Starting your own business can be stressful. Setting up the licenses and understanding credit card processing technicalities is only the beginning of the struggle. The best way to work through these matters is getting educated on particular business services and lingo in order to avoid scams and disadvantageous deals. Here are the basics that you should know:
Credit Card Processing Fees
Accepting credit cards is mandatory for 99% of all businesses today. Understanding and managing your fees for service and technical issues of credit card processing will help you keep your business on the road to success. To start off, your business needs a credit card machine to electronically process the transactions, because if you don’t process them electronically, it will cost you twice as much and delay your cash flow significantly. The most expensive way to acquire a credit card machine is the “free equipment” programs, while the lowest cost solution is to simply buy the terminal outright, and own it. Merchant service providers will assist in setting up credit card machines in your store, but it is your responsibility to avoid getting trapped under expensive deals with long-term monthly minimum and annual fees payable, never mind the onerous early termination “hook” fees.
Don’t ask, “What’s your rate” from a couple of different providers and expect to make an intelligent decision! Processing fees vary from each service provider, so it is important to do your home work and understand the different pricing programs so you can minimize your processing costs, and maximize your bottom line profits. Most credit card processing programs routinely have hidden fees and mark-ups, so the “teaser rate” you’re quoted is not the “actual” rate you’ll pay. So make sure you ask for a complete, detailed list of fees before signing up for any service. And be wary of the many merchant service providers that “hook” you with a low rate to start, and then routinely increases your rates, again and again and again. You can avoid this scam by working with MerchantService.com that has not raised their merchant rates in 15 years of business. Or every year, shop your account by faxing in your statements to established merchant service providers to be analyzed against the then present Interchange fees, and keep tabs over your rate increases throughout the contract.
Interchange Pass Through
Interchange is a fee paid by the merchant for a card transaction that is in turn passed through to the issuing card bank to help promote and grow the payments industry. Each card product issued has its own rate, and sometimes the rate varies by the type of business taking the payment, which is referred to as a CPS – Custom Payment Service. There are now well over 300 different, distinct Interchange categories, and after the Durbin Amendment goes into effect on October 1, 2011, there will be a lot more. These Interchange fees are essentially the inter-bank wholesale rate charged for each credit card transaction.
Interchange Pass Through is the pricing methodology where the “ACTUAL” inter-bank wholesale rate charged for each credit card transaction is “PASSED THOUGH” to the merchant with a small, consistent mark-up necessary to pay for the processor fees (primarily communication costs and for authorization, capture, settlement and batch processes) and merchant service providers cost of operations and support.
When the Durbin Amendment becomes effective and the much lower debit rates come into effect, only the Interchange Pass Through pricing model will “pass through” 100% of the lower rate benefit to the merchant.
Paying as close as possible to the “ACTUAL” Interchange rates is the trick to gaining profits from credit sales. All “Tiered” and “teaser rate” programs have hidden fees and mark-ups that cost you more than the “ACTUAL” Interchange rates, and cost you profits. The closest rate you pay to the “ACTUAL” Interchange rate for the product presented by your customer guarantees that you are paying the lowest credit card processing rates.
Doing your home work regarding to understand these concepts will help you make the right decision for your business, and help your company to thrive in the long run.
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