The cost of credit card processing can be a major expense for small businesses, especially if they are just starting out. Fortunately, there are a few ways to minimize these costs without sacrificing quality or customer service.
First, it’s important to understand how credit card processing fees work. Most processors charge a percentage of the total transaction, plus a flat fee for each transaction. For example, a processor may charge 3% + $0.30 per transaction.
There are three main types of credit card processing fees:
>> Interchange Fees: These are set by the card associations (Visa, Mastercard, etc.) and go to your acquiring bank. They vary based on the type of card being used (rewards cards tend to have higher interchange fees) and are out of your control.
>> Discount Rate: This is the fee charged by your processor for each transaction. It’s a percentage of the total transaction, plus a flat fee.
>> Transaction Fees: These are flat fees charged by your processor for each transaction. They may be charged per transaction, or on a monthly basis.
Now that you know how credit card processing fees work, here are a few ways to reduce them:
- Negotiate with your processor.
Don’t be afraid to negotiate with your processor for a lower rate. If you’re happy with your current provider, let them know that you’re considering switching to another company unless they can offer a better rate.
- Shop around.
There are a lot of credit card processors out there, so it pays to shop around. Get quotes from multiple providers and compare rates.
- Use a credit card processing service.
If you process a lot of credit card transactions, you may be able to get a better rate by using a credit card processing service. These services work with multiple processors and can get you lower rates than you could get on your own.
- Ask for interchange-plus pricing.
Interchange-plus pricing is the most transparent way to price credit card processing fees. With this pricing model, you know exactly how much you’re paying in interchange fees and processor markup.
- Avoid rewards cards.
Rewards cards tend to have higher interchange fees, so it’s best to avoid them if possible. If you do accept rewards cards, make sure you’re passing the cost on to your customers in the form of a surcharge.
- Batch out transactions.
Most processors charge a lower rate for transactions that are batched out (settled) at the end of the day. If you can, wait to batch out your transactions until the end of the day or week.
- Use a lower-cost processor.
If you’re not happy with your current processor, switch to a lower-cost provider. There are a lot of great processors out there that charge much lower rates than the big names.
- Use a flat-rate processor.
If you process a lot of credit card transactions, you may be able to save money by using a flat-rate processor. With this pricing model, you pay one low rate for all of your transactions, regardless of the type of card used.
- Avoid unnecessary fees.
Some processors charge hidden fees, such as statement fees, minimum monthly fees, and early termination fees. Make sure you understand all of the fees charged by your processor before you sign up.
- Get paid electronically.
If possible, have your customers pay you electronically instead of with a credit card. ACH payments are usually cheaper than credit card payments.
Reducing your credit card processing fees can be a challenge, but it’s worth it. Even a small reduction in fees can add up to big savings over time. By following the tips above, you can save money on your credit card processing costs without sacrificing quality or customer service.