Your Credit Card Processing Bill Explained

shutterstock_128881366It can take time for merchants to learn the ins and outs of credit card processing. At first, that monthly statement may be overwhelming, with various fees detailed to give merchants detailed insight. But no matter which processing service you choose, you can expect to pay certain fees that are standard to all payment processing services.

By first understanding what the terminology on a bill means, you’ll be able to better monitor your monthly charges to make sound business decisions. Over time, you may be able to use the information to change payment processing services or change the way you accept customer payments. Here are a few of the major credit card processing fees you’ll see on your bill.

Start-up Fee

When you initiate a contract with a payment processing service, you’ll often be faced with a start-up fee, which may be written up as an “annual fee” depending on the service. In some cases, this fee will be charged on a yearly basis to offset the administrative processing costs associated with your account. Often these fees are between $25 and $50 and they are designed to cover the cost of getting your business set up with the hardware and software you need to start processing payments.

Merchants can save money by shopping around for a processing service that charges no annual fee, even if a start-up fee is required to get things started. A few providers offer no start-up fee at all to lure businesses. North American Bancard currently offers new merchants no start-up costs, as well as free equipment and 24/7 support to help get them started.

Statement Fee

Even if your statement is provided electronically, there is an administrative cost associated with providing that information to you. Many processors pass that cost on to merchants in the form of a statement fee. It’s important that merchants fully understand what they will be receiving in exchange for that monthly fee. Will it be a detailed statement that provides insight into the types of transactions going through and how they are being charged? A business might be willing to pay for a report that gives insight that could improve business processes and lower fees.

Discount Rate

The words “discount rate” can be misleading, with some credit card processors using the terminology to make it seem as though merchants are receiving some sort of deal. The discount rate is a percentage of the transaction as charged by the acquiring bank. Because each credit card processor has its own rates, it’s important that a merchant shop around for the best possible per-transaction rate.

Transaction Fee

Often expressed as a fixed fee ($0.10, $0.25, etc.), the transaction fee is a small monetary amount taken from each transaction. While shopping around, you’ll likely notice many fees are advertising a percentage plus fixed amount for each transaction, like “2.10 percent plus $0.25.” Many merchants find that this transaction fee goes down as their monthly purchasing volume increases. A business processing only thousands of dollars each month in transactions won’t be given the same low rate as a business that processes tens or hundreds of dollars each month.

For businesses that find it difficult to find a good deal on transaction fees, processors like Payment Depot may be a better option. For an annual fee, merchants can enjoy processing rates as low as $0.10 per transaction. By crunching the numbers, you can determine if this is a less expensive option for you.

Equipment Costs

While some payment processing providers offer equipment as part of the service, many offer equipment for lease or purchase. In most instances, businesses will find they’ll save money by purchasing, since they’ll be able to use the processing equipment well into the future, but merchants should price both options to find the best plan to meet their needs.

Flagship Merchant Services gives each merchant a free virtual terminal and mobile card reader, along with no setup fees. If your business needs a full in-store POS setup, it might be beneficial to shop around for the best pricing on equipment.

Chargeback Fees

Unfortunately, chargebacks are an unavoidable part of accepting credit card payments. With a chargeback, one of your customers disputes the charge. In some cases, this may even be done before the customer requests a refund from you. If the chargeback is found to be valid, the funds will be returned to the customer. While some credit card processors allow a certain number of chargebacks before a fee is charged, many more charge fees for each chargeback. Check your contract to determine exactly how chargebacks will be handled. Will you be charged a fee only when the chargeback is successful or will you also be charged a processing charge when you’re found to be in the right?

Termination Fee

When signing a contract, everyone likes to know there’s a way out. Merchants should carefully review contracts to determine what fees will be involved if for some reason they need to terminate the service. Termination fees are fairly standard in the industry, and these fees can be charged two ways. In one instance, a merchant is charged a flat fee, which is usually hundreds of dollars. Another popular way of calculating termination fees is to base them on the number of months left in the contract. A merchant may charge $35 for every month remaining. Since the industry standard credit card processing contract is three years, this fee could be as much as $1,000 if the contract needs to end within the first year.

While termination fees are common, merchants can find processing service providers who advertise that they charge no fees for early cancellation. charges no cancellation fees and requires no contracts. Merchants pay month-to-month for low rates and receive a free credit card reader.

If you currently have a credit card processing service, this list of fees can help you better understand your statement each month. If you’re still shopping around, be sure to check your contract carefully before committing so that you won’t have any surprises when your statements begin to arrive.

Posted on Tuesday, September 2nd, 2014