As a small business owner, you’ve probably got a careful eye on your bottom line. Unfortunately, one area of financing that many merchants overlook is the cost they pay every month to process credit cards. All too often, business owners just take the first offer they get when they’re setting up a merchant account and most stay with the same credit card processing company even if they could save money elsewhere.

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Do yourself a favor and take the time to shop around and don’t be afraid to negotiate! Chances are you can save a lot by switching merchant account providers or looking for new options. If you’re afraid you might be paying too much, here are the most important things to look for in a new provider to save thousands.

1. Have a Merchant Account Already? Negotiate

It isn’t always necessary to switch providers if you’re happy with the service but you should be getting a competitive rate. Take 30 minutes out of your time to call your provider and ask them to review the current rates you’re paying and ask them to lower them. If they flat-out refuse, it’s time to go because all businesses should at least be willing to review your account.

A tip for negotiating: understand competitor’s rates and use them as leverage. Make sure you’re comparing apples to apples, though; get a quote from another company based on your typical transactions or have them look at your current bill to show you exactly what you would pay with them.

2. Avoid Leasing Processing Equipment

If you run a retail store, don’t make the mistake of leasing equipment. Choose a merchant that allows you to buy it outright because it really isn’t nearly as expensive as most people believe and you will more than likely pay much more with a lease fee every month.

Most terminals range from $250 to $350, although very basic terminals will cost around $200 and high-end wireless terminals can run about $1,000. The best credit card processors will have competitive rates so it’s time to turn and run if you’re being asked to pay more than the going rate.

3. Skip Bank Merchant Services

Many banks also provide merchant services but very few actually offer in-house service. More likely, they will just use a third party and add additional fees to the rate. This costs you more money because you’re just paying a middle man for the same service you could get by going directly to the credit card processor yourself.

4. Do Not Sign Up for Long Contracts

Any merchant account provider that wants to sign up for a lengthy contract and charge you a fee if you want to leave should be avoided at all costs. This basically gives them the right to overcharge you or offer poor service and then charge you if you find a better deal elsewhere.

While the average contract in the industry hovers around 3 years, the best credit card processors will offer month-to-month contracts with no cancellation fees. Considering the competitive nature of the industry, this is something you want to look for because it shows they’ll work harder to keep your business.

5. Understand How the Interchange Fee Works

If you don’t know how Interchange fees work, you’re in a position to be taken advantage of. The Interchange fee is basically what credit card companies charge and it’s set by Visa and Mastercard and then split between credit card networks and the issuing banks.

The Interchange rate is made up of more than 100 categories and the rate that applies to each type of transaction depends on which type of card is used, if the customer is present, what information is collected and other factors.

Unfortunately, most small businesses aren’t even told about the Interchange rate but are instead given a single rate, or discount rate, which includes this fee and another fee charged for every transaction. This means small merchants don’t know the percentage of their discount rate that goes to the processor.

This markup, or the fee that’s paid to the merchant provider, is most of the difference between what various processors charge because the Interchange rate is identical with every merchant account provider and cannot be negotiated.

6. Watch Out for Bait Rates

Now that you understand the Interchange rate, make sure you avoid any merchant account providers who post “bait” rates on their website. Because the Interchange rate is made up of over 125 categories that depend on various factors, changes are that low discount rate you see on their website won’t apply to your business. Businesses with the lowest risk transactions with the customer present receive the best rates while online businesses or those in certain industries like travel receive the higher rates.

Merchant account providers understand this and they think they can lure you in by claiming low rates that you won’t qualify for. The best credit card processor will not give you a quote until they understand your business, your volume and what type of transactions you process.

7. Look for Interchange-Plus Pricing

There are three primary pricing models credit card processors use: fixed pricing, tiered pricing and Interchange-Plus pricing. Tiered pricing is the most prevalent and involves condensing all of those Interchange categories into only three: Qualified, Mid Qualified and Unqualified. This means the Interchange rates in each tier is just averaged out and then an additional margin of profit is added.

In virtually all cases of tiered pricing, the average tier rate is higher than the real Interchange rate for each transaction. In some cases, this rate will be double or triple the Interchange rate and you may end up paying up to 3.5% + $0.35 for every transaction.

Fixed pricing is also fairly common and it’s used by both PayPal and Google Checkout. It also tends to be more expensive, especially if you have low volume or bad credit.

The best way to save money on credit card processing fees is looking for a merchant who uses the Interchange Plus pricing model, which means the credit card processor passes on the precise Interchange fee for the transaction “plus” a fixed markup.

Suspect you’re paying too much to process credit cards? If so, it’s time to begin comparison shopping armed with knowledge as you could save thousands each year.

Christine Layton writes for and focuses on educating business owners about their options when it comes to merchant accounts and processing payments and how to save money.


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