Posted by Jeff Shavitz on Tue, Jan 26, 2010 @ 09:04 AM
Figuring out how much a new merchant account will cost your business in credit card processing fees starts with something called the "effective" rate. The term effective rate is used to refer to the collective percentage of gross sales that a business pays in credit card processing fees.
For example, if a business processes $10,000 in gross credit and debit card sales and its total processing expense is $329.00, the effective rate of this business's merchant account is 3.29%. The qualified discount rate on this account may only be 2.25%, but surcharges and other fees bring the total cost over a full percentage point higher. This example illustrate perfectly how focusing on a single rate when examining a merchant account can prove to be a costly oversight.
The effective rate is the single most important cost factor when you're comparing merchant accounts and, not surprisingly, it's also one of the most elusive to calculate. When shopping for a merchant account, the effective rate will show you the cheapest merchant account option. And after you start accepting credit cards it will allow you to calculate and forecast your total credit card processing expenses.
Calculating the effective rate of a merchant account for an existing business is easier and more accurate than calculating the effective rate for a new business because figures are based on real credit card processing history rather than forecasts and estimates.
That's not to say that a new business should ignore the effective rate of a proposed merchant account. It is still the most important cost factor, but in the case of a new business the effective rate should be interpreted as a conservative estimate.
It's pretty simple to calculate the effective rate for an existing merchant account. All you need to do is figure out the percentage of expenses over gross credit and debit card sales. To do this, divide your gross sales by your total processing costs for a given month and then multiply that number by 100. For example:
$10,000 in sales / $329 in fees * 100 = 3.29%
If the effective rate ends up being substantially greater than your qualified discount rate, it's time to examine your account and make money-saving adjustments. Using the example above, let's say the qualified discount rate for this account is 1.69%. That would mean the effective rate of 3.29% is more than double the qualified discount rate. In a situation like this, the chances are very good that there are a lot of mid and non-qualified surcharges being applied.
If you notice a large discrepancy between the qualified rate and the effective rate of your merchant account, call your provider and inquire how the gap can be closed.
To calculate the effective rate for a new merchant account from existing credit card processing history, apply your business's processing statistics such as the percentage of mid and non-qualified transactions, PIN debit transactions versus signature, etc, to the rates and fees of the new account. This will yield a pretty accurate estimate of the cost associated with the new merchant account.
Calculating the effective rate of a merchant account for a new business is a little tougher because of inconsistent buckets, and the lack of credit card processing history from which to judge how a business's transactions will qualify. Nevertheless, making a conservative estimate of an account's effective rate is still vital.
To calculate the effective rate of a merchant account for a business without credit card processing history you will need to estimate a few figures such as the business's average ticket, processing volume, whether a PIN pad will be used to accept online debit transactions and more.
Any merchant account provider that's courting your business should be able to speak with you to gather the information they need to offer you a reasonably accurate effective rate. If they're unable to do this or they don't know what an effective rate is, they're probably not the best candidate for your new merchant account provider.
Article courtesy of: Merchant Council (www.merchantcouncil.org)
To learn more about effective rates or to find out if you are paying the lowest possible rates on your merchant account, click here for a FREE rate analysis.
Posted by Jeff Cohen on Thu, Aug 20, 2009 @ 11:39 AM
Below are a few of the key reasons why merchants overpay for credit card processing, and what business owners can do to address these problems:
1. Confusion about how fees are charged, resulting in costly downgrades
Problem - Credit card processing fees are confusing - transactions can fall into qualified, mid-qualified or non-qualified categories, and many businesses end up paying mid and non-qualified surcharges when they don't have to.
Solution - Contact your credit card processing representative to find out why your transactions are downgrading and what can be done to remedy the causes. If downgrades can't be lessened, consider switching to a new merchant account provider where transactions won't be downgraded as often.
2. Failure to read credit card processing statements
Problem - some businesses just don't read their merchant account statements, which is the main communications tool that many credit card processors use to inform merchants about rate increases and other vital information.
Solution - read your credit card processing statements every month, and pay special attention to the area where important updates (like rate increases) are listed.
3. Difficulty understanding credit card processing statements
Problem - processing statements are notoriously confusing, and to make matters worse, each processor has their own way of structuring their statements, which makes general tutorials on the subject impossible.
Solution - call your credit card processing rep and have them teach you how to read your statements - the time it takes to do this could save you a substantial amount of money.
4. Failure to regularly compare rates
Problem - Credit card processing rates can fluctuate over time. Changes can come directly from Visa and MasterCard or from individual processors, so failing to compare rates on a regular basis could leave you at an expensive competitive disadvantage.
Solution - Periodically test the market and get multiple merchant account quotes. If you're current rates don't compare favorably, it may be time for a money-saving switch.
5. Downgrades to due 'user-error'
Problem - credit card transactions downgrade because of things a person does or doesn't do when charging the card. Certain requirements must be met in order for a credit card transaction to fall into the lowest merchant account rate category, and failing to meet these qualifications may cause a higher rate to be charged.
Solution - learn about the different qualifying requirements for your credit card processor and your specific type of merchant account. The easiest way to do this is to call your credit card processing rep and have them walk you through it.
Courtesy of: MerchantCouncil.org
Posted by Jeff Cohen on Wed, Aug 12, 2009 @ 04:31 PM
There are seemingly endless things to consider when deciding which merchant account is right for your business. You must compare features, discount rates, monthly fees, processing limits, customer service and a whole host of additional account features. Herein lies the mistake that most people make when comparing merchant accounts. The trick to effectively comparing merchant accounts is to keep your evaluations 'general'.
We receive calls all the time from business owners who are comparing merchant accounts and don't want to talk, all they want to know are the rates and fees we have to offer and nothing else. As soon as we tell them our pricing schedule they hang up and call the next provider - these people eventually end up signing a contract with the provider who offers them the lowest merchant acount rates and fees, only to have those rates raised shortly thereafter. The most important thing to do when comparing merchant accounts is to look past the rates and fees. Look for these qualities first when comparing merchant account providers:
Positive, legitimate customer testimonials - look for a provider that is able to provide proof of long-standing satisfied customers. Many providers look to sign up as many merchants as possible while neglecting their current customers. Avoid asking providers for references when comparing merchant accounts, due to privacy issues references often cannot be provided.
A knowledgeable representative with a consultative approach to selling - look for a representative that takes the time to learn about your business before he or she starts quoting rates and fees. look for someone with whom you feel that you can establish a relationship. Remember, this person will be responsible for one of the most costly expenses that your business may have.
A proven track record of support and customer service - look for a provider that clearly defines their times and methods of offering you customer service and support. You want to make sure that help is available if and when you need it.
Only after you've decided on a provider that you feel is right for your business should you look at costs associated with the account. Chances are good that this provider won't have the lowest rates and fees, but they will be willing to work with you to earn your business.
The next step is to contact the provider that best matches the above criteria, and cite specific examples of areas where other providers offered lower rates and fees and ask if they can be matched or beaten. Ultimately, you will end up with the most service-oriented provider and the most competitive rates.
Lastly, when comparing merchant accounts you want to use the ultra-competitive nature of the credit card processing industry to your advantage. Don't feel overwhelmed - feel empowered! Find the best provider based on service and reputation, and then work with them to lower rates and fees to equal or lower than other providers that you've compared.
Courtesy of: MerchantCouncil.org