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Thursday, January 21, 2010

Cash Flow Up! Credit Card Fees Up!

When accepting credit cards for a business the majority of your costs will be the processing fees.  Your rate per transaction is determined by your business risk, percentage of card absent sales, average dollar amount of sale, and total dollar amount of monthly sales.  Lowering transaction risk will lower the rate you are charged.

To get the best rate an understanding of the qualifications are necessary:

  • Qualified rate - the percentage rate that's charged whenever a merchant accepts and processes a regular card using an approved processing solution.
  • Mid-qualified rate - the percentage rate that's charged if a merchant accepts and processes a card that does not qualify for the lowest rate.  This may happen when a card is manually keyed into a terminal instead of being swiped.
  • Non-qualified rate - the percentage rate that's charged whenever a merchant accepts and processes a card that does not qualify for either qualified or mid-qualified rates.  Not swiped, missing information, or not settled in the time allotment (typically 24-48 hours) will trigger the non-qualified rate.
  • Batching - settling transactions within 24 hours to get the best possible rate.
  • Interchange fee - percentage of the transaction to cover the authorization costs fraud and credit losses.  To optimize interchange fees request processor to charge fee as it is incurred.
  • Chargeback’s - when a cardholder disputes a transaction and it's returned to the acquiring bank. Ensure understanding of how the credit card processor handles chargeback’s.
When evaluating credit card processing options, there are numerous factors to consider including the rates above.  The credit card enables all business to increase the upfront cash flow and a review of the cost/benefit will yield the decision not withstanding other factors such as industry practice.
"He that sells upon Credit, expects to lose 5 per Cent. by bad Debts; therefore he charges, on all he sells upon Credit, an Advance that shall make up that Deficiency." ~ Benjamin Franklin