How to Avoid Overpaying for Credit Card Processing

June 7, 2018

Merchant services represent one of the biggest yet most confusing expenses most businesses face. Credit card processing can come with confusing terms, unclear rates, and a seemingly endless list of fees. It can be easy for these costs to add up, especially when they start out reasonable. One of the most common reasons business owners switch to Host Merchant Services is because they feel they have been overpaying with their current payment processor. Here’s what you can watch for to avoid paying more than you need to for payment processing.
Check the Pricing Model
Make sure you understand the pricing model the payment processor uses before you sign up. There are three ways you can be charged for credit card processing: a flat-rate system (such as Square), a tiered model, or interchange plus pricing. Interchange plus pricing is the most upfront method and usually the cheapest. With this pricing model, you pay the actual interchange fee set by the payment networks plus a markup.Flat rates advertised with no fees can be tempting but this pricing model is usually expensive. With this option, you will pay a single rate but many of your transactions likely qualify for a much lower rate with interchange plus pricing. Tiered pricing, on the other hand, lumps the hundreds of interchange rates into 3 tiers. While the lowest tier rate may be advertised, most of your transactions will probably fall into a higher tier.

Avoid Term Commitments
If you need to sign a contract with a term commitment, it probably means that you are not getting a good deal on credit card processing. This is the payment processor’s way of committing you to their service. If you want to cancel your contract, you will likely face a hefty early termination fee. The contract may also include auto-renews which can lock you in for years. Choose a processor that allows you to cancel at any time without cancellation fees.

Watch for Hidden Fees
Ask for a list of ancillary fees you could be charged before you sign up for payment processing service. Fees to watch for include:

  • Set-up fees
  • Application fees
  • Annual or monthly fees to keep your account open.
  • Statement fees
  • Batch fees
  • PCI compliance fees
  • IRS fees
  • Cancellation fees
  • Terminal lease fees. Some payment processors require a long-term lease for a credit card machine.
  • Monthly minimum processing fee which is the difference between how much you paid in processing fees and your monthly minimum.

To avoid overpaying, choose a payment processor with few additional fees aside from your processing costs. Make sure you understand what you will be paying each month and don’t be afraid to negotiate.

Choosing a payment processor is a big decision that shouldn’t be done lightly. At Host Merchant Services, we take pride in offering a higher level of service with no term commitments, no upfront or hidden fees, a free equipment program, and our lowest rate guarantee.

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