Getting information on what you’ll be charged to process credit cards will help you manage the expenses associated with this important part of your business. Most merchants don’t give too much thought to this after they’ve setup their accounts. Business owners that are overpaying can very easily reduce their fees and those just getting setup for the first time can use the information in this article to make sure they’re not overpaying.
Each business owner will pay a discount rate which is a percentage of the gross volume processed. If the discount rate is 1.7%, the merchant will pay $1.70 for every $100 of volume. So, for merchants processing $10,000 or more per month, each .1% represents $10. So a discount rate of 1.3% vs. a discount rate of 1.9% will save that merchant $60 per month on just the discount alone which is an annual savings of $720. This can add up quickly, so it’s important to keep this rate low.
Your discount rate is determined by the risk your business may represent to the bank. The more risky your account, the higher the discount rate. The type of cards you process may also influence your discount rate, such as a business credit card vs. a check card, or rewards card for instance.
Another fee charged is the per transaction fee which is typically about $.20 per transaction. These can get as low as $.15 to $.16 per transaction but it wouldn’t be worth negotiating that low unless you have an incredibly low average ticket item. If you have a $10 average transaction, a $.25 per transaction would be a 2.5% effective rate. If you add a 1.5% discount rate, you’d end up with an effective rate of 4%.
If you take the same $10 transaction and could lower that per transaction fee to $.17, even with a higher discount rate, say around 1.8%, your effective rate would be 3.5% which would lower your overall effective rate on the transactions.
There is a monthly fee for most merchant accounts. There is a cost associated with providing customer support, physical or even electronic statements, and account maintenance. This is usually a $10 monthly fee that is known as a customer service fee, account maintenance fee or a statement fee.
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 are the primary fees that accompany each merchant account. There are several other fees that may apply depending on whether your are processing through a wireless terminal, an internet-based account, or mail order / telephone order.
Finding a sales rep that you can trust and work with on your account will save you significant hassles later on and will be a relationship you can leverage to make this important part of your business hassle free.
