2016-07-27

Choosing a small business credit card processor can have a major impact on the profitability of small businesses.

When you have more cost than profit — which many new small businesses tend to have — the disruption or lack of cash flow is detrimental to the survival of your business. In order to equip yourself with the tools necessary to choose a credit card processor, you need to have access to the right information — the right information will then lead to asking the right questions. Credit card processing for small businesses can be confusing and we want you to be prepared when making your choice. So here are 10 questions to make sure you get answers to.

1. Do you have a contract or early termination fee?

No matter what small business credit card processor you sign up with, you want to know if they are locking you into a contract. If so, what are the terms? Such as the time period of the contract. Is it a two, three or four-year contract? After the initial agreement, is it automatically renewed? Many merchant service providers will let you know upfront about the initial period, but “forget” to disclose the termination process.

There are also small business credit card processing contracts that have a clause stating you must notify them 90 days ahead of the termination date or you will be penalized. Fair? You be the judge, but aren’t you glad you continued reading?

2. What customer support is available?

You might ask yourself, “Why is support a necessity for my business?” Though many business owners hope they will never need to contact their small business credit card processor, believe it or not, it happens. The last thing you want to have happen is have it be your busiest day of the week, have a line out the door, and not be able to accept credit cards. In a situation like this, wouldn’t you want someone you could count on to remedy the issue as quickly as possible?

There are three types of customer support: community, email, and phone support. Community support is the most basic. It involves instructional videos, tutorials, FAQs, and blog posts.

Second is email support. Now if the question isn’t pressing and you’re expecting a short response, then this is the tool you’ll want to utilize most.

Lastly, phone support. Since phone support is considered the MVP of support channels, many merchant service providers will charge you an additional fee. As a business owner, you want to make certain you have a thorough understanding of the support package included.



3. What are my rates?

The two most popular pricing structures are Interchange Plus and Tiered Pricing. In order to grasp the concept, first you need to understand the basics of credit card processing.

Visa, MasterCard, Discover, and Amex are the four credit and debit card issuing brands. They’ve issued about 400 different cards over the years. Each card in your wallet has a wholesale rate attached to it. The wholesale rate is a fee set by the card issuing brands and paid by the merchants. It is the cost of doing business. As you can imagine, these card-issuing companies are fairly large and do not negotiate. Therefore these rates are set in stone and paid by every merchant in one form or another. Usually, the fee is a percentage and a set transaction fee — under $0.30. The best part is that these rates are public knowledge. See Visa and MasterCard for examples. You’ll notice the number of cards and the difference in cost from one to another. It allows small business owners to understand the cost and its markup.

Let’s use a retail store as an example. They sell shirts. The shirts cost $1. This means the shirt will cost $1 to every business owner who buys it. Each owner will then mark up or add an extra dollar amount to make a little profit. In this case, let’s say the markup is $0.30 Therefore the total cost of the shirt comes out to $1.30 The small business owner would never tell the customer I only paid a $1 for it, but I’m going to charge you an extra $0.30. You wouldn’t be in business long. Interchange Plus Pricing displays the cost and the markup. Completely transparent!

As a business owner, you really want to pay attention to the markup. Tiered Pricing hides both the markup and the wholesale rate. It’s also frequently referred to as bundled pricing because it allows processors to group Interchange fees into general rate tiers of their choice.

Tiered pricing usually has three pricing levels. They are commonly referred to as Qualified, Mid-Qualified, and Non-Qualified transactions. Qualified transactions are the lowest priced tier. The

remaining two tiers are priced at a set rate or an additional surcharge. If you hear qualified transactions and something like 1.69 percent follows, ask for the remaining tiers and a full disclosure of fees. You need to know if you are paying one total flat rate for processing or if there are additional fees/tiers. For a deeper understanding of each pricing structure, take a look at Merchant Negotiators. Remember, a small business owner needs to have all the facts to run an effective business.

According to one of the most trusted review sites in the industry; CardFellow says, Interchange Plus Pricing is seen as the most transparent pricing structure. It allows the merchant to see the wholesale rate and the markup. Most merchants want to know where the bottom cost is and how much more they are being charged. The majority of profitable business owners love using the Interchange Plus model because it allows them to remain in control of their business.

4. How long have you been in business?

This question feeds into the credibility of a small business credit card processor. As a business owner, your main focus relies on profitability and sustainability. The last thing you want to do is to partner with a credit card processor who doesn’t have the experience you need to run a successful business.

New small business credit card processors also lack customer feedback. Most new business owners have a lot on their plate and don’t want the added stress of a new credit card processor. After all, would you put a newborn baby in charge of your finances? Probably not.

5. How long does it take for funds to hit my account?

As a small business owner, steady cash flow is a necessity. When it comes to credit card processing for small businesses, processors should take no more than 48 hours, from the time the transactions are closed for the day, to make a deposit. Now there are a few exceptions.

Weekend deposits work a little differently. Friday and Saturday transactions will deposit Monday Morning. Those from Sunday will deposit Tuesday. Then you have situations such as a collections dispute or an ACH network error, which can delay funding by a few business days. If your small business credit card processor takes more than two days to make deposits on a regular basis, then it may be time to find a new credit card processor.

6. How is my credit card processing account billed?

There are two ways your small business credit card processor account can be billed. They are commonly known as daily and monthly billing. Daily billing allows credit card processors to debit your processing fees every day before or after the money is deposited. Some merchants prefer this way of processing credit cards because they don’t have to worry about keeping a certain amount of money in their account at the end of the month. Once the fees are taken out for the day, they can use the remaining funds to run an efficient business.

The headache comes when your accountant has to take a large chunk of time trying to reconcile the bookkeeping. They have to reconcile deposits and fees taken every single day. Not only is it tedious, and time-consuming, but it can get quite costly as well. Then you have to add the daily fees to make certain you have a true understanding of the total cost you paid to your small business credit card processor. Time is money and most small business owners have neither to waste — which is why they use the second option.

The second is monthly billing. It allows the business owner to receive the gross dollar amount of

their deposits during the month. Then they are billed one time. It’s either on the last day of the

month or during the first week of the following month.

Most accountants prefer this way of billing, from what we’ve heard, it’s less to enter into an excel spreadsheet.

SEE ALSO: Accepting Credit Cards: 5 Benefits that Boost Your Business

7. What’s the difference between keyed and swiped transactions?

Simply put, keyed transactions cost more. The wholesale rate of any credit card rises between .25 percent to .50 percent. Due to the fact that credit card transactions are not physically happening at the location, the risk of fraud goes up. Higher risk, higher cost.

In a Tiered pricing structure, keyed transactions will usually process as Non-Qualified transactions. Non-Qualified transactions are the most expensive to process. In Interchange Plus pricing the wholesale rate will range anywhere from .25 percent to .50 percent. The markup, however, should remain the same.

Swiped transactions will always be the most cost-effective way to process credit cards for either pricing structure.

8. What happens when I refund a transaction?

There are many misconceptions on how a refund works. The day your customer purchases something from you using a credit or debit card is the day that charge appears on their statement. When an employee refunds a transaction, the entire amount of the transaction will be refunded to the cardholder. For example, if a customer comes into the store and they spend $60, within about three business days the customer will see a $60 refund on their statement.

Simple, right? Now, what does this mean for a small business credit card processors and merchants? Whether you have Tiered Pricing or Interchange Plus Pricing, the percentage to process the transaction will be refunded. The transaction fee will not, however. No one likes going through the process of refunding a transaction, so many stores will institute a no refund policy. Instead of processing a refund, they’ll issue store credit. It’s a win-win for both parties. It allows the customer to return their item and it allows the store to avoid refunding the money.



9. Do I need to buy extra equipment to use your credit card processing?

When you have a POS system, you want to make certain that the credit card processor can integrate with your existing hardware. It allows you to avoid purchasing additional hardware — leasing or signing a contract for credit card processing in return for receiving a credit card processing terminal.

Some businesses struggle with the upfront cost to purchase a terminal, so they’ll lease hardware. Most hardware leases range from 30 to 45 months at $50 per month. This means that in 30 months (two and a half years) you will have paid $1,500. But if you sign on with a credit card processor that integrates with your POS, you’ll save yourself money by eliminating the need for extra hardware. You’ll also be using your POS system more efficiently.

Not only do you save money by using an integrated small business credit card processor, but the efficiency of processing transactions goes way up. For example, let’s say it’s lunch time at a quick service restaurant. The line goes down the block and wraps around the corner. With an external terminal, you have to ring up the sale and process the credit card separately. I know, It sounds like a nightmare! Unfortunately, we’ve heard many horror stories from our merchants due to the high risk of human error using an external terminal.

If you use an integrated small business credit card processor, however, every transaction can be tracked in your POS. The time it takes to process credit cards drops significantly, in turn allowing the business to run more sales in a timely manner. Time is money and having the right integrated, small business credit card processor can save you headaches, time, and most importantly money.

10. Do you take EMV Cards?

EMV chip cards are the latest standard for credit card processing. Their chip technology and pin requirement are intended to reduce, if not eliminate, the risk of fraudulent transactions. The liability of fraudulent transactions transitioned to merchants October 2015.

What this means is that if a chargeback occurs and the merchant does not have an EMV capable reader, they are responsible for the loss. As a small or new business owner, not having an EMV reader can potentially put your business at risk of losing money.

If a small business credit card processor you are vetting is not able to accept EMV credit cards — either the programming isn’t set up or there is a lack of support — but they have an EMV capable reader, then you want to make sure they have a liability promise. A liability promise dictates the course of action in the event there is a chargeback. The credit card processor usually agrees to pay out a certain dollar amount if a chargeback results on an EMV chip card. The EMV chip card must be processed (swiped) on the EMV capable terminal in order for it to qualify under a liability promise.

You’ve read up on what you need to know when choosing a small business credit card processor. It might seem like a lot of information. But the facts we’ve presented to you — if taken into consideration — will save you money and significant time down the road. If you have additional questions about credit card processing for small business, or suggestions for topics you want us to cover, leave them in the comments below. You can also follow and tweet at us @ShopKeep.

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