Swiping plastic may seem easy and convenient, but those credit card processing fees can really take a bite out of your bottom line. As a business owner, you work hard to earn each dollar of revenue – you don’t want to be bleeding profits away unnecessarily to credit card companies.
However, high or hidden credit card fees are often the grim reality for many small business owners today. Interchange fees, assessment fees, monthly minimums – it’s enough to make any shop owner’s head spin. Not to mention the potential for chargebacks, disputed transactions, and confusing additional fees.
The good news is that with the right payment processing setup tailored to your business, you can slash credit card fees and stop needlessly handing over hard-earned money. This guide will break down the major credit card fees eating into revenues, show you how to negotiate with processors, and provide tips to pick the best solution for your small business. You’ll learn ways to lower processing costs, pass some fees to customers when needed, and still offer the convenience of plastic while optimizing your bottom line.
The Credit Card Fees Hurting Your Bottom Line
When it comes to processing fees, it’s usually not any single charge that hurts – it’s the unfortunate culmination of all those little fees that do the same. Interchange fees, assessment fees, monthly minimums – it’s an alphabet soup of costs that can have you paying 1.5-3.5% or more per transaction. With this in mind, let’s break down the main fees siphoning revenues from small businesses:
- Interchange fees – These are the base fees credit card companies charge per transaction, and they vary depending on card type. Qualified cards have lower fees, while rewards cards typically have higher interchange fees.
- Assessment fees – Processors tack these on top of interchange fees to cover their costs. This added percentage amplifies the processing costs.
- Monthly minimums – Many processors require a minimum monthly volume of transactions. If you don’t meet it, you get hit with a monthly fee.
- PCI compliance fees – These recurring fees are for data security compliance. Sure, security is important – but PCI requirements get updated all the time, hence the neverending fees.
- Chargeback fees – Getting penalized for disputed transactions that get reversed – the dreaded chargeback. These fees can be $15 or higher per dispute.
- Foreign transaction fees – Does your business operate internationally or get foreign sales? The fees for currency conversion can chip away at revenues.
And we haven’t even gotten into statement fees, customer service fees, terminal lease costs, and other nickel-and-diming some processors burden their customers with. It all represents money flowing out of your business rather than staying in your pocket.
Ways for Business Owners to Reduce Credit Card Processing Costs
Now that we have credit card processing explained (and the fees associated with it), let’s take a look at several key strategies you can use to slash credit card fees and stop needlessly handing over hard-earned money.
Have an Open Dialogue About Your Needs
Have an honest, upfront conversation with processors about the pricing structure you need based on your sales volume, average transaction size, and business model. A good processor will take the time to understand your business priorities and pain points around fees. Clearly explain your requirements and goals for competitive rates that align with your operations. Processors want long-term clients, so help them understand how tailoring pricing to your needs can earn your loyalty and business over many years.
Do Your Homework
Gather quotes from several providers so you can make fair comparisons and have insight into competitive pricing in the market. Approach processors with data-driven rate comparisons and help them understand where their pricing stands versus competitors. Processors may revisit their rates if you can point to substantially lower offers from competitors. Focus on finding the best overall value, not just the absolute rock-bottom rate – factor in customer service, support, and other variables into your decision process.
Ask About Optimization Tools
Inquire what tools processors offer to help reduce fees, like interchange optimization or dynamic discounting. These services claim to provide win-wins through ongoing cost savings, but make sure you vet them thoroughly. Ask detailed questions about how the tools work, associated fees, and potential downsides. Get demos, trials, or extensive evaluations before committing. With research, these tools can provide value – but go in with eyes open to ensure they truly pay off long-term.
Review Statements for Errors
Politely point out any fee inconsistencies, spikes or errors you spot on statements during your regular reviews. Don’t assume overcharges or bogus fees will fix themselves – give constructive feedback to help processors improve their services. With open communication, many unnecessary charges can be explained, adjusted, or avoided. Maintain positive relations, but don’t hesitate to speak up when you see something wrong.
The goal is finding a processor ready to craft creative solutions to fit your budget and operations – a true partner, not an adversary. With the right collaborative approach, you can negotiate fair pricing that works for both parties.
Passing Processing Fees to Your Customers
Passing some processing fees on to customers – when done reasonably – can help take the sting out of those neverending charges.
You have two options to legally transfer fees – credit card surcharges or cash discounts. A surcharge tacks on an extra percentage to credit or debit card transactions. This helps recoup your costs directly from card-paying customers. Cash discounts knock a few percentage points off for non-card payments. Two roads to the same destination!
Just be transparent about any fees passed on. Customers may get upset about “hidden” charges. And don’t get surcharge-happy – stick to passing along your actual processing costs. You don’t want to trash your brand reputation or deter customers from pulling out their plastic. When used judiciously, these options buy you some cost relief.
Final Word
At the end of the day, credit card processing costs are an unavoidable reality of doing business. But with the right payment provider relationship, optimized pricing, and a bit of cost-sharing when needed, you can drastically slim down the credit card fees eating into your revenues. Keep negotiating, keep hunting for savings, and keep tweaking your setup as your business evolves. With diligence and creativity, you can craft a payment processing strategy that fits your unique needs and saves your bottom line.
