If you run a small or medium-sized business, you know that every business cost you pay directly affects your profit. The more you know where and how to lower costs, the more money you make.
One way to keep your monthly costs down is by lowering credit card transaction costs. You will be charged transaction rates from your payment processor, merchant acquiring bank, card associations, and in some cases, even your merchant services provider. Each has its own methods of charging and opportunities for lowering payments.
In this article, we will focus on payment processors. You will learn different ways you can save on credit card processing fees while helping you understand if you pay a fair rate in the first place. Knowing your company’s effective rate is a powerful barometer for seeing how much you overpay.
What is an effective rate?
An effective rate is a formula in which you take the total processing fees from your payment processor’s monthly bill and divide the total number by your total sales for the same period. You will end up with a number that you will express as a percentage.
Typically, a good effective rate is around 3% to 4%. To lower your percentage, look at the backend fees you pay.
Some fees you can work around, while others you can negotiate. Let’s look at various fee types and models to see how they can be lowered.
Businesses are categorized by the type of goods and services they offer and their related risk. Find out what category your business is in and how much you are charged for it. You can shop around to see if other providers offer lower rates for your category. You may also have some flexibility in defining your category depending on your type of business.
Do you typically run a low quantity of orders? If so, the average you tell the provider during setup determines your rates. If your typical quantity is high, you can negotiate lower rates. The more transactions you run, the lower your rate.
Knowing your order frequency also helps determine the best pricing model. In general, there are three pricing models to choose from: interchange-plus, flat fee, and blended pricing. Each model has benefits.
Interchange-plus pricing shows every cost involved in each transaction. You see exactly how much you pay for specific payment methods and card associations to spot where and how to reduce costs.
Interchange-plus pricing is typically lower than other models and is especially effective for businesses with large numbers of transactions. You benefit even further with lower rates for higher numbers of transactions.
Flat fee pricing is a set fee for each transaction. You know exactly how much you pay per transaction, which helps with business budgeting. Thanks to its lower monthly fees, this model is typically best for businesses with low transactions. You still maintain some cost transparency.
Tiered pricing has separate tiers: qualified, mid-qualified, and non-qualified. Qualified purchases have the lowest fees, and non-qualified purchases have the highest. You can save money by ensuring the majority of your transactions meet the qualified tier. But be careful. Non-qualified purchases can be very expensive.
Unfortunately, not all processing fees are easy to spot or understand until you sign the contract. Less-than-forthright processors capitalize on this. You can cut down on these fees by carefully reviewing each one before signing, refusing unnecessary fees, and negotiating lower fees by shopping around. If you already have a contract, keep a careful eye on charges to see which fees to avoid and which are accidental.
During signup or renegotiations, look for traits like:
The type of transaction also determines your rate. Pricing is related to the risk of fraud, and some types of transactions are deemed safer than others. For instance, card-present transactions have the lowest risk of fraud, so they have the lowest percentage cost. Manually-inputting credit card information during a phone purchase is a higher risk.
Every single transaction method is priced by risk, including using a virtual terminal on a website, using an eCommerce website, and offering mobile processing. You can maximize savings by limiting payment options to what is financially best for your business.
Rates are also affected by how you run the card in a machine. If you use an EMV terminal, you pay less per transaction than if you swipe a card due to EMV’s stronger protection against fraud.
Like your business type, your credit score is used by providers to determine your rate. A low credit score indicates you may be a high-risk client, resulting in higher rates. To keep pricing down, pay all bills on time and keep a close eye on your credit score to spot when you are dinged for late payments.
If you still think your rates are too high, you can cancel your contract and move to a lower-priced processor. Keep in mind that shopping by price alone may not benefit you. A higher-priced processor may offer additional services that help your business at no charge. Additionally, some processors charge a high cancellation fee. Weigh the pros and cons of the costs of leaving. If you switch processors, you may choose a new provider that doesn’t charge a cancellation fee.
BNG Payments has extensive experience in the payments industry. We work closely with customers to help them understand the benefits of each pricing model. Our customers benefit from competitive pricing and excellent customer service, along with industry-leading payments technology. Contact us to learn how BNG Payments can help your business.