10 Ways to Save on a Merchant Account

With unsettling economic news all around us, business owners from Main Street to Wall Street are all taking a hard look at both income (how to get more) and expenses (how to spend less). Waste and inefficiency are among the greatest drags on business, of course. Accepting credit card payments may seem like a costly undertaking, but it doesn’t have to be if the same principles of efficiency are followed.

The following ways that you can save money on your merchant account are all based on common sense and fundamental business principles. If you can avoid the common traps, but also apply some uncommon creativity where possible, you can save a serious amount of money on the costs associated with your merchant account.

Remember these points when shopping for your account, and continue to put them into practice where applicable.

  1. Don’t focus on percentage “discount” rates. Companies that advertise low rates may not mention the other, additional fees that they charge. There are a number of factors to balance, so don’t be taken in by a low discount rate that is accompanied by a list of other “nickel and dime you to death” fees. You have to evaluate each estimate when you are shopping for an account, and consider all the other factors, since getting the lowest rate is not necessarily equivalent to getting the best deal.
  2. Save on equipment. Most payments processors support a range of equipment, so you should always have a number of product/pricing options and combinations from which to select. You need to find the solution offering you the best balance between your budget and your processing requirements.
  3. Never lease. Leasing is not cost-effective. You will pay for your equipment rather quickly if you are doing steady business, and the reliability of modern electronics defeats the old argument that leases spare you any repair or replacement costs.
  4. Avoid unnecessary downgrades. Processing companies have a variety of fee categories besides the “base rate” most often mentioned. For a long list of reasons, when a transaction does not qualify for the base rate it is downgraded, costing you a higher fee. Some merchant service providers make a good portion of their profits on the downgrades that result from manually entered sales, acceptance of a “business” or “rewards” card, not closing your batch on time or even errors by the processor. Reducing the cost of downgrades through “cost plus pricing” and correct initial account programming can result in real savings.
  5. Never sign a contract. Some of the problems with contracts have to do with reality, and some with perception. On the practical side, signing a contract commits you to a certain processor, irrespective of how satisfied you are with their service or pricing. Some contracts allow processors to raise your rates at certain times or when certain conditions occur. In the realm of perceptions, some customers might feel that they are taken for granted because they are under contact. Finally, depending on contract specifics, cancellation fees can be much higher.
  6. Avoid the “Big Two” additional fees. A termination fee is often considered a tool to retain customers, while some processors may calculate that the fee provides more profitability than expending the energy necessary to keep the customer satisfied. Reprogramming fees are hardly more than a scare tactic to coerce you into purchasing or leasing the equipment they want you to have. You may be told that this fee will apply if you get your equipment elsewhere, but the fact is that reprogramming is a simple, inexpensive and equipment-neutral process.
  7. Research pricing strategies. Various special pricing plans can save you money if your firm does a certain kind or level of business. “Cost plus” pricing is a strategy in which the merchant never pays more than a certain, specified amount over the actual transaction cost. “Small ticket” pricing refers to customized programs for merchants with a low average, individual sale amount, while “seasonal pricing” allows merchants to “turn off” service for their slow months. Finally, “low volume” pricing may help merchants with low sales volume save on monthly fees, set-up charges and fixed costs. There are always some creative ways to minimize fees, but you have to be persistent and negotiate in earnest.
  8. 8. Get the right merchant account. Since there are several kinds of merchant accounts, you need to learn the differences among them and how best to process credit card payments for your business. Processors that assist you in finding the best program for you, rather than for their own bottom lines, provide a good foundation of trust on which to build a long, profitable relationship.
  9. Get the correct programming and the right equipment. Regardless of any rates and fees, if your terminals are not properly programmed you may not get the correct rate applied to a particular transaction. Since the credit card companies have varying data requirements for the various kinds of transactions, you will end up overpaying if your programming and/or equipment are not correctly set up.
  10.  Shop wisely for consumables. If you have multiple terminals and multiple locations, you may use up quite a lot of “register tape.” As in any other business, get the best volume pricing you can on the consumables you will be using. If this seems like a low-tech idea, it is. Any common sense business thinking you can bring to your merchant account processes will likely help, so apply as many lessons in volume buying, power conservation, employee training and computer operations as you have learned in the other areas of your business.

Following on #10, there are any number of general business tips that also apply to the specific procedures involved with your merchant account. Well-trained employees waste less time, energy and paper, so ensure that they are schooled in terminal operations. Satisfied employees are also much more likely to be attentive workers, so the company culture also comes into play.

In these times of economic uncertainty, there are still only two ways to affect profitability. You must increase sales or reduce expenses. Truth be told, you should be trying to increase sales and reduce expenses. You can do so with your merchant account, just as you can with any other business process or function. Start with the foregoing tips, then use your head (and the ones around you) to come up with more. If you aim high and focus on efficiency and good service, you should hit the target and find real savings with both low- and high-tech approaches.