Credit Card Processing Blog

As a small business owner, cash flow is something that’s always top of mind. If you’ve already done some research, you’ve probably heard that ACH processing can provide your business with a leg-up when it comes to processing payments. But what exactly is ACH processing and what are its benefits?

Good question. ACH or “automatic clearing house” is a batch processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing. Instead of using paper to carry necessary transaction information (such as with checks), ACH Network transactions are transmitted electronically, allowing for faster processing times and cost savings.

In other words, by eliminating the need for a paper check, transactions are processed electronically and merchants can receive funds much faster and easier than if they had to wait for a check to process.

Here’s how it works.

ACH payments are typically used to move funds from one bank account to another. The ACH Network processes two types of transactions: Direct Deposits via ACH and Direct Payments via ACH.

Direct Deposit via ACH is the deposit of funds for payroll, employee expense reimbursement, government benefits, tax and other refunds, and annuities and interest payments. It includes any ACH credit payment from a business or government to a consumer.

Direct Payment via ACH is the use of funds to make a payment. Individuals or organizations can make a Direct Payment via ACH as either an ACH credit or ACH debit.

Most merchants who use ACH will use it for things like paying for a service (Direct Payment via ACH) or for payroll (Direct Deposit via ACH). The funds move through the ACH Network, and the funds are deposited into the receiving bank account within a few business days. Simply put, ACH is a method for merchants to move money and make financial transactions without ever needing to use a physical check, credit card or debit card.

To set up ACH payments for your business you’ll need to work with a processor that offers them. It’s the payment processors that handle the actual payment and deposits the money into your account.

Here are a few ways that ACH processing benefits your small business:

It saves time and money.

Because you don’t have to worry about waiting for a check to process (which, isn’t always the speediest process, let’s be real), you can access funds quicker, which improves your overall cash flow. ACH credit and ACH debit transactions process quickly.  The transfer of funds from one financial institution generally happens the next day.

ACH payments are also more affordable than wire transfers, as payment processors typically offer them for free (compared to the $10-$35 banks typically charge for wire transfers within the United States). ACH payment processing also provides helpful tracking tools that allow you to easily keep tabs on payments and cash flow.

Better for recurring payments.

Lastly, ACH is much less expensive than paying with a credit card which makes it particularly helpful for recurring bills and invoices. With credit card payments, you’re subject to interchange fees and markups (which vary depending on the processor). ACH payments bypass this altogether, saving you time and money in the process.

To recap, ACH payments provides a secure option to get paid and make payments, that also saves you money on credit card fees. Because they process quickly, ACH payments can help improve your cash flow so you have the funds ready and available to grow your business.

According to a report by Accenture, Gen Z will make up to 40 percent of all US consumers by 2020. These teens and young adults are a tech-savvy emerging demographic that doesn’t remember a time before Google, Apple, Facebook and Amazon ruled supreme. Experts suggest that their purchasing and payment habits will surely influence other consumers. Over the next year, merchants should expect to see a surge in services that are catered towards all things mobile.

Here are a few of the Mega Trends that are expected to shape payment processing in the next year. Which ones will you choose to embrace?

  1. Skyrocketing popularity of in-store mobile payments.

In the upcoming year, in-store mobile payments are expected to overtake credit cards and grow from a $75 billion industry to $503 billion by 2020. It makes sense that people are moving towards digital wallets. We do everything else with our smartphones, why not make payments as well? It’s easy and streamlined. By providing your customers with the option of in-store mobile payments, you’re giving them a quicker, more forward-thinking way to pay for goods and services.

  1. Increase in mPos devices.

As of 2021, experts predict that there will be over $27.7 million mPos (mobile Pos) devices in circulation in the United States. This is a huge jump from 3.2 million in 2014. In other words, the long-held tradition of lining up to pay for your purchase at the till may be on the way out. Not only is this more convenient for the customer, but the increasing popularity of mPos devices gives merchants more options to provide an amazing customer experience by meeting customers where they are (on the shop floor, in the checkout line). Plus mPos has the ability to create an easier, quicker checkout process, which is never a bad thing.

  1. Biometric authentication.

Biometric authentication – I.e. using a fingerprint to verify and access a mobile wallet – is slated to be another big trend going forward in 2019. Apple Pay and Samsung Pay currently both use fingerprint identification, but not all platforms offer the same level of security. But soon this will change. Biometric authentication is a good development for merchants because it is likely to lead to a reduction of fraud –after all, while it’s still possible to steal a credit card number, it’s nearly impossible to fake a fingerprint.

  1. Rewards-driven purchasing.

As we mentioned above, millennials and Gen Z are leading the way with their buying power. Along with their older counterparts, they’re looking for customer experiences that make them feel valued. This means an increase in demand for customer rewards — either through points or a loyalty program of some sort. According to a survey, half of the consumers have said they would switch primary cards for a higher rewards value, and more than 40% of consumers would make the switch for a major upfront bonus.

Here’s how to prepare as a merchant:

As more and more customers choose to put their trust in mobile wallets, merchants will need to keep up with this shift in the payment industry. If you want to stay ahead of the curb, now is the perfect time to invest in new technologies that can handle multiple payment types. If you feel like your business might benefit from an mPos, this is another option to consider.

Amazing customer service provides great long-term benefits for both customers and merchants. Savvy merchants are creating these kinds of experiences for their customers by giving them what they want: rewards. One of the easiest ways to win over and keep your customers is by implementing a loyalty program.

On the surface, most of these trends primarily benefit the customer. However, by adapting to meet the changing payment needs of the customer, businesses have the opportunity to create a memorable experience for their clientele. After all, you can’t have a business without customers.

Declined. For cardholders and merchants alike, never is it a word that’s met with a smile. Declined transactions are upsetting to customers and represent a potential loss of revenue for your business. Unfortunately, though, they do happen. We only fear what we don’t know, so if you have a clear understanding of what declines are and why they happen, you’ll be better prepared to handle declined transactions when they occur.

Let’s start by discussing approvals.

When a credit card is approved during a transaction, it means the customer’s issuing bank, has approved the card. Issuing banks will approve credit card transactions when the credit card number and expiry dates are valid, the customer has enough credit to cover the amount of the transaction, and the card has not been reported as stolen or compromised. However, keep in mind that approval is not a guarantee that the funds will be transferred to your account. There’s always a chance that a customer will request a chargeback at a later date.

Declines work the same way but in reverse. When a card is declined it means that the issuing bank has flagged it for a variety of issues: the card’s number or the expiry date is no longer valid, the customer doesn’t have enough credit to cover the transaction or the card has been reported as lost, stolen or compromised. In order to prevent criminals from “testing” cards, issuing banks don’t provide a specific reason as to why a card is declined. However, declines typically fall into one of these categories:

DECLINED – ND

One of the most common kinds of declines, this is just a normal decline from an issuing bank. This usually means that the cardholder has insufficient funds or there’s been a restriction placed on their card.

DECLINED – EXPIRED CARD

If the credit card is past its expiry date, the bank won’t be able to process it. The customer will have to provide another form of payment (this kind of decline is also incredibly common, as credit card expiry dates tend to be an afterthought for many of us).

DECLINED – INVALID CARD

If you’ve entered a credit card number incorrectly, you’ll receive an “Invalid Card” error. This means that the system has done a MOD10 check (the checksum formula used to validate a variety of identification numbers) and it was unable to validate the card. In this case, you’ll need to re-enter the credit card information.

DECLINED – CALL FOR AUTH

While this is technically a decline, there’s a chance the bank will still approve the transaction. The bank simply requires the merchant to call for authorization. If the bank approves the transaction, they’ll provide the merchant with an approval code.

Keep in mind that some credit cards — especially business and corporate cards — may have restrictions on the kinds of purchases that can be made using the card. Same goes for international transactions. A card issued in another country may have a restriction in place that prohibits from processing all international transactions.

In either case, the cardholder would have to call their bank so that they can unlock the card and approve the purchase.

DECLINED – PICK UP CARD

If you receive this message, it means you should “pick up” the card if it’s physically present. This message typically occurs when a card has been taken out of circulation due to it being reported lost, stolen or compromised in some way. Cue: every scene in movies where the owner of a ritzy boutique or restaurant takes the credit card from the customer and cuts it up right in front of their eyes.

Here are a few other things to keep in mind when dealing with declines:

If you receive a “pick up card” error message, this could be a sign that the customer is trying to make a fraudulent purchase with a stolen credit card, so approach the situation with caution. It’s never worth compromising your safety just to get a card from a customer.

Unless you’re inputting credit card numbers manually and receive an “invalid card” error message, trying to process a card multiple times isn’t going to change it from a decline to an approved message. While the customer may request that you try it again, once a card has been declined, it’s declined. If the customer has any questions, they need to speak directly with their credit card company.

While looking for a credit card processor you’ve probably come across companies offering “flat fee processing” and now you’re wondering if it’s the right choice for your business.

What is flat fee processing?

Flat rate is a popular pricing model for credit card processing and typically involves one of the following two options: a flat fee percentage or flat fee subscription.

Flat-rate percentage

A flat rate percentage is a fixed percentage that you pay for each transaction and it’s based on volume. Common flat rates are currently around 2.75% – 2.9% for swiped transactions. You may also find some flat rate pricing models that also include a per-transaction fee, often in the range of 20 – 30 cents per transaction.

Many business owners will be lured in by the convenience of a flat rate percentage pricing model — after all, it seems remarkably simple. While it may be an okay option for smaller businesses that only accept credit cards on occasion, it can end up being very costly if you are processing a larger volume of transactions. You’ll always end up paying above and beyond the interchange rate.

Interchange fees are fixed costs that remain the same regardless of which credit card processing company a merchant uses. With flat rate percentage pricing, a payment processor doesn’t have to be transparent about interchange costs because they’re paying them on your behalf. Because of this, they’re at liberty to charge whatever percentage they want for the convenience, pocketing the rest in the process.

The percentage is also calculated based on your sales volume. The more you sell, the more transactions you process, the more you’ll pay — which, isn’t exactly a great deal for businesses that are hoping to expand and grow.

Flat-rate subscription

On the other hand, flat-rate subscription pricing is a fixed dollar amount that you pay the payment processor, usually monthly. With this kind of pricing model, a processor’s markup is applied as a flat monthly fee and per-transaction fee instead of a percentage of sales volume. The business pays exact interchange fees in addition to a flat monthly or annual fee to the processor. In most cases, there is also a per-transaction fee, which means that a merchant may also pay a fixed amount on every transaction.

As far as flat-rate pricing goes, a flat rate subscription model is a lot more transparent because you’re able to see the actual cost of processing (interchange fees). Another advantage of this kind of pricing model is its simplicity. You’ll always pay the same fees regardless of sales volume. If you’re a new business and overwhelmed by all the different fees on your monthly statement but are still looking to grow your sales, a flat fee subscription might be a great option for you.

However, keep in mind that convenience comes at a price. While a subscription model is likely going to cost your business less than a percentage model, it still might not be the most competitive pricing available to you. So, do your research. Which processing fee model is right for you all depends on your specific business needs.

Imagine you’re a business owner and you have customers that return every month (or year) to purchase the same service. Now imagine that every month you have to invoice and track down those payments manually. You do this with the good faith that (hopefully) your invoices will reach your customers and they’ll pay on time. It’s stressful and you never know if and when you will receive your revenue. What if things could be different?

If you see you and your business in the above-mentioned description, you’re the perfect candidate for recurring payments. With a subscription-based service, you store your client’s credit card info and charge their card on a regular monthly (or annual) basis.

Thinking of switching over to automated payments? Here are a few reasons why adopting a subscription-based payment model is to your advantage as a merchant.

  1. It saves time.

Trying to track down payments every month is a recipe for insanity. The more you can automate in your business the better. Not only will you ensure that your customers pay on time, but you’ll also never have to worry about double charging them. When payments are automated and recurring, it frees up time for you to focus on other aspects of growing your business.

  1. You’ll pay lower interchange fees.

The interchange rate is what card issuers (Visa, Mastercard, American Express, Discover) charge for processing credit cards. While rates vary depending on credit card type, if your business offers a monthly membership or subscription, you will end up paying a lower interchange fee because you’re deemed a lower risk. Since you have the credit cards on file and are charging them the same fee each month, the chance of fraud occurring is much lower.

  1. It makes for more consistent cash flow.

When you can’t predict if/when your customers will pay for their services, it makes for shaky cash flow and a disorganized business. Instead of sending out invoices a la carte, a recurring payment system will send them out at the right time, ensuring the customers pay and you receive your payments on time. When you know exactly how much money is coming in each month and when it’s so much easier to plan for the future of your business.

  1. Faster payments and better recordkeeping.

When payments are automated, your money lands in your bank account faster with less work for you. It also means that all of your payments can be tracked under one master set of records. If something needs to be followed up on, your accountant or bookkeeper won’t have to sort through all kinds of different records. Instead, everything will be available in one place.

  1. It provides better customer service.

It would be pretty annoying if every month you had to go into your gym and pay your membership in person — or even worse, if you had to pay for all of your memberships and services, up front, in advance. By providing customers with a subscription-based payment system, they never have to worry about forgetting a payment and having their service cut-off. Whether you’re a consumer or a merchant, automated payments are easier for everyone involved.