by Trilogy Payment Solutions – Why Pay More For your Card Processing Than You Have To?
Here are a few more tips for small and medium sized businesses.
1. Review your statements
It is really revealing to know that most merchants seldom if ever review their statements on a monthly basis. This should not be the case. Don’t expect your accountant to review and pick up irregularities from your statement, or to recommend a less expensive merchant service vendor. Many CPA’s are statement illiterate, and many do not view it as their job to recommend a less expensive processor.
When you look at the statement, you are looking for any changes in rates and fees and any other irregularities. You should also calculate your effective rate. The effective rate is the rate you pay for ALL of your processing. Just take the final charges for the month and divide them into the total amount processed:
Example: If your monthly charges were $400 and you processed $10,000 that month, your effective rate would be $400/$10,000, or 4.0%.
April and October are the two months out of the year where you must review your statements. These are the months when Visa and MasterCard meet to set rates for the year. This is the time when your rates are most likely raised.
2. Get annual bids for card processing service
When was the last time you had your statement analyzed? When was the last time you even looked at your statement?
If your business is like most, 50% or more of your revenue is generated through credit card payments. Yet many businesses do not give their credit card processing statement a second glance. It pays to know what you are paying and ensure that you do not pay too much, since every penny you save in card processing fees drops straight to your bottom line.
The best way to the best deal on credit card processing, like most vendors is to get a bid on your business at least once a year. Look for a processor offering interchange plus (or cost plus) pricing for the best results.
3. Buy value – not price
The famous saying goes that “price is a one time thing, cost is ongoing.”
Many merchants are lured into bad processing agreements by artificially low rates and/or "free terminals." You can find these offers advertised on the internet all day long. Come on’s such as "rates as low as XYZ %…" or "Free Terminal with every account". Don’t be fooled.
"Rates as low as XYZ %" generally refer to the lowest swiped rates in a three tier system. Some of the big warehouse clubs are infamous for this bait and switch tactic. As our previous article explained, an interchange plus (or cost plus) pricing system always beats a three tiered system, due to the simple fact that it passes on the cost of goods and then just adds on a fixed percentage.
Rate means nothing. Effective rate is everything. (Effective rate is all of your processing costs divided by your volume.) Rate is what gets you to sign. Effective rate is what you actually will pay. So have the processor do a price analysis for you, one that shows you the effective rate. And get a bid and compare the effective rate you have to the effective rate from your bid.
The "free terminal" come on is another classic bait and switch. The credit card industry measures their profits in basis points…or fractions of a per-cent (100 basis points = one percent). Any firm that gives away a "free" terminal needs to make up that revenue somehow…and they do it via increased fees and rates.
Older terminals which are "out of spec" need to be replaced, since they no longer support the anti-fraud software. However, about 90% of the time, your current terminal can be reprogrammed. Look for a processor that reprograms for free; you should not have to pay a reprogramming charge. Also, verify that you do in fact need a new terminal; a reputable merchant services vendor should tell you if you need to replace the terminal and why (i.e. this is out of spec); unscrupulous vendors will sell you a terminal that you do not need.
PCI validation verifies that you are complying with anti-fraud measures, and is required annually. Look for a firm does not charge for PCI validation and who will help you fill out your annual PCI validation for free.
Additionally, look for a processor that also offers value add options such as, gift cards, check guarantee, remote deposit capture (on site check cashing), online account access, virtual terminal (internet) capability and POS systems capability. These other services and products can give you a competitive advantage, and your business may "grow into" them, especially with regards to gift cards and on site check deposit functions.
Go with a reputable company that tailors its processing to your business needs. Many merchants think they can solve this problem by going to their banks. In truth, they should generally be avoided for merchant services.
Banks do not have the same control over merchant services like other products they sell. Most banks outsource their merchant services to big processors like First Data, Elavon, and Paymentech, and as such pay a higher rate for the service which they pass on to their merchants. So don’t expect to get a good deal from your local bank.
Banks also price merchant services higher since it is not their primary business model (making loans is actually how they make their money). Merchant service offerings are an additional product for the bank, one that adds extra overhead. Therefore, banks tend to price the service higher and have fewer resources dedicated to customer service in that area.
Look for a processor that specializes in merchant services rather than a bank. Not only will their rates be lower, but they will also offer you better customer services and superior expertise should you have problems, concerns or questions.