Credit Card Processing Fees For Small Business – As a small business owner, you obviously need to be able to pay for your offerings, whether you run a small retail business, hair salon, pet service, or something else. Credit cards have grown and continue to be (in some form) the most common form of payment by your customers, so it’s important to have the right tools to accept credit cards.
With vendors and credit card processing platforms, you can offer this payment method to your customers and use it to your advantage to acquire new customers. But the credit card process can be complicated (and expensive), and there are a few things you need to know and understand before committing to one processor or payment provider over another.
Credit Card Processing Fees For Small Business
We want to take you through the intricacies of credit card processing fees, including what you need to pay and some things to watch out for.
What Is Credit Card Processing And How Does It Work
Credit card processing fees generally refer to the transaction fees associated with accepting a credit or debit card for payment. Many popular processors that cater to small businesses charge a flat dollar amount and a small percentage of the total transaction each time a credit card is processed.
This fee typically varies based on how the card was processed (in person, swipe, manual, online, over the phone, etc.) and other factors, which we discuss below.
There are other fees that come into play when you decide to start processing credit cards. Let’s go over each of these fees so you know what to expect when you start shopping for the best credit card processing solution for your business.
Before we dive into any handling fees, we want to cover some of the basics that can affect your bill. Keep this in mind when trying to decide which platform to use.
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The credit card processing method may affect your invoice. Swiping or depositing a chipped credit card in person has a lower risk of fraud and chargebacks, allowing your processing or payment providers to offer lower processing fees.
When a card isn’t physically processed, such as when your customer enters their information online or pays over the phone, or when the magnetic stripe or EMV chip isn’t working properly in your point-of-sale (POS) hardware and the cash register needs to be. enter the number manually – there is a higher risk of fraud as it is more difficult to protect the information, resulting in higher prices.
Most credit card processors require a small fee to be paid for each purchase, rather than the percentage they charge. If your average purchase size is small, you may pay more in transaction fees.
Example: Let’s say you have 100 $5 transactions and 5 $100 transactions and your service provider charges $0.10 for each transaction. You pay the $0.10 fee 100 times for a smaller transaction, but only five times for a larger transaction. This is one reason why some retailers have a minimum purchase amount required for credit card purchases. Small purchases can cost you to sell goods!
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Each company has a standard industry classification code and a trade category code. These codes help card issuers and processors see what type of business their customers are involved in. Riskier businesses typically have higher fees attached to their transactions.
There may also be some social pressure for processors to charge higher fees (or avoid providing services altogether) for certain types of businesses. Businesses related to firearms or shooting ranges, adult entertainment companies, and cannabis companies are just a few that have had trouble getting credit card service at various times. .
When it comes to credit card processing, fees can start to add up, so we encourage you to shop around and look at several options before signing a contract. It is important to understand the types of rates available and how your individual business may be affected by them.
Consider the factors that can affect your fees when reviewing the types of fees that typically come with credit card processing.
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If you use a business account, there are usually two types of fees you must pay to process credit cards.
Interchange fees are non-negotiable fees determined by the issuing bank and card network (such as Visa or Mastercard). Every time a customer uses their credit card, a transaction fee is charged. It’s usually a flat dollar amount and a small percentage, like 2% + $0.15. So, on a $10 transaction, the exchange fee would be $0.35.
Markup fees are negotiable fees that your supplier adds on top of their exchange rates. This is the “markup” they receive for providing this service. Again, this is usually a small percentage and a fixed dollar amount of the exchange rate.
Some fees are unavoidable, such as transaction fees and equipment fees. But if you read the fine print, you can rest assured that you won’t have hefty termination fees to pay later down the road.
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Some providers charge a fee for a technician to help install their payment processing software and equipment. This varies by provider, and some providers do not require a setup fee.
Termination fees come into play when you cancel a contract or end your service with a provider. This is where you want to read the fine print. Make sure you understand the terms of your contract and termination fees before committing to anything.
Equipment fees apply if you need a terminal, phone extension or tablet to process credit cards in person. Sometimes you can buy the equipment, and sometimes you need to finance or lease the equipment, depending on the cost.
Learn about the different recurring charges you may see on your statements from credit card providers. Some of these may not be necessary for your desired level of service, so make sure you understand what you are paying for.
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Many service providers require a monthly subscription fee for customer support and PCI compliance. If you don’t see this charge on your bill, make sure you always have access to some form of customer support in case of problems.
Some providers require a minimum monthly fee to ensure you get the cut even if you have a slow sales month.
If you receive paper statements or online statements, your provider may charge a service fee for each statement it receives. This may be called a “handling fee” or “other fee”. Sometimes you can save on this fee by opting out of mailed paper statements.
Some providers may charge an “IRS reporting fee,” where they charge a fee to report your transactions to the IRS and provide you with necessary documentation. This is a practice of spam that must be questioned. Most providers will do this for you for free.
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If your provider offers PCI compliance and support, they may charge a fee to help with this. This may be included in your monthly subscription fee. However, sometimes this fee is paid without any benefit to the customer, so make sure you get what you pay for.
When you sell products/services online, these payments go through a payment gateway provider to ensure that the information is encrypted and secure. Some of these providers may charge a fee, but others may not. Your payment processor may also have a preferred payment gateway provider with their service.
These fees are the general “credit card processing fees” you’re probably familiar with, and may include some of the fees we’ve discussed.
Transaction fees are fees incurred each time a credit card is processed. They usually have a fixed dollar amount and a small percentage, similar to the exchange rate and markup. Depending on the type of provider you use, your transaction fee may be the exchange rate and surcharge. Some providers only charge a flat fee per transaction.
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Fixed fees vary between each type of payment processor. This is your monthly fee, equipment costs and any recurring fees that have the same interest rate every time you pay them.
Incidental charges are determined on a case-by-case basis. Generally, you will incur a contingency fee if there is a chargeback or insufficient funds to cover the transaction. Card not present (CNP) fees may also be considered contingency fees if your processor charges additional fees or special fees for this type of transaction.
Be sure to discuss the fee structure with your service provider or processor representative so you have a good idea of what to expect in any fees associated with accepting credit cards so there are no surprises.
Traditionally, every brick and mortar business would work with a merchant account and their bank to process credit cards. It is a time-consuming and often expensive proposition to connect a card reader to the system, terminals installed at your place of business, approvals, etc.
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This is very fine print (and probably unnecessary)
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