The construction industry is a vital sector of the economy, as it involves the building and maintaining of infrastructure and facilities that support the daily lives of individuals and businesses. As of 2022, the construction industry annually contributes 4% to the US GDP. However, the industry has been historically known to be cash-based, accepting payments through either checks or physical cash. However, with the rise of technology and digitalization, many construction companies are now turning to credit card processing as a way to improve their business operations.
In this article, we will explore the need for credit card processing for construction companies and how it can benefit the business, the different types of construction credit card processing available, the cost of credit card processing for construction companies, and additional benefits that business owners can reap.
How would credit card processing for construction companies help the business?
Credit card processing for construction companies can help the business in several ways. First, it allows for faster and more efficient payment transactions, as payments can be made quickly and securely through credit card terminals or online platforms. This can reduce the time and effort required for processing checks and cash, leading to improved cash flow and financial management for the company.
This is a two-fold benefit over cash or checks. Cash is immediate, but there is still a need to deposit it in the bank and the subsequent paperwork needed to record the transaction for accounting purposes. With credit card processing, there is no wasted time and expenditure to take security precautions for bank runs. Furthermore,
In addition, credit card processing for construction companies can also help to increase sales and revenue. By accepting credit cards, construction companies can expand their customer base and tap into a larger market, as many consumers prefer using credit cards for their purchases. This can also lead to increased repeat business, as customers are more likely to return to a company that accepts credit card payments.
The different types of construction credit card processing
Several types of construction credit card processing are available to construction companies. One of the most common types is card-present processing, which involves accepting payments through a physical credit card terminal or point-of-sale (POS) system. This type of processing is typically used for in-person transactions, such as at a construction site or office.
Another type of construction credit card processing is card-not-present processing, which involves accepting payments through an online platform or over the phone. This type of processing is typically used for remote transactions, such as when customers order materials or equipment online.
The cost of credit card processing for construction companies
The cost of credit card processing for construction companies can vary depending on the type of processing, the provider, and the company’s specific needs. Some providers charge a flat rate for each transaction, while others charge a percentage of the sale. Additionally, there may be added fees for things such as chargebacks or monthly statements. Construction companies must research and compare different providers and pricing options to find the best fit for their business. Many providers offer free quotes and consultations, which can help determine a specific company’s credit card processing cost.
There are two types of pricing options that merchant service providers often quote. The first is the Interchange Passthrough, also known as Interchange-Plus pricing. The second is the Tiered pricing option.
What are construction credit card processing fees, and how do they work?
Before we get into the details of interchange-plus and tiered pricing as a pricing structure for construction credit card processing, it is best to understand what are the prices that are applicable for credit card processing for construction companies.
The charges for construction credit card processing are known as interchange fees. The breakdown of interchange fees consists of three parts and includes the following;
- Interchange fees: charged by the card networks (e.g., Visa or Mastercard) to the merchant’s bank for processing the transaction.
- Assessment fees: also charged by the card issuer and are a percentage of the transaction amount.
- Acquiring bank fees: charged by the merchant’s bank to cover the cost of processing and settling the transaction.
Of these three fees, there is some maneuverability for negotiations in the acquiring bank fee, also referred to as the merchant service fee. The assessment fee charged by the issuing bank is an agreed-upon rate and isn’t negotiable, and it is a known percentage added to the interchange fee.
Interchange fees are a bit different. It is charged by the card networks that publish the interchange rate on their website. So what their different rates are is known, however, which rate is applicable for any given transaction is not. That is based on many factors; the rate for a debit card is different from a credit card. The rates also vary by card category: fleet card, rewards card, or corporate card. Even how the transaction was processed can impact the interchange fee; was it swiped or keyed in?
Then there are the different pricing models. In the Interchange-plus pricing model, or the Interchange passthrough pricing model, also commonly referred to as “cost plus” pricing, a business pays the exact cost of the interchange fee, which is the fee charged by the card issuer, along with an additional markup charge from the processor. This markup includes a percentage of the transaction amount and a fixed fee per transaction. One benefit of this pricing model is its transparency, allowing construction companies to understand the exact cost of each transaction. Furthermore, since the business is only paying for the actual cost of the interchange fee, construction companies can be confident that the pricing structure is fair.
On the other hand, Tiered pricing groups different types of transactions into different “tiers” and assigns a different rate to each tier. This makes it more difficult for businesses to understand what they are paying for each transaction and can result in them paying more than they would with an interchange-plus pricing model. This is because, with tiered pricing, processors will often combine different interchange categories (such as qualified, mid-qualified, and non-qualified) and mark up each tier differently, creating confusion and hidden costs.
Take, for example, the fee for a debit card, which would be a part of the lowest-priced tier, along with one of the most straightforward card available, let’s say, a Citibank Mastercard Classic. No bells and whistles, no additional benefits, and no cash back on purchases on that credit card; it lets the consumer use the card wherever Mastercard is accepted. That card will have the same fees as a debit card in the plan’s lowest tier. As reasonable as that may sound, the problem with such an arrangement is the Durbin Amendment. That regulation aims to cap the interchange fees assessed on transactions involving the use of debit cards for payments.
The regulation directs the Federal Reserve to enforce this regulation, and the cap on debit card transactions is set to 0.05% + $0.22 for every transaction processed. However, the lowest tier in a Tiered pricing option will charge 1.85% + $0.25 per transaction. A pricing option touted as seamless and straightforward for anyone to understand at the surface has a very hefty cost structure built into it.
In general, interchange-plus pricing is the more transparent and fair pricing model because firms can see precisely what they are paying for each transaction and be assured that they are not overcharged. However, tiered pricing can be more beneficial for law firms with a high volume of transactions, as processors may offer a lower overall rate for these businesses.
Additional benefits along with construction credit card processing
In addition to improved cash flow and increased sales, credit card processing for construction companies can also provide other benefits. For example, many providers offer fraud protection and security features, which can help to protect the company and its customers from unauthorized transactions.
Another benefit of credit card processing is the ability to access detailed financial and sales data, which can be used to improve business operations and make more informed decisions. This data can also be used to track customer spending patterns and preferences, which can help to target marketing and sales efforts better.
Security risks to be mindful of for construction credit card processing
There are several security concerns that businesses should be mindful of when accepting credit cards. One of the main concerns is the risk of credit card fraud, which can occur when a criminal uses a stolen or counterfeit credit card to make unauthorized purchases. To prevent fraud, businesses can implement strict security measures, such as using secure credit card terminals and conducting regular security audits.
Another security concern is the risk of data breaches. This can occur when a criminal gains access to sensitive customer information, such as credit card numbers and personal information. To prevent data breaches, companies often implement strong data encryption and security protocols and regularly monitor their systems for any suspicious activity.
Additionally, companies should be aware of their compliance obligations under Payment Card Industry Data Security Standards (PCI DSS), a set of security standards that all businesses that process payments must follow. These standards aim to ensure that they handle credit card information securely and protect customer data from fraud.
Other concerns include chargebacks, which occur when a customer disputes a charge on their credit card statement, and PCI DSS non-compliance penalties, which can consist of fines, penalties, and even the termination of a merchant’s ability to accept credit cards. To avoid these issues, businesses should have a clear and transparent refund policy and comply with all PCI DSS regulations.
Overall, construction companies need to be aware of these security concerns and take proactive measures to protect their customers’ credit card information and reduce the risk of fraud and data breaches. This can help to ensure customers’ trust and maintain a positive reputation in the industry.
Ways to mitigate the risks of accepting credit cards in Construction
- Secure credit card terminals: Use encrypted credit card terminals that comply with Payment Card Industry Data Security Standards (PCI DSS) to ensure that credit card information is transmitted and stored securely.
- Implement data encryption: Use encryption methods to protect sensitive customer information, such as credit card numbers and personal information, from being intercepted by unauthorized parties.
- Regular security audits: Conduct regular security audits to identify and address any potential vulnerabilities in the system.
- Employee training: Provide regular training to team members on how to securely handle credit card information and recognize and report suspicious activity.
- Firewall protection: Implement a firewall to protect the merchant’s computer systems from unauthorized access and hacking attempts.
- Anti-virus and anti-malware software: Install anti-virus and anti-malware software to protect the merchant’s computer systems from viruses and malware.
- Monitor for suspicious activity: Regularly monitor the merchant’s systems for any suspicious activity, such as unusual access attempts or unauthorized changes to customer information.
- Use a Payment Service Provider (PSP) or Payment Gateway: Use a Payment Service Provider (PSP) or Payment Gateway that is compliant with PCI DSS to process credit card transactions. This will help to ensure that the merchant is not storing or processing sensitive cardholder data.
How can you choose the best merchant service provider for construction credit card processing
There are several factors to consider when choosing a credit card payment processor. These include:
- Fees: Compare the fees charged by different processors, including transaction fees, monthly fees, and setup fees.
- Payment types: Make sure the processor supports the kinds of payments you need, such as online payments, ACH, eCheck, etc.
- Security: Look for a processor that offers secure payment options, such as encryption and fraud detection.
- Integration – Consider whether the processor can integrate with your existing systems, such as your accounting software or a project management platform.
- Support – Choose a processor that offers good customer support, so you can get help when needed, preferably available 24/7.
- Reviews: Look for reviews, testimonials, and case studies of the payment processor.
Conclusion
Credit card processing for construction companies is becoming increasingly important in today’s digitalized world. It offers construction companies a more efficient, secure, and profitable way of conducting transactions. It also helps to expand the customer base and increase sales. With various construction credit card processing types available, credit card processing costs vary depending on the provider and the company’s specific needs. Businesses need to understand all options available and ensure they are not losing business to the competition by not accepting how customers prefer to pay.