Small business owners are more pressured than ever to keep their operating costs as low as possible especially with all the major changes in the economy brought on by Covid – 19. Fixed costs may feel non-negotiable, but you can reduce your business’s credit card processing fees. To take action and achieve maximum savings, however, you first need to understand how credit card transactions are processed and how these fees are calculated.
How credit card processing fees work
First, you have to understand how selling merchant accounts works. In the simplest terms, credit card processing fees are the fees credit card companies charge to move money from a customer’s account to a merchant’s account.
The Scenario and here’s how it works
Others are variable, like the interchange fee (charges for the transfer of funds between the customer’s and merchant’s banks), discount rate, and the fee credit card companies charge to process payments.
Find the savings in variable costs
Small business owners can do so by determining which credit card processing plan makes the most sense for them.
Here’s a rundown
Tiered plans to charge merchants different fees based on how a credit card transaction is processed and what kind of card is used. For instance, a Visa credit card inserted at a POS terminal is charged differently than an American Express card processed over the phone. Typically, the promised benefit of tiered plans is that most transactions will fall under the lowest-priced tier.
Under interchange-plus plans, merchant credit card processing fees are calculated via tables issued by credit card companies. Credit card type and transaction method are the two factors used to determine these processing fees. For instance, to process an in-person purchase made with a Visa preferred card, the current interchange-plus rate is 2.10 percent plus $0.10. To process a $100 sale at that rate, the merchant will have to pay an additional $2.20. Although generally more affordable than tiered plans, interchange-plus plans are not without drawbacks.
Flat-rate plans charge merchants a flat-rate fee to process credit card transactions, regardless of card issuer or method. The chief appeal of this fee structure is simplicity and stability. With it, owners can quickly and easily calculate their monthly credit card processing fees and budget accordingly.
So If you are in selling merchant accounts and your company experiences a slowdown in credit card transactions, you might end up paying a sizable membership fee for the privilege of processing only a handful of sales. In that case, flat-rate credit card processing is the best way to overcome it.