Think You Know Credit Card Processing? Read Our 6 Tips First
But, you probably already know that. That’s why you’re already accepting credit card, or at the very least planning on it. But, do you know some of the in-and-ours about processing payments. Despite what you may think, it’s more involved than just swiping a piece of plastic.
Before selecting a processor, be aware of the following 6 tips.
1. Say ‘No’ to Contracts and Leasing Equipment
First and foremost, contracts aren’t necessary. The last thing that you want is to sign a contract and then get hit with an early termination or cancellation fee if you aren’t satisfied with the processor.
Also, don’t let a sales rep convince you that you have to lease equipment like a POS system or credit card terminal. They may try to sell you on the benefits of renting a terminal with enticing statements like “you’re not required to pay any money up front,” or “you’re guaranteed a replacement terminal if yours breaks.”
The fact of the matter is that leasing equipment could come with a 48-month lease agreement and cost you between $50 to $100 per month.
In fact, most processors run around $250. Additionally, some companies, like Square or Fattmerchant may give you free processors when you use them to process credit cards.
However, always read the fine print to make sure that you aren’t being charged for the processor.
2. There Are Multiple Pricing Models
Also called interchange plus pricing, interchange pass through is the least expensive, as well most transparent, credit card processing pricing model. The reason is that interchange pass through separates interchange and assessments, which happens to be the actual costs of processing credit cards, from the markup that processors charge.
In other words, this rate is the current interchange rate, which set by banks, plus the fee added by the provider (example: 2.9% plus $0.50).
However, despite its transparency, this model can get complex. That’s why most merchants go with tiered pricing. This model charges a fixed fee about the type of transaction being processed.
Transactions fall into three tiers: qualified, mid-qualified, and non-qualified. Qualified transactions have the lowest costs because they’re the safest transactions, such as those swiped in person with a same-day batch settlement.
Another option is a monthly charge which doesn’t use the models listed above. Instead, the business is charged a flat monthly fee for a specific amount of transactions. The rate will increase the number of transactions that come through.
Keep in mind that there could charge additional fees, such as monthly service fee, PCI fees, terminal fees, and payment gateway fees. Read the fine print and look for the most competitive fees that work best for your business.
3. Use an Integrated Payment Processing Solution
Do you use software for accounting tasks like invoicing? If so this is known as an integrated solution where you can process a credit card payment directly within your system. This means that you don’t have to any additional like marking your invoices as paid, balancing the general ledger, or updating your inventory because this solution handles all of those tasks automatically.
This ultimately saves you time, money, simplifies your tax preparation, and gives you better forecasting into your finances. It’s also more accurate since you and your employees don’t make errors like miscalculation and making redundant entries.
4. The Cost Difference Between Debit and Credit Transactions
Debit cards are the preferred method for customers. On the surface, that may not seem like a big deal when it comes to credit card processing. After all, isn’t plastic the same across the board? But, as Justin Pritchard says in The Balance, knowing the difference between debit and credit “determines how your purchase is processed, who pays the bill for that processing, how long it takes, and what your rights are.”
When you process a credit or debit card it “can either be an online transaction or an offline transaction.” When a personal identification number (PIN) is entered, it’s an online transaction. This means that it “gets completed electronically and it’s done pretty quickly.”
If you don’t use a PIN and you sign a charge slip instead, it’s an offline transaction. These “are processed much like plain-vanilla credit card purchases.”
“Even if you use a debit card, offline transactions are very much like credit card transactions,” says Pritchard. “Your debit card might have a Visa logo on it, for example, so it runs through the Visa network. It’s not a credit transaction, but it uses the same infrastructure.”
This is important because when “you do an offline transaction and only sign a charge slip, the retailer has to pay a small percentage of your total purchase – perhaps 2 percent. This fee goes to the bank that issued your debit (or credit) card as an interchange fee.” Online transactions may only charge around 10 cents per transaction.
For businesses that have smaller ticket sales, signature debit transactions are cheaper. However, for larger transactions PIN debit transactions are more affordable.
If you process cards on a card reader, Square and PayPal treat debit and credit as the same. Flint, however, offers a 1.95 percent rate for debit cards and 2.95 percent for credit cards. Compared to Square’s 2.75 percent, that’s up to 0.80 percent saved per debit transaction.
5. Daily vs. Monthly Discount Cost
“Knowing the difference between daily discount and a monthly discount of credit card processing charges can save your business a ton of time and money,” writes Ben Dwyer in a CardFellow article.
“Monthly and daily discount refer to when a credit card processor deducts fees from your business checking account,” adds Dwyer. For a monthly discount “a processor tallies all charges for a month and deducts fees in one lump sum at the beginning of the following month.” This means that the “processor pays interchange fees throughout the month on behalf of the merchant in what amounts to a microloan of sorts.”
A daily discount is where a “processor deducts the qualified rate or interchange plus markup throughout the month and then deducts all other fees at the end of the month.”
In most cases, a monthly discount is less expensive, easier to reconcile, and better for cash flow.
6. Adhere to the Payment Card Industry Data Security Standard (PCI DSS)
To improve customer satisfaction, and keep out of trouble, your business most adheres to Payment Card Industry Data Security Standard (PCI DSS) compliance when processing credit cards.
Here are some of the most important requirements that you need to follow:
- Install and maintain a firewall to protect your customer’s data, as well update malware and antivirus programs.
- Never use vendor-supplied defaults for any passwords or any other security parameters.
- Do not store cardholder data like a PIN or card-validation code information.
- Encrypt all cardholder data when transmitting it
- Restrict access to cardholder data as much as possible.
- Never complete a sale without receiving a valid authorization from the customer.
- Process and deposit transactions for your business only.
- Do not print the full account number and expiration date on paper sales receipts.
- Never charge your cards at your place of business.
- Do not charge the same card repeatedly
That’s just the tip of the iceberg.
Make sure that you’re aware of the latest guidelines issued by visiting the official PCI Security Standards Council site.