Guest post by Stella Fayman (learn more about Stella at the end of this post)
When merchants begin accepting credit cards, usually they sign up for Paypal (if an online merchant). However, as business booms and revenue from credit cards grows, it may be more cost effective to switch to a credit card processor (merchant account provider). Be wary, processors are known to be tricky and take advantage of business owners who know little about their trade. Here are some tips to make sure you don’t get ripped off:
1. No cancellation fees allowed
Make sure to read the fine print from your credit card processing contract. You may be surprised to find a cancellation fee from at least $250 to several thousand dollars. This fee is a way of guaranteeing your loyalty to the processor, regardless of your satisfaction with their service. The good news is that getting rid of this fee should not be a problem: most salespeople have the authority to waive it. To avoid this problem, talk to the salesperson and make sure the fee is waived in writing either in the contract or as an amendment.
2. Only interchange plus pricing
The bulk of the processing fee goes to Visa and Mastercard—this fee is called “interchange” and is set in stone. Interchange-plus pricing is the fairest form of pricing structure for your business, meaning that you pay the interchange fee plus a constant markup which goes to the processor as a service charge. Having this structure ensures there are no tricky fees or hidden costs, unlike tiered pricing structures.
3. Comparison shop
Research shows that the best deal can be found by comparison shopping between at least 5 processors. However, make sure to compare on an apples-to-apples basis, and be sure each processor knows that you are actively shopping. You can easily make your bids more competitive by leveraging the power of comparison.
If you have any questions or want to learn more about processing, I blog about processing at the TransFS blog www.transfs.com/blog or email me at [email protected].
About the Author
Stella Fayman is a recent graduate of Northwestern University. She decided to join TransFS, a comparison shopping site for credit card processors, in order to help small business. Just like getting multiple plane tickets from airlines using Expedia, TransFS lets business owners compare top quality processors on an apples-to-apples basis and makes sure they get the best deal by not having any cancellation or hidden fees, and only interchange plus pricing. TransFS also recently launched the Credit Card Processor Directory, where business owners can rate and read reviews about processors.
Susan Gunelius
Susan Gunelius is the Founder and Editor-in-Chief of Women on Business. She is a 30-year veteran of the marketing field and has authored a dozen books about marketing, branding, and social media, including the highly popular Ultimate Guide to Email Marketing, 30-Minute Social Media Marketing, Content Marketing for Dummies, Blogging All-in-One for Dummies and Kick-ass Copywriting in 10 Easy Steps. Susan’s marketing-related content can be found on Entrepreneur.com, Forbes.com, MSNBC.com, BusinessWeek.com, and more. Susan is President & CEO of KeySplash Creative, Inc., a marketing communications company. She has worked in corporate marketing roles and through client relationships with AT&T, HSBC, Citibank, Intuit, The New York Times, Cox Communications, and many more large and small companies around the world. Susan also speaks about marketing, branding and social media at events around the world and is frequently interviewed by television, online, radio, and print media organizations about these topics. She holds an MBA in Management and Strategy and a Bachelor of Science degree in Marketing and is a Certified Professional Career Coach (CPCC).
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Great post. I can not think of one client that has not had an issue trying to change processing due to this exact issue. If you are stuck in this situation though, realize that a new processor is often willing to reimburse the fee to get the business. This is only deferring the true issue but it does provide an out for those who want or need to change but cannot justify the termination fee.
Thanks for the great post! I can relate to this exact same issue. Before signing with a merchant we want to take the time and read the fine print, so there are no surprises later on. Doing research ahead of time with the many options that are available to us today can hopefully help to alivate this issue.
Great tips Susan. These are all valid things to look out for when signing up for and maintaining a merchant account.
Comparing merchant accounts is never an apples to apples comparison. It always seems that there’s a catch. In reality, it’s just a game of intro rates and teaser rates in order to get more business. I have referred to it as half truths before. Most merchant account providers just post the lowest rate and don’t tell you about the Non-Qualified rates. You just find out about those when you get your first statement.
To build on what Alex said above, my advice to those people looking to switch merchant account providers, beware of the cycle that you might fall back into. Rates always change and if you don’t have a relationship with someone at the company that can adjust them when interchange rates adjust, sometimes you’ll find yourself back in the same position as before. See: http://www.bancardsales.com/switching-merchant-account-providers/