Guest Blog from Stella Fayman of TransFS
Small business owners must be aware of all aspects of their business. One often overlooked aspect is credit card processing, or merchant account processing. If your business plans to accept credit cards as payment, you will need to choose a merchant account provider to process credit cards. Unfortunately, choosing a credit card processor tends to be a long, frustrating, and inefficient process…and many businesses get ripped off along the way. Here are some tips to prevent that from happening:
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 theprocessor, 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. For a beginning business, making sure to have the no cancellation fee clause is a great hedge in case anything goes wrong.
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 theprocessor 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 credit card processors–at least five. 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.
4) What about PayPal?- If you’re in ecommerce, PayPal seems to be the no brainer chose for a processor. It’s an ok choice in thebeginning when credit card revenues are low and your service is growing. However, as revenue gets in the thousands it’s time to reevaluate since PayPal may be taking more of a cut for their service than a traditional merchant account provider.
5) Don’t Rent or Lease Equipment– For the most part credit card processing equipment is quite cheap now. Those little black terminals that you see in small retail stores usually cost $100 – $300 and a full-fledged POS system is a little more than a desktop computer, less than $2000. If you own your own equipment there is less chance for processors to sneak in extra profit by padding your lease payments and it also makes it easier to switch if something goes wrong in the relationship.
If you have any questions or want to learn more about processing, I blog about credit card processing at the TransFS blog or email me at stella@transfs.com.
