Everything You Need to Know About Credit Card Processing for Your Small Business.
If you're a business owner, then you know that accepting credit cards is essential to the success of your small business.
But did you know that there's a LOT more to credit card processing than just swiping cards and receiving payments?
When done right, the correct merchant processor can turn your business into a cash machine with ease and speed.
It may seem like the customer simply swiping their credit card is all you need to know, but there are so much more things that go into processing these transactions that can make or break your business!
Before we get into the benefits and fun stuff, let's look at the risks of credit card processing.
Understanding the Risks of credit card processing for small businesses.
There are a lot of risks involved in taking credit cards, and it's important to understand what those risks are so that you can protect your business.
We'll look at the different types of risk associated with credit card processing, as well as how to mitigate them.
There are two primary types of risk when it comes to credit card processing: fraud risk and merchant risk.
Fraud risk is the chance that your business will be charged for a transaction that was not actually made by the cardholder.
This can happen if a customer's credit card is stolen and used without their knowledge, or if someone uses a counterfeit credit card to make a purchase.
There are several ways to mitigate fraud risk, including using AVS (address verification system) and CVV (card verification value) checks, as well as requiring signatures for all transactions.
Merchant risk is the chance that your business will be unable to collect on a credit card transaction because the cardholder does not have enough funds in their account. Generally, the credit card company will brunt the loss if its cardholder is low on funds. Credit cards are typically declined when a consumer is at or almost at their credit limit.
The bottom line is if your merchant account has too many chargebacks from stolen cards or people that have over charged their limit you could get your merchant account shut down.
Credit Card Processing Fees.
The average credit card processing fees range from 1.5 percent to 3.5 percent of each transaction, although the final percentage depends on many factors.
What is the hype about "no fee" or "zero-cost" credit card processing?
There's been a lot of talks lately about "no-fee" and "zero-cost" credit card processing for small businesses.
But what does that really mean?
And is it right for your business?
These terms refer to programs that allow you to pass on the cost of credit card processing to your customers.
This is the fastest-growing program throughout the country, as it provides the business owner with the opportunity to cover their processing cost overhead, while still maintaining their low prices.
This is the cheapest and best credit card processing solution that will eliminate up to 100% of your credit card processing fees.
You might be wondering if one of these programs is right for your business.
And if so, which one should you choose?
If you're considering no-fee or zero-cost credit card processing, be sure to do your research and weigh the pros and cons carefully in your industry.
It's important to understand how these programs work and to make sure that they're the right fit for your business.
What is zero-fee credit card processing?
Zero-fee credit card processing is a type of program that allows businesses to pass on the cost of credit card processing fees to their customers.
Under this type of program, businesses will add a surcharge to each transaction, which will cover the cost of the processing fee.
For example, if you're a small business owner who pays $30 per month in credit card processing fees, you could add a 3% surcharge to each transaction.
This would allow you to recover the cost of your monthly processing fee, without having to raise prices or pass the cost on to your customers in other ways.
What are the benefits of zero-fee credit card processing?
There are a few benefits that come with zero-fee credit card processing:
You can avoid raising prices: One of the main advantages of this type of program is that it allows you to recover the cost of credit card processing without having to raise prices.
Zero Fee Processing Considerations
While no-fee and zero-cost credit card processing can be a great way to keep your costs down, there are some things you should consider before you decide if it's right for your business.
You'll need to think about whether your customers will be willing to pay the surcharge.
If they're not, some customers may end up using their debit cards.. which will allow customers to bypass the fee but this will not help you with the fees you will still incur as a merchant.
Another risk will be to lose a customer entirely if they feel that they are being penalized for using their credit card.
Differences Between Surcharging and Zero Fee Processors
There are a few key differences between surcharging and zero-fee credit card processing:
With surcharging, businesses are responsible for informing customers of the surcharge before they make a purchase.
This can be done by displaying signage at the point of sale, or by verbally informing customers of the surcharge before they make a purchase.
Processors will need to reprogram your terminal to list surcharges as a separate line item.
With a zero-fee processor, they generally cover all aspects of setup except for the physical signage that still rests on your shoulders.
The main difference is that the zero-fee processor saves you time by handling the effort in filling out the forms to notify all the card brands on your behalf as well as provide the equipment that has been pre-programmed for surcharging.
What does zero fee processing cost customers?
The charges will vary by processor, but cannot be more than 4%.
I reached out to a processor advertising free credit card processing.
In actuality, the company charges a 3.45% flat fee for each credit card transaction.
You’re allowed to either charge a 3.45% surcharge to customers or a 3.65% surcharge to cover additional monthly fees. (These monthly fees include a $5.00 admin fee, $6.99 PCI fees, and equipment leasing charges.)
3.45% is a fairly sizable markup for basic card-present transactions. Remember, your customers will see the charge on their receipt and will be aware of it before purchase. 3.45% on top of their total may be a deterrent.