing with credit card processors. We also look at what action steps they might individually take to optimize the payments process. The author relies on many third-party sources for its claims. Since the piece is quite comprehensive, we’re going to break it down in a 5-part series with a final verdict at the end. Let’s see if this guide helps small businesses make better decisions.
1. Not taking the time to shop for the right payment processor.
Not all payment processors are the same. That’s because each processor offers unique features. For example, if you run a brick and mortar business, you’ll need hardware like POS terminal. If you process payments remotely, you’ll need a virtual terminal or mobile card reader.
In other words, the first step you need to take is to determine how you’re going to process payments, your customer’s preferences, and the needs of your business. After you’ve narrowed down your selection of processors that fit your business, you then need to compare the rates, fees, and terms of each.
This may be a lengthy process, but it will be beneficial for your business in the long-run since it will eliminate future problems.
It is often true that merchants are so excited to start accepting payment, they don’t always take enough time to evaluate all of their options. In fairness, credit card processors are aggressive, and merchants are overwhelmed by all of the options, so making a quick decision may not seem so bad at the time. We recommend choosing between at least five different vendors. Credit card processing is a commodity, so there are very few actual differences between most providers other than pricing, service, and technology.
When it comes to the length of the process, bigger processors will often take longer to make changes due to their administrative processes.
2. Choosing the processor with the lowest rate.
Obviously, you want to work with a processor with the lowest rate possible. The thing is the processor with the lowest rate doesn’t always have the lowest cost. In fact, processors offering the lowest rate tend to be the most expensive overall.
For example, if you were quoted a rate of 1.59 percent, you may end up actually paying three percent once you start processing payment. The reason? It was a bait-and-switch tactic.
The processor knew you would sign-up for such an affordable rate. However, you didn’t take into account that low rate applied a small portion of your transactions. Remember, when you process payments the total processing cost consists of three separate parts: the processor’s cost, the bank’s cost, and the credit card companies’ cost. This means that the total cost is not dictated solely by a processor’s rate.
This can get a little confusing, so I suggest you review this breakdown of credit card processing fees for merchants.
It is absolutely true that many of the lowest rates are teaser rates that don’t accurately reflect what you’ll actually pay. Virtually no one pays 1.59%, but it is often presented as a common rate. The author’s breakdown of the processor’s cost, the bank’s cost, and the credit card companies’ cost is not entirely accurate. The better way to think about it is money is divided up into three large pieces, the credit card processor, the bank and the credit card company. However, the large pieces are sometimes split, as well. For example, the credit card processor’s piece may be split into three or four even smaller segments due to the complicated nature of their “food chain.”
3. Failing to realize that accepting credit cards comes with risks.
There’s a misconception that as a merchant, it’s your right to accept credit cards. The reality is that for some business owners, such as online merchants or those classified as high-risk, there’s risk involved with allowing you to accept credit cards.
For example, for online customers, they have six-months to dispute a charge. That means that you’re borrowing this revenue until that six-month period has lapsed. If you’re not cautious, they could do some serious damage to your cash flow.
The author is correct that some businesses won’t qualify for merchant accounts due to the nature of their business or creditworthiness of the owners. There are absolutely risks associated with accepting credit cards, and they are not limited to online customers. Any purchase has a 6-month window to initiate a credit card dispute, and those funds are drawn out of a merchant’s bank account during the time of the dispute. There are proactive measures taken by most merchants to avoid losing most of these disputes, but they still require time, energy, and paying a chargeback fee around $25 per incident, win or lose. A single dispute can have multiple iterations so that it may take two, three, or even four tries to finally win or lose a dispute.
4. Settling for impersonal, blind email support.
What happens when you have a question about billing or a technical question? You’ll need to talk to an actual support staff member to address the question or concern.
If your processor doesn’t have 24/7 support, then make sure that they have a ticket system. This way your questions or issues are filed, and you don’t have to constantly repeat yourself when you do speak with an actual person.
Very few, if any, credit card processors have 100% blind email support. Typically, they have 24/7 support, and small resellers have 9-5 support on weekdays. Ticketing systems are often internal, so merchants may not have to submit tickets to have detailed and notated call records. More and more support is completed by email to individual customer service representatives, which have all of the relevant notes within the email chain.
5. Ignoring volume requirements.
One benefit of working with a third party processor is that you won’t get hit with outrageous setup and recurring fees if your business processes a small volume of transactions each month.
However, the amount of transactions and dollar amounts will change the terms and rates associated with third party credit card processing. Make sure that the processor you work with doesn’t have any minimum or maximum volume commitments that could affect your rates and fees.
There is no guarantee of avoiding high setup and recurring fees by any credit card processor, regardless of sales volume. Avoiding a monthly minimum fee is important, but there are other important factors when it comes to minimum and maximum volume commitments. For example, make sure that your credit card processing application is as accurate as possible when it comes to predicting sales volume. If there is no sales history, come up with a reasonable estimate.
Don’t Take On The Credit Card Processors By Yourself
Since 2009, IdealCost.com has helped hundreds of companies nationwide reduce their merchant account fees through identifying and fixing hidden profit, overcharges, fake fees, and billing errors. Clients have saved $300-$20,000 per month on their credit card processing fees without going through the hassle of changing their processing vendor, bank, or equipment. Switching credit card processors should be a last resort, only reserved for funding delays, poor customer service, or technical difficulties. Before you consider switching credit card processors, see if you qualify for IdealCost.com’s monthly savings program. Upload your most recent merchant statement for a free analysis. You’ll receive an estimate within 24 business hours.
If you are opening a new credit card processing account or switching credit card processors, feel free to contact us for a free consultation. IdealCost.com can help secure the best terms and fees based on your specific needs.