Financial Foundations: Are Credit Cards Costing You?
Are Credit Cards Costing You? Educate yourself on all the costs in processing credit cards.
By Rod Foster
In today’s society of charge now, pay later, most owners realize the need to accept credit cards. While taking credit cards can help a business increase sales by as much as 30 percent, there are costs involved. These costs are where the confusion starts.
Who is the contact for your credit card processing service? This is a question many business owners are not able to answer. Often owners have a toll-free number they can call for support, but if they need personal service, they do not have someone that can come out and help them. The credit card service is usually set up over the phone, with no personal contact or help from a sales rep and only a toll-free number for future issues. When possible, choose to have both a toll-free number and personal service.
What percentages are you really paying? How many times do you get sales phone calls from credit card processing companies promising low rates? These companies are trying to pull in business, but rates vary depending on the card type and how the transaction is entered. It is important to understand how rates can vary. Debit cards, rewards cards, corporate cards and others all have different rates. The rates will also vary depending on whether you swipe the card or key in the credit card number. Why are credit card charges sometimes classified as “non-qualified”? Credit card charges can fall to non-qualified status for a few reasons. If a card number is keyed in and the address verification does not match the billing address of the cardholder, the charge will fall to non-qualified. Some card types will automatically be non-qualified, such as corporate and commercial cards. Processing fees for non-qualified charges are the highest rates paid by the business owner.
Are you providing the pertinent information for keyed in sales? If you hand key in a sale, it is very important to answer the questions your terminal will ask in order to keep your rates at a qualified level. When going through a manual sale, questions will come up on your terminal asking for information such as billing address, Zip code, tax amount, and the three-digit code on the back of the credit card. Answering these questions verifies that the credit card belongs to the card holder, and helps prevent fraud. If these questions are skipped, or answered incorrectly, the charge changes to a non-qualified charge and the fees increase. A few types of cards will ask you for the tax amount. To keep the sale at the qualified level, you should enter an amount even if it is $0. Is a PIN pad for debit transactions beneficial? A keypad for the customer to enter a PIN can be beneficial if your business has a lot of debit/check card transactions, and the average sale is over $20. With debit transactions using a PIN number, you are charged a set fee with no additional percentage. However, some customers do not want to enter their PIN number and will want to run the card as a credit card. Running a debit card as a credit card will cost more than a debit transaction, but your percentage should still be lower than a regular credit card.
Are you set up as a retail business or mail order/telephone order? Being set up as “retail” means you swipe the card at least 75 percent of the time, and the customer is in front of you for the transaction. If you are set up as a mail order or telephone order business, transactions are done by keying in the number when customers call, mail or use the Internet to give payment information. Mail order/telephone order is usually about 40 percent to 60 percent higher than retail on average.
How quickly are you getting your money deposited into your bank account? Most credit card processing companies deposit money into the business customer’s account in 24 to 72 hours. There are some processors that can deposit funds within 24 hours from the time the settlement is put through. Are your processing fees charged daily or monthly? Fees charged by the processing company can either be charged on a daily or monthly basis. Monthly fees are much easier to understand and better for keeping good bank records. Daily fees can make it hard to figure out what is being deposited into your account and what you were actually charged. Can you use an existing terminal and change processors? Unless you have a very old terminal with low memory, your new processing company should be able to reprogram your existing credit card terminal. This is where personal, hands-on service from a provider is helpful if they can come to your business and do this for you. Does a credit card terminal lease lock you into your current processor? A lease does not lock you into a processor. Lease companies are a separate entity from the credit card processing company, thus giving you the ability to keep an existing lease and change processing companies.
Can different processors link to your POS (point-of-sale) system? Most POS systems can link to various processing companies. This is a good issue to address before purchasing a system, however, so you are not locked into only one processing company. You can ask about this issue by contacting the POS systems customer service. Understanding your credit card processing service is an important part of running a business. Knowing the costs involved in accepting credit cards, the rates that apply to the various types of cards and remembering to shop around until you find the right processor will save you money and time.
Rod Foster is a partner with BancCard. You can reach him at (913) 685-8283 or
