One of the easiest and effective cost cutting tips for small business owners is to review their merchant service account.  Now is the time for businesses to go over their expenses with a fine-tooth comb and eliminate as many expenses as possible.  For many small businesses, the difference between closing the doors and being profitable boils down to a couple dollars per month.   

So why is the merchant service account often overlooked?  The main reason is because the business owner has switched credit card processors several times chasing the empty promise of cost savings.  This left a very bad taste in their mouth to say the least.  And to top it all off, they are constantly assaulted with cold calls promising the “lowest rates in the industry.” 

What can a business owner do avoid this headache? Pay close attention to the Do’s and Don’ts  

The Do list

• Do look for a credit card processor that offers interchange-plus pricing (ask for it by name)
• Do shop at least three providers
• Do buy your own equipment (most terminals are $100-200)
• Do take time to audit your monthly statements

The Don’t list

• Don’t sign a contract that has an early termination fee
• Don’t use a provider just because you already have an established relationship, ie your bank, Costco
• Don’t lease equipment or software under any circumstance
• Don’t pay an annual fee, application fee, or monthly minimum fee

This is a great time for business owners to switch their credit card processing because many processors are feeling the economic crunch.  Processors are more likely to lower their rates, and their profits, to get the account rather than not get the account.  As a result there are some real cost savings to be had.  For example, we are saving our clients an average of over 50% per month on the new merchant accounts that we sign up.  

The bottom line is your bottom line.  Keep it Black! 
 

Reid Wilson, ChFC

BlackLine Capital Partners

www.BlackLinecp.com

One of the biggest mistakes made by merchants is shopping rate as opposed to pricing model.  90% of merchants shop providers based on rate alone without any consideration to the actual pricing model they’re being set up on.  This leads to merchants being furious when more than 70% of their processed transactions downgrade to higher rates.  Understanding the way your specific pricing model works can save you hundreds of dollars each month.

The most common model in the industry is the Tiered pricing model.  This model sets Qualified, Mid Qualified, and Non Qualified rates for the cards you accept.  These rates are qualified for by a combination of swipe type, card type, and owner presence in the transaction.  The Qualified rate is always the lowest (usually in the 1.64% range) followed by the Mid(usually in the 2.50% range) and Non Qualified rates(usually in the 3.50% range).  The first trick with this model is that only 30% of merchant’s transactions receive the Qualified rate.  The other 70% downgrade to the Mid and Non Qualified rates which are usually marked up anywhere from 1-2.5% from the Qualified rate.  The second trick with this model is how it prices debit cards.  Debit cards process at a lower rate than credit cards (for example debit interchange is 1.03% compared to credit interchange at 1.54%).  In the Tiered model this 51 basis point spread is made every time a debit card is processed at the Qualified rate.  Due to the expanding popularity of debit cards (usage ranges from 50-85% depending on sic code) and the profit made, this is a fact rarely mentioned when covering rates with merchants.

Another pricing model to beware of is the Billback model.  The Billback model uses a fixed interchange price (usually a lower rate in the 1.80% range) that is applied to all transactions regardless of qualification level.  The merchant is then billed back for the difference between the fixed interchange rate and the actual interchange qualification rate for the transaction.  This allows processors to bill the initial transaction rate plus the difference from the actual interchange qualification rate.  In plain terms the merchant is billed twice for one transaction.

The importance of understanding your pricing model cannot be stressed enough.  It can literally be the difference of hundreds of dollars monthly to your bottom line.  If you find yourself on one of these models call an industry expert immediately to examine your options.  There are models that make great sense for merchants to use.  The challenge is finding a provider with your best interests in mind.  Until next time, consider whose bottom line your provider is protecting…..if it’s not yours….it’s time for a change. 
 

Nelson Wickersham

BlackLine Capital Partners

www.BlackLinecp.com