When it comes to running a business, credit card fees are a fact of life. These fees come in many forms, and each takes a small chunk out of every single transaction you process, so limiting them just a little bit can net you enormous savings in the long run. With a few tips, and […]
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When it comes to running a business, credit card fees are a fact of life. These fees come in many forms, and each takes a small chunk out of every single transaction you process, so limiting them just a little bit can net you enormous savings in the long run. With a few tips, and knowing which fees are mandatory, you can avoid high fees and keep more of your hard-earned revenue. Here’s how!
Negotiate With Credit Card Processors
The first step to lower fees is always to negotiate, negotiate, negotiate! Haggling can feel a bit uncomfortable, but growing your confidence for negotiations is always a good business skill to develop. Here are some tips for negotiating with credit card processors for lower fees.
1. Make Them Want Your Business
By making your business look enticing to credit card processing partners, they’ll be more likely to offer you a lower fee structure. Find positive points to identify about your company, like a stellar credit score or high annual transaction volume, when you are talking to sales reps. Anything you can do to strengthen your story as a customer will help entice them. If you’ve gotten a cash advance for a loan that still hasn’t been paid back, credit card processors may hold it against you in the form of higher fees. You also want to be careful about balance transfers, where a credit card balance is transferred to another line of credit. These can be dangerous for your credit score if there are too many of them on your record, or if balance transfer fees haven’t been paid. Pay all your loans on time, take care of any late fees, and avoid exceeding your credit limit to show that you will be a reliable customer. Any unpaid cash advance fees, a balance transfer, or other unpaid fees on your credit record will be held against you during negotiation. Make sure your credit card statements are squeaky clean!
2. Leverage Your Transaction Volume
Of all factors to consider in fee negotiations, your transaction volume plays the biggest role. A high transaction volume will make your company look attractive, and credit card processors will be desperate for your business. If you don’t have a high transaction volume, find ways to make it lookhigher to the payment processing partner without changing any numbers. One way to do this is to focus on your peak season. For example, if you’re on track for 100,000 transactions for this year and it’s already December, but last year you had twice as many, focus on last year’s transaction volume rather than the current year. Then in case you are asked about the discrepancy, prepare good reasons to explain it convincingly.
Reduce Risk of Fraud
By showing merchant account providers and credit card processors that your business has a low fraud risk, your business can snag lower fees. The higher your fraud risk, the higher your fees will be. To make your risk for fraud as low as possible, here are some best practices and protocols for you to follow:
1. Swipe Cards vs. Keying Cards In
If a customer swipes their card at a POS terminal, it’s a lower-risk transaction than keying cards in manually. Although they are a central feature of e-commerce, card not present transactions come with many added security risks. Keyed-in card transactions also come with the risk of errors on the part of the person entering the payment information. For both of those reasons, a higher ratio of swiped card transactions will get you lower credit card processing rates from your account provider. Swipe card fees tend to be lower than card not present fees due to this lowered risk.
2. Gather More Security Info
To maximize the security of every credit card transaction, gather as much information as possible for each. That includes not just the payer name, card number, and expiration date, but also aspects like the security code and the payer’s billing zip code.
3. Use an Address Verification System for Shipping
An address verification system for shipping won’t only get you lower credit card processing fees, it will help you close more sales as well. Errors during the checkout process often result in customers getting frustrated and leaving your e-commerce site. An address verification system is a great way to increase the accuracy of the process. As a result, conversion rates will improve and you’ll lose fewer sales. More sales means more transactions, and more transactions means lower credit card processing fees.
4. Ensure Your Account & Terminal Are Set Up Properly
An account or physical POS terminal that hasn’t been set up properly is more prone to errors. The more errors that occur during credit card processing, the higher your fees will be. Make sure that everything is connected properly, and that your POS software is properly installed and up-to-date. A smoother transaction process means higher revenue, more transactions, and lower fees from your credit card processing provider.
What Fees Are Mandatory?
Transaction fees paid by different parties are mandatory to process credit card payments, and many are passed on to merchants. In some states, these can then be passed onto your customers as a flat fee, in the form of a credit card “convenience fee.” However, customers may take offense to this, and some states have outlawed the practice. In addition, foreign customers may cause a foreign transaction fees to be incurred, since banks in other countries may have to be involved in any foreign transaction. Mandatory credit card fees account for the risk of fraud associated with each transaction, the costs associated with bad debt, and handling costs to move the money from place to place digitally. Try to go for flat rate pricing whenever possible, as the predictability will make payment easier.
1. Credit Card Interchange Fees
When it comes to credit card processing, some fees are mandatory and can’t be negotiated completely away. Credit card interchange fees are one such type. These fees must be paid by your credit card issuer for each and every credit or debit card transaction, so the bank passes these costs along to you. Interchange rates are also charged by card-issuing banks, credit card brands like Visa and Mastercard, and other parties. Incredibly, the total amount you pay can be a consolidated total annual fee that consists of hundreds of different fees from all of these parties.
2. Assessment Fees
Assessment fees are paid directly to the credit card network. They account for costs incurred by the credit card network for processing the transaction.
3. Merchant Service Provider Markup Fee
This fee is charged by your merchant services provider for handling the processing of the payment. This service fee includes a small markup, providing a profit for the merchant services provider. It is charged by every merchant services company in existence, and can’t be avoided. But it’s the fee where the greatest amount of negotiation is possible for you to get a lower rate.
By lowering your per-transaction credit card fees, you’ll net more revenue for each and every customer who walks through your door (or visits your website) to pay with a credit card. And by knowing what fees you owe inside and out, charges like late payment fees won’t have to be added to the mix. With lower overall fees, it’s easier to avoid late payment. Over the entire lifetime of your business, the added value of some proper negotiation adds up fast. And perhaps more importantly, if you enter tough times, can even save your business from going under.
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