7 Merchant Service Fees To Be Alert For

Although the idea of using a merchant account service for free is an out-and-out dream, thinking you can have one with a consistent, predictable, low and stable monthly price tag still puts you in the “fantasy minded” category. It is a far better thing for you and your business to wake up and get used to the ups and downs, and ins and outs, of merchant account fees.

The fact is, and will remain, that there are lots of different, hard-to-nail-down fees and they will never disappear. Right from the gate you will end up getting slapped with fees that you don’t necessarily want, and can’t correctly predict, but the convenience and professionalism you receive from having a merchant account service will make most of those fees seem worth it over time.

Not Surprises, but Reminders

One could quibble over the choice of the term “fee” for all of the following, but just think of them as costs of doing business. You will learn to deal with the many different types of fees, costs, charges and penalties in just as many different ways. The overall rule for dealing with your merchant account costs, as with any kind of business expense, is part and parcel of sound, responsible business practice.

As with any fluctuating (versus fixed) costs, the idea is to limit them as much as possible, but this is not done in a vacuum. You will have to find the “sweet spot” where you will enjoy the greatest efficiency, where the cost of individual parts are reasonable in relation to the profit(s) you are earning. The same will hold true in “the aggregate,” that is, you will need to ensure that the total cost of your merchant account is justified by the amount of business and your profitability.

There are numerous fees, but there are seven merchant fees to look out for in particular:

  1. Fees for transactions Transactions fees are the flat-rate fees that are charged for every transaction. You can expect to pay anywhere from 10 to 30 cents per each transaction. That’s not a lot, you might think, but a range of that much indicates that there are ways to pay 1/3 as much as you might. This is definitely an area for negotiation when shopping for a merchant account, but you need to have a good bargaining position.
  2. Fees for authorizations Once the merchant has processed the payment, this fee is applied. The screwy thing about this type of fee is that you’re still charged regardless of whether the transaction is accepted or declined. This may also be subject to some amount of negotiation, but it probably not going to be done away with any time soon.
  3. Start-up or setup fees It is important to look into what the different companies charge as well as the different services they offer that are reflected in this fee. It is really just a charge for the privilege of setting up an account, and no continuing benefit arises from it. Depending on what you bring to the table when negotiating with a prospective merchant account provider, this fee could be large, small or even zero.
  4. Statement fees Sometimes called an “administrative” or “fixed” fee, statement fees are a means for the account provider to offset its cost of generating your monthly summary (transactions, fees, chargebacks, etc.). Statement fees will be charged under some name or other, in almost 100% of cases, so get used to it.
  5. Discount rate This is a fee that happens to be charged at a flat rate. When a transaction is completed, a percentage is removed from that sale total, including all taxes and shipping, and then processed through the merchant account. This rate is in the low single digits, between 2 and 5% usually.
  6. Termination fees Coming face to face with this type of fee can make one feel a bit defeated. Although it might be the largest one you may face it is the last fee you will encounter, too. Termination fees apply to those who choose to end the merchant account contract before the term expires. Many merchant account contracts require that the term last a certain length of time, at least one and perhaps two years. As a result of terminating the contract early, one can expect to pay a penalty of a not inconsiderable amount, hundreds if not thousands of dollars, depending on the size of the account. However, the good news is that many merchant account providers will work with you without a contract, on a month-to-month basis. Even with a contract, you can often negotiate the termination fee into non-existence, if you have a compelling argument (like huge volume).
  7. Free equipment As mentioned before, there really is no “free lunch.” The “free equipment” that you may be given when you begin a relationship with an account provider must be returned in perfect condition when you close your account. If a terminal, PIN pad or any other provided equipment needs to be replaced, you can expect to pay anywhere from $200 to $500 for it. This basically represents a lease agreement for the equipment since, as most people know, a lease always ends with the return of the merchandise and an assessment of “residual” cost. The way around this is to buy your own equipment, of course.


Stay Alert, Keep Learning

You might feel a bit bedazzled after reading about all of the merchant service fees and what comes along with acquiring a merchant account, but it is truly to your benefit to have an account. Not only will having a merchant account benefit your company by expanding sales opportunities and providing customer convenience, having a positive relationship with your provider puts expert, knowledgeable account representatives in your corner to answer your questions and allay your concerns.

Once you have decided on the right merchant account provider for you and your business, always be prepared for the fees that come along, even with a good and reputable provider. Although you cannot know, down to the penny, what your fluctuating costs will be every month, you can get close enough to make your usual forecasts, and in time you will be able to discern patterns and work with the figures with greater confidence. Never forget, the responsibility for reducing merchant account expenses, and for working intelligently and proactively to learn everything you can about how it works (and doesn’t work), belongs to you and your employees.