If you have your own business, you most likely have gone through the annoying and frustrating process of choosing a credit card processor (also called a merchant account provider) in order to accept credit cards.
Since there isn’t a lot of information out there on how to choose a processor, a lot of business owners get ripped off with tricky rates, confusing salespeople, and contracts that are impossible to understand.
Here are some tips to help guide you in your search:
No cancellation fees allowed
Make sure to read the fine print from your credit card processing contract. You may be surprised to find a cancellation fee from at least $250 to several thousand dollars. This fee is a way of guaranteeing your loyalty to the processor, regardless of your satisfaction with their service.
The good news is that getting rid of this fee should not be a problem: most salespeople have the authority to waive it. To avoid this problem, talk to the salesperson and make sure the fee is waived in writing either in the contract or as an amendment.
For a business that’s just getting off the ground, making sure to have the “no cancellation fee” clause is a great hedge in case anything goes wrong.
Only interchange plus pricing
The bulk of the processing fee goes to Visa and Mastercard—this fee is called interchange and is set in stone. Interchange-plus pricing is the fairest form of pricing structure for your business, meaning that you pay the interchange fee plus a constant markup which goes to theprocessor as a service charge.
Having this structure ensures there are no tricky fees or hidden costs, unlike tiered pricing structures.
Research shows that the best deal can be found by comparison shopping for credit card processors – at least five.
However, make sure to compare on an apples-to-apples basis, and be sure each processor knows that you are actively shopping.
You can easily make your bids more competitive by leveraging the power of comparison.
What about PayPal?
If you’re in ecommerce, PayPal seems to be the no brainer choice for a processor. It’s an ok choice in the beginning when credit card revenues are low and your service is growing.
However, as revenue gets in the thousands, it’s time to reevaluate; PayPal may be taking more of a cut for their service than a traditional merchant account provider. You can learn more about traditional merchant account providers here.
Don’t Rent or Lease Equipment
For the most part credit card processing equipment is quite cheap now. Those little black terminals that you see in small retail stores usually cost $100 – $300 and a full-fledged POS system is a little more than a desktop computer, less than $2,000.
If you own your own equipment there is less chance for processors to sneak in extra profit by padding your lease payments and it also makes it easier to switch if something goes wrong in the relationship. Here‘s a guide from eBay on evaluating and buying equipment.
The bottom line
If you do your homework, the right credit card processor will help grow your business beyond bounds, while keeping your risk to a minimum.
Image: Richard Dutton, Creative Commons
Guest contributor Stella Fayman blogs about credit card processing at the TransFS Blog. TransFS.com is the comparison shopping site for credit card processors; just like getting multiple quotes for airfare using Expedia, TransFS lets business owners compare top quality processors on an apples-to-apples basis and makes sure they get the best deal by not having any cancellation or hidden fees, and only interchange plus pricing. Contact Stella with specific questions at firstname.lastname@example.org or connect with her on Twitter.