If you run a business, there's a good chance that you already accept credit cards. If you're new to starting a business, there are some things you should know about credit card processing that will save you a significant amount of money in the long term.
The discount rate is probably the one component of the merchant account pricing that represents the largest percentage of the fees you'll pay as a merchant. A competitive discount rate for qualified retail transactions is about 1.29% for check or debit cards and about 1.69% for regular credit cards. Internet discount rates are typically considered competitive at 2.15% to 2.25%.
Your discount rate is also based in part on what category you are placed in as a merchant. Some transaction types are considered lower risk than others. For instance, a McDonald's cheeseburger combo meal where the credit card is swiped is very low risk where a transaction for a future travel reservation done online may be a much higher risk.
You'll also have a per transaction fee for each transaction. The lower your average ticket or average transaction, the greater percentage of the overall fees the per transaction fee represents. For instance, if your average ticket item is $10, a $.25 per transaction fee represents a 2.5% "effective rate". If you add a traditional discount rate of 1.3% or so, your total effective rate would be 3.8% which is high, or at least higher than it could be.
If your per transaction fee is closer to $.18 per transaction, your effective rate is reduced by 1.7% which is significant. So, you should know what your average ticket item is going to be or at least a good estimate in order to most effectively determine whether your power of negotiation would best be used to get your discount rate as low as possible or your per transaction fee. Try to get your overall rate or "effective rate" as low as you possibly can.
Business owners will typically have a monthly fee, usually in the form of a statement fee, customer service fee, or monthly account maintenance fee. This fee is usually about $10 per month.
There is also a monthly minimum that is usually charged on merchant accounts as well. This is a $25 minimum fee based on the discount rate. Any given month, the $25 worth of discount fees is charged. So, if you process $1000 per month at 1.7%, you'll be assessed $17 worth of discount fees. If your minimum is $25, you'd pay the extra $8 worth of fees to equal the $25.
These fees represent the typical fees charged by merchant providers. There are usually other fees that will show up on your merchant account application, so be sure to ask your merchant account sales representative about any fees that you don't recognize or know. These fees must be disclosed, even if the sales rep doesn't tell you about them. When it comes to pricing, trust what's written on the application because this is what you'll be agreeing to when it comes to processing.
Find a good sales representative that you can trust. Your ability to establish a good working relationship with a reliable, trustworthy account manager will insure that you'll be able to keep your processing costs low for the duration of the account.
The discount rate is probably the one component of the merchant account pricing that represents the largest percentage of the fees you'll pay as a merchant. A competitive discount rate for qualified retail transactions is about 1.29% for check or debit cards and about 1.69% for regular credit cards. Internet discount rates are typically considered competitive at 2.15% to 2.25%.
Your discount rate is also based in part on what category you are placed in as a merchant. Some transaction types are considered lower risk than others. For instance, a McDonald's cheeseburger combo meal where the credit card is swiped is very low risk where a transaction for a future travel reservation done online may be a much higher risk.
You'll also have a per transaction fee for each transaction. The lower your average ticket or average transaction, the greater percentage of the overall fees the per transaction fee represents. For instance, if your average ticket item is $10, a $.25 per transaction fee represents a 2.5% "effective rate". If you add a traditional discount rate of 1.3% or so, your total effective rate would be 3.8% which is high, or at least higher than it could be.
If your per transaction fee is closer to $.18 per transaction, your effective rate is reduced by 1.7% which is significant. So, you should know what your average ticket item is going to be or at least a good estimate in order to most effectively determine whether your power of negotiation would best be used to get your discount rate as low as possible or your per transaction fee. Try to get your overall rate or "effective rate" as low as you possibly can.
Business owners will typically have a monthly fee, usually in the form of a statement fee, customer service fee, or monthly account maintenance fee. This fee is usually about $10 per month.
There is also a monthly minimum that is usually charged on merchant accounts as well. This is a $25 minimum fee based on the discount rate. Any given month, the $25 worth of discount fees is charged. So, if you process $1000 per month at 1.7%, you'll be assessed $17 worth of discount fees. If your minimum is $25, you'd pay the extra $8 worth of fees to equal the $25.
These fees represent the typical fees charged by merchant providers. There are usually other fees that will show up on your merchant account application, so be sure to ask your merchant account sales representative about any fees that you don't recognize or know. These fees must be disclosed, even if the sales rep doesn't tell you about them. When it comes to pricing, trust what's written on the application because this is what you'll be agreeing to when it comes to processing.
Find a good sales representative that you can trust. Your ability to establish a good working relationship with a reliable, trustworthy account manager will insure that you'll be able to keep your processing costs low for the duration of the account.
About the Author:
Brian's expertise is in credit card merchant accounts and he offers free merchant accounts price quotes to both existing and new merchants looking to save money on their merchant accounts.
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