Accepting credit cards is a very important part of doing business. In order to get the best value when shopping for a credit card processing company it is very helpful to understand the different fees and charges so you can get the best deal and not have to pay phony fees. Since there are many fees associated with merchant accounts this can be a complicated task. Here is a list of fees and their costs.
Discount Rates
While discount rate is a type of transactional fee I decided to mention it first because it is one of the largest fees. If someone purchases a product or service from a merchant for $100 and the discount rate is 2.5% then $2.50 is charged to the merchant and subtracted from the total.
There are additional fees that can be tacked on the discount rate such as Partially Qualified Fee, Non Qualified Fee and Surcharge Fees. You can incur these charges if during credit card processing the card info is keyed in rather than swiped or if someone pays using a card with a reward plan. These additional fees can add up quickly so it is imperative to find out how much they are.
Generally, the discount rate is in the 2% range. It fluctuates as a result of factors mentioned in the previous paragraph.
Monthly Costs
There are 2 types of monthly fees, monthly statement fees and monthly minimum fees. A monthly statement fee is a fixed fee that is charged for customer service and support. It is typically around $10 a month. A monthly minimum fee is charged based on the amount of business done per month. If the monthly minimum is not met, the monthly minimum is charged. It ranges between $15-30 a month.
Annual Fees
In addition to monthly fees you might have to incur an annual fee. Although some merchant account providers do not charge this fee you might have to pay it if you received free credit card terminal equipment.
Startup and Termination Costs
These are fees associated with starting or terminating a merchant account. A setup fee is charged to setup the account (it is also known as an application fee). Some merchant accounts wave this fee. When setting up a account you are normally required to sign up for a one or two year contract, it is therefore important to find out what the cancelation fee is if you decided to terminated your contract early.
Transaction Based Fees
Transactional Fees consist of address verification fees, transaction fees and charge back fees.
If a credit card is not swiped by a card machine an address verification fee is charged. This is done in order to protect the merchant from fraudulent transactions. The charge should be 5-10 cents. Transaction Fees are charged to the merchant by the merchant account provider on every purchase. They are generally between 20-30 cents each transaction.
If the customer disputes a charge the merchant is charged a charge back fee. This fee is typically $25 per charge back.
Other Fees
Daily Batch Fees or ACH Fee is charged to pay for the expense of settling your transactions into your bank account if you do not have any transactions on a given day you are not charged. This fee ranges between 5 -50 cents.
Internet credit card processing requires a gateway fee which is paid directly to the gateway service provider. Expect this fee to be as high as $35.
If you need to call in the credit card transaction you could be charged a voice authorization fee, which is typically 75 cents to $1.50.
Any changes to the merchant?s hardware or software can potential result in a reprogramming fee.
Bogus Fees
Some unscrupulous merchant account providers might try to charge you junk fees. Watch out for teaser discount rates that sky rocket after a couple of months or low discount rates that only apply to certain cards. Also watch out for fees called file fee, audit fee, conversion fee, over the limit fee, excessive transaction fees.
This information should equip you to make good decisions and get the best deal when shopping for credit card processing for your small business.
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Tags: credit card processing, Finance, merchant accounts, Small Business
