Tips on Choosing a Merchant Processor
A merchant account is required to accept card payments. Use the tips below to avoid these common mistakes when selecting your merchant service provider.
1. Pricing & Rates
One of the biggest mistakes businesses make when evaluating merchant service providers is focusing on one rate. Hidden fees and surcharges are often used to offset low card processing rates and are typically buried in the fine print. While the law requires full disclosure of all fees, it does not require merchant service providers to clearly state these fees in laymen’s terms. If the pricing seems too good to be true, it probably is. Read more about merchant account pricing models here and how to calculate your effective rate here.
2. Agreement & Term
All merchant service providers will require you to execute a processing agreement. These agreements vary greatly from one provider to the next, as well as the duration (or term) of the agreement. While the average agreement term in the United States is generally three or five years, you must read your agreement thoroughly to fully understand your pricing, term, and commitment. Failure to meet the requirements in your agreement may result in additional fees and penalties charged to your business.
3. Termination Fees
Every processing agreement has a term (duration of the agreement), and many have an early termination policy and fee. As noted above, this policy and fee will vary from one vendor to the next, however it’s common practice for businesses to be charged a fee based upon the average monthly merchant account fee for all remaining months of the agreement. For example, if your account fee was $100 and you canceled 10 months early, you may be charged $1,000. Make sure you read your entire agreement to understand your early termination penalty.
4. Volume Commitments
While Visa and MasterCard do not require volume commitments in order to have an account, some merchant processors require a business to establish a monthly minimum (specific dollar amount in processing fees that must be generated by a business each month) in their processing agreement. If the business does not meet this volume requirement, the merchant service provider will charge the business for the difference. For example, if your monthly minimum was $50 and your processing fees totaled $10, then you would be billed for the $40 difference. With a little shopping around, you may be able to find a merchant processor that does not require any volume commitments, or leverage your processing volume to negotiate a lower rate (mid-size to large businesses).
5. Funding Lag
It’s also important to understand the how long it will take to get access to your customers’ payments. Excluding weekends and federal banking holidays, the funding lag is generally anywhere between one to five business days and will vary from vendor to vendor. Be sure to select a merchant processor that offers quicker access to your funds as this much better for your business and will improve your cash flow.
6. Customer Service
While you will never expect to have problems processing your cards, it is important to be able to get the help you need when you need it. Your customer’s perception of your business may rely on the customer service of your merchant service provider. Make sure you ask the merchant processor for details regarding their customer service and even test the system after you sign up to ensure it meets (and exceeds) your needs.
7. Reference Check & Reviews
Good merchant processors should be considered business partners. Always be sure to ask your representative for references and do research for reviews online. With a little research, it’s fairly easy to find the “shady” merchant service providers and get additional insight into real customer experiences from similar businesses.
Some processors offer billing software or have an exclusive relationship with a software company. If you choose their gateway, software, or service, you will be required to use their card processing service as well. This is often done through coercion or by luring customers in with the prospect of all-in-one solutions, “lower rates,” or “long-term savings.” This is never advantageous for the business and removes the business owner’s ability to shop around, maintain their existing banking relationship, or choose another merchant service provider.