Accepting credit and debit cards is a key part of operating a business․ Consumers who shop online and in retail stores and use their mobile phones to pay bills and order goods have learned to expect quick and convenient payment methods․
For small businesses‚ convenience has a cost․ Fees charged on individual transactions by merchants might not appear significant․ However‚ for small businesses‚ fees on many transactions can represent a significant cost․
Advantages for small businesses of lower payment processing fees include tips for maintaining good customer relations․ Tips for reducing payment processing fees for small businesses include educating yourself about the fees and reviewing statements․ Other tips include accepting specific types of payments․
Know What You’re Actually Buying
The first step in lowering processing costs is understanding processing costs․
Many business owners focus only on the price they agreed to when initially contracting with payment processors․ Other costs of accepting credit cards may be associated with doing business with a payment processor․
A merchant statement might include merchant fees assessed by the processor and other gateway and equipment fees․ Other fees may be assessed by your processor for additional services․
Rather than focusing on the rate provided to you‚ business owners should evaluate total processing fees․
One metric to evaluate is effective processing rate․ Businesses can calculate their effective processing rate by dividing the total amount spent processing cards over a given time period by the total amount in card sales during that same time period․
For example‚ a company with $50‚000 in credit card sales during a month and $1‚500 in credit card fees has a 3% effective rate․
Tracking this metric over time may reveal patterns in your data․
Learn About Your Pricing Policy
Not all payment processors charge merchants the same․
Two common pricing models are flat-rate pricing and interchange-plus pricing․
Flat fees have benefits related to ease of understanding because flat fees for specific services are easy to understand․ Ease of understanding is a particular benefit for small businesses that don’t have many transactions․
Interchange-plus pricing allows you to see card network fees and processing fees for each transaction․ Interchange-plus pricing provides additional advantages in terms of transparency about processing fees․
Neither model is right for all businesses․ Reasons one model might be better for your business than the other include the volume and average sale amount‚ cards accepted‚ and other factors․
Businesses interested in learning more about interchange-plus and other pricing models can compare interchange-plus and other pricing models to determine whether their current pricing model is right for them․
Knowledge of merchant services fees can help business owners compare payment processors with other criteria in addition to the information provided by payment processors about costs․
Review the Merchant Statement in Its Entirety․
Merchant statements are confusing and can cause people to miss small charges․
That could be a mistake․
Small amounts paid at a time don’t amount to much‚ but fees paid each year can total a significant amount․
Business owners can implement strategies to track account fees‚ including statement fees‚ gateway fees‚ equipment fees‚ PCI fees‚ and other account-related fees for business accounts․
The goal is not to prevent additional charges․ Some additional charges are for services that benefit the company․
Owners should take steps to educate themselves about the sources of their costs and any benefits they are receiving from them․
If a fee is ambiguous‚ the business should ask the vendor for more information about the fee․
Consider How Customers Pay
The method of payment used by the customer may impact processing fees․
A business that deals with in-store sales may have different types of payment transactions than an e-commerce business that conducts all sales online․ Manually entered payments may carry higher costs and risks than other payment transactions․
Business owners need to know the sources of their business income․
If a large share of sales is occurring through a more expensive sales channel‚ other business processes may be involved․ There may be opportunities to streamline the sales process․
The objective is not to encourage customers to use more expensive payment methods․ Businesses aim to satisfy customers’ preferences for payment methods at a low cost․
Don’t Sacrifice Customer Experience
Processing costs are a factor‚ but it could be wrong to try to reduce customer processing costs․
Consider an online retailer that discontinues some payment options because another payment option is less costly․ Increased barriers to purchasing at checkout could reduce sales at the online retailer․
The company might save money on costs to process orders‚ but it will likely lose more sales revenue․
The same challenges exist for brick-and-mortar retailers․ Problems at brick-and-mortar stores‚ such as long checkout lines‚ can frustrate customers and prevent sales․
Small businesses should take payment processing costs and other customer service factors into account in deciding which payment options to offer․
Sometimes it can be beneficial to pay a higher price for alternative payment methods than the lowest possible price for the product or service․
Pay Attention to Chargebacks
Chargebacks may be subject to extra fees in addition to transaction fees․
If a customer disputes a sale‚ the company might not be able to receive payment for the goods and services sold․ Other costs and expenses to the company should be considered due to customer disputes about sales․
Minimizing avoidable chargebacks can help reduce other credit card processing fees․
Clear billing practices help consumers recognize charges․ Other customer service practices‚ including providing information about products and return policies and timely information about shipped goods and other customer service‚ can help avoid billing problems․
Businesses should educate themselves about reasons for chargebacks‚ in addition to handling individual chargebacks․
Recurring complaints about a particular issue may indicate something that can be improved․
Reduce Avoidable Payment Failures
Uncollected or rejected payments can lead to expenses․
A bad payment can result in lost sales or wasted employee time calling customers to obtain other payment information․
Some rejections are unavoidable․ Customers may not have available funds on their credit cards or other accounts․ Rejections of credit card transactions for other reasons are also possible․
Other reasons transactions may be declined include outdated information‚ maintenance issues‚ incorrect information‚ and efforts to prevent fraud․
Companies should research trends of decline and other important developments․
The purpose of these measures is not to authorize suspicious transactions․ The purpose of these measures is to ensure that legitimate buyers can shop․
Use Appropriate Tools and Technologies
Older payment methods can be costly․
Modern payment terminals include features like chip card and contactless payment capabilities and links to business mobile devices and other systems․ Other advantages of upgrading payment terminals for businesses include increased efficiency during checkout and other transactions․
However‚ it is not in companies’ best interest to routinely update equipment with newer models․
Restaurant owners should evaluate the advantages of new payment technologies before buying them․
Does it reduce work for the company? Reduce costs to maintain the system? Satisfy customer demands for alternative payment options? Integrate with other company software products?
Technology is most beneficial to businesses when it solves a business problem․
Look for Unnecessary Complexity
Pay structures in expanding companies may be complicated․
A company might have‚ among other things‚ software used in its physical stores‚ software used in its online store‚ and other software used for billing and other mobile or subscription services․
Sometimes two or more systems are installed․ Sometimes the company is paying for redundant services․
Reviewing the entire payment process may reveal ways to streamline it․
Consolidating systems may streamline reporting and other business processes and reduce costs by eliminating redundant spending․
The aim of the project is to improve usability without changing business processes․
Negotiate More as the Company Grows
A payment strategy that makes sense for a company with monthly sales of $10‚000 may not make sense for a company with monthly sales of $100‚000․
Growth affects payment processors’ business models․
Small cost advantages are more valuable at higher sales volumes․
Consider a business with $150‚000 in monthly credit card sales․ Decreasing the percentage fee by 0․25 percentage points would save the business $375 per month and $ 4,500 annually
Companies experiencing fast growth may want to periodically evaluate their pricing strategy to make sure it fits their company size and sales volume․
That doesn’t mean switching processors because other processors provide lower prices․ That does mean taking advantage of other companies’ changes in payment practices to negotiate new or better terms with those companies․
Consider the Overall Cost‚ Not Just the Immediate Cost․
The least expensive processor might not be the least expensive computer overall․
Payment processing is a function of many business activities․
Reliability prevents lost sales from system outages․ Customer support services can resolve other problems․ Quieter payment processing can improve cash flow․ Other reporting tools can save employee time․ System integrations can eliminate the need for manual data entry tasks․
Security and fraud protection are additional advantages․
Business owners should take other steps when evaluating a potential relationship with a customer who represents a small share of sales․
Small cost savings from using a single vendor to perform a function may be outweighed by other problems with that vendor at other points in the process․
Use Payment Data to Detect Problems
Modern payment systems provide transaction services to business customers․
Owners can monitor metrics related to payments and returns‚ including return and refund rates‚ chargeback rates‚ failed payment attempts‚ sales channels‚ and types of payment accepted․
This information can help identify unusual activity․
For example‚ increases in returns might indicate a problem with the transaction and fraud review process․ Increases in product returns might indicate problems with a particular product․ Increases in sales volume might be a sign that transaction fees should be reconsidered․
Payment information should not be solicited or stored automatically․
Proper use of the tool can help business owners understand payment costs and ways to improve their business practices․
Conduct an Annual Audit of Your Payroll System
One simple way to reduce processing fees is to establish a recurring payment review process․
Small businesses spend a lot of time and resources seeking lower rents‚ insurance premiums‚ and other supplier costs but make no changes to their payment processing arrangements for many years․
An annual report might provide details about payment processing costs‚ processing times‚ fee structures and ongoing fees‚ payment rejections and chargebacks‚ payment-related hardware requirements‚ business partnerships‚ and other payment preferences held by customers․
The aim is not necessarily to change providers․
If the current system is less expensive and not burdensome to use‚ you may want to stick with it․
The objective is to take action to implement a decision‚ not to leave things as they are because no decision has been made․
Final Thoughts
Payment processing is a cost of doing business in today’s economy․ This does not mean‚ though‚ that businesses can’t take steps to lower payment processing costs․
Small businesses can lower processing fees by researching their fees‚ including fee schedules‚ and reviewing merchant statements and other information related to chargebacks and denials to prevent being charged for services they do not use․
Payment processing should be evaluated as the business grows․ If sales increase‚ it may be worthwhile to switch payment processors․
At the same time‚ other considerations besides cost are important too․
A payment plan program provides customers with low-cost‚ safe payment alternatives and other benefits‚ including convenience and other customer benefits and access to tools and assistance․
The goal isn’t to save money․ The goal is to choose a payment method that will make it easy for customers to pay you and lower other payment costs for your business․
