When it comes to protecting your small business, there’s nobody more passionate about it than you. You’re the one spending sleepless nights worrying about inventory. You fret over how the bills are going to get paid. The last thing you need is to find out that your merchant services company is dreaming up ways to take more.
It’s been the standard for decades now. Credit card processing companies set you up for a percentage and then lock you into a 3 or 4 year contract. Once you’ve entered the contract, you find out that your rates have changed. What?! Why did my rates go up? Why am I paying hundreds more every month?
You find that there’s no way out unless you pay a hefty exit clause that you weren’t told about. Look, there it is buried on page 7 of your contract. Rat bastards.
What follows is a list of ways that credit card processing companies skim off the top. If you’re seeing any of these methods in your current merchant account, you’re getting hosed.
This one is a bugger of a sign that you’re being messed over. The rep that recruited you probably said that there wasn’t a way to get a merchant account without an annual fee. Now you know that he was full of it. He was taking bull plop and calling it fudge. This is a completely made up fee for a standard merchant account.
Annual fees are a great way for a credit card processing company to take more from a small business. You’re pretty much already bent over the table when you first call the company. They know you need to accept credit cards. They know that you probably don’t know anything about what it costs to accept credit cards.
The unscrupulous companies will use the annual fee to take another $100-$200 per year. That’s hard earned money coming straight out of your pocket? You don’t have to give that up, so why should you?
Tell them you’re not buying any fudge today and move on to another provider.
Oh, this one makes my blood boil when I think of someone paying this. In the credit card processing industry, small business owners are an easy target. They’re passionate about their business, and they’re learning so many things all at once. They usually just have to trust their credit card processor to be honest for the good of their small business.
It turns out, most credit card processing reps who go from store to store don’t care at all about your business. The only way they get paid is if you switch your processing over to their company. If you switch over, they’ll usually get a one time payment for closing the account.
What you may not know is that sometimes even the reps are rather clueless when it comes to understanding the contract you’re signing. There is often a hidden clause somewhere in a long contract that says after 6 months they can change your rate.
In case you’re not aware, that’s a HUGE DEAL!!! If you’re locked into a contract with your processor for 3 or 4 years and they can change your rates… What will you be paying to accept credit cards for your small business in month 7? I’ll tell you, it’s going to be about as much as they can get away with.
Find a processor that will lock in your rate for life. They’re out there, and they can certainly do that for you. Lock in your rate and make sure it’s not going to change over time. This is a great way to protect your business.
Most small business owners are used to working with a contract for everything. There are contracts for office use, product use, services, and the list goes on. So, why not have a contract for your credit card processing for small business as well?
There is no reason to have a multiple year contract with any credit card processing company. The only thing that a long-term processing contract will do for you is nothing. It won’t protect you. For sure it won’t guarantee you a better rate. It also won’t do anything but help you pay more money to a company that doesn’t need it.
Credit card companies decided many years ago that a contract sounded like a good idea. Processors were trying to drum up ways to make sure that their merchants stayed with them long term.
See, when you consistently screw small business owners out of more and more money, they want to leave. To make you stay with them, they have to lock you into a contract so you can’t leave. Well, you can leave, but there’s a massive exit clause where you’d pay between $500-$1,000 to get out. Some companies even have an estimated damages clause. If that clause comes into effect, you could be on the hook for as much as $30,000.
Ouch! If you’re looking at a credit card processor for your small business, look out for a contract. If they’re having you sign a contract for anything longer than a month to month, run. far. away.
The really good credit card processing small business friendly companies do month to month contracts. If you’re looking at a processor who says a 4 year contract is standard, spit in their eye.
Yet another hidden fees that really burns my biscuits. In credit card processing contracts, there may be hidden a little exit clause. The purpose of this clause is to make sure the processor makes enough money from you before you leave.
Think of the exit clause as a type of guarantee that you’re either going to pay them their money over time or all at once. It’s a lump sum payment that makes sure that your company will give them their money. One way or another, they’ll get you. Grr.
When presented with a contract to sign for a new credit card processing company for small business, READ IT ALL. Don’t just let them walk you through it and have them tell you the highlights. If you’re not reading it, you have no idea what in the world is in there. They could leave out tons of hidden fees and jargon that will cost you a lot of money. That’s your money. Keep it in your pocket.
If you’re seeing an exit clause, ask them why it’s in there. Are they afraid you’re going to leave? Are small businesses leaving their credit card processing company in droves? Why did they feel like they had to put it in there. Here are some standard responses that you can laugh at them when they say them.
“Oh, it’s an industry standard practice.” – Like fun it is. Why is it an industry standard practice? Because it makes them MORE MONEY.
“Oh, is that in there? You’d have to ask my supervisor about that.” – Pssh. They know that one is in there and they’ve been asked to kick it up to their supervisor and have you call them. Why have you call? Because most of us won’t actually make the call. They’ll have you sign and promise they won’t process the contract until you get your question answered. Yeah, they won’t wait, so beware this tactic.
I’m sure you already know this, but we’ve saved the best for last. The number 1 way that credit card processing companies will take your hard earned money is rate type.
There are many different ways to pay for credit card processing. The traditional method is to charge your business a blanket percentage for all cards processed. This my friends is a terrible type of rate to have.
Did you know that each credit and debit card have a different fee associated with them? For some of you, I’m sure that’s an eye opener. In general, debit cards are cheaper to process than credit cards. Debit cards will cost the processor less.
Credit cards are all over the board regarding what type of fees come with them. There are some cards that just have a standard fee. Probably something in the area of 1.5% and there are no rewards given to the user for using that card. Other credit cards may have airline miles as a reward given to the consumer with each transaction. Who pays for those airline miles? YOUR BUSINESS! Someone is paying for the added benefit to the consumer, and it just happens to be you the small business.
Credit card processing companies will typically charge your small business a higher blanket rate to cover all types of cards. If there’s a rewards card that someone uses that gives the consumer 1.5% cash back… That card could cost 3% without any markup to the processing company. Your rate might end up being 4% just to protect them from those cards.
There are two types of pricing models that you want to check out before you sign with a credit card processor. Let’s take a look under the hood at what you should be looking for.
1. Totally free credit card processing – This is a credit card processing account for small business that costs you $0 in fees. It’s a completely free merchant account to the business owner. The fees for processing credit cards are assigned at the point of sale and paid for by the customer. If you’re looking to hold on to all future credit card processing payments, this is an amazing plan. You can simply add back any payments you would normally pay each month to your bottom line. You can read more about this type of account here.
2. Cost + (Interchange Plus) credit card processing small business – This is a completely transparent model of processing. It takes the actual cost of each card that comes through your point of sale and charges you that exact cost. The processing company adds on their small percentage (thus the cost +) and you end up paying only nominal processing fees.
Your relationship with your credit card processing small business company can be honest. With this model, you know how much the processor is making on each transaction. A really good processor will even tell you which type of Cost+ pricing is the best. (Since there are two costs associated with running every credit card.)
What are those two costs? Great question.
The first cost associated with running a credit card is the swipe fee. Every time you swipe a card for a payment, there is a cost associated with it. This is a fee that’s assigned by the big boys like Visa and Mastercard. The swipe fee isn’t something you can get around. The cost of the swipe fee can vary. A great processor will ask you what your average ticket is and help you determine how to keep your costs down.
The second cost associated with running a credit card is the credit card percentage fee. This is the cost that it takes to run the card, and that fee goes straight to the card manufacturer. This is usually represented in the percentage fee that you agree with on your contract with your provider.
Your processor should help you determine if paying a slightly higher swipe fee or higher percentage fee would save you money. If you’re running 400 credit card transactions a day at a $.25 swipe fee, you’re paying $100 a day in just swipe fees. If you’re running 5 transactions a day at $2,000 each, you’re only looking at a $1.25 swipe fee total. In this second example, your percentage fee would be the much more important number.
No matter which processor you want to work with, become educated on each of the items above. Go into the discussion armed with knowledge to make sure that you aren’t being taken advantage of. When it comes to your business, it’s up to you to protect your money and guard the fees you pay.
Here at Shift Processing, we pride ourselves on being the most transparent credit card processing small business out there. We are a small business. Even though we process for thousands of businesses, customer service and honesty is the only way we build our business. We would love to earn your business. Test us on our list above when you call. I know you’ll really like what you encounter.