How To Offset Credit Card Processing Fees
In today's digital age, digital payments have become a norm. However, they can cost businesses more. More customers nowadays pay with cards because they are convenient. However, these payments incur a processing cost for each sale to businesses.
The cost is a small proportion of each sale amount, but combining all sales will result in a large sum. The processing cost is the charge imposed by processors on businesses or store owners for handling payments from their clients. This encompasses the fee for the Card issuer, Card Network, and Payment processor.
These charges are important for processing card sales; however, they can reduce profit margins. Businesses have figured out different strategies to reduce these costs and convert them into potential growth. In this article, you will learn how to offset processing costs.
Understanding Different Costs
Different types of charges may be applied to businesses depending on the processor, the type of business, and the sale. Here are some types of processing charges that you should consider as a business.
Exchange costs: A charge is deducted from a business's bank account when a client purchases from the business's store through their card. This payment is sent to the bank that issued the card. It's determined as a percentage of the overall sale in addition to a fixed per-sale fee. Banks consider several factors when calculating exchange costs, such as your business type, the type of card used, and the method of processing.
Evaluation fees: These charges are deducted by card networks like Visa, Master card, American Express, and Discover. It's a fixed percentage applied to the sum of your monthly sales conducted through a card. Card brands assess these and are transferred to you by your processor. This fee is listed as a distinct entry on your monthly card statement under the heading "Dues and Assessments. Card brands review this two times a year.
Portal costs: This is what your processor charges for processing your sales. Processors offer a variety of structures that can differ based on factors such as your product or service type, sales method, business stability, average order value, refund frequency, chargeback rate, and other relevant considerations. These factors collectively influence the rates you'll encounter.
Selecting The Appropriate Pricing Structures
Your processor usually offers three types of pricing structures:
1. Fixed-rate
2.Graduated pricing
3.Variable rate
You have the flexibility to choose any option from the choices above based on your business needs and requirements. Under the fixed rate structure, you'll encounter a fixed percentage along with a sale cost without any additional costs. Graduated pricing includes fully-qualified, mid-qualified, and non-qualified rates, along with separate billing for hard costs. In the variable rate model, businesses pay the hard costs associated with each sale, in addition to an agreed-upon mark-up from both the card company and the processing provider.
Applying Best Practices In Processing
Applying best practices in processing is crucial for offsetting processing costs.
Settlement of sales: The exchange cost is comparatively lower when businesses settle their sales within 24 hours. Thus, you should send your batch of authorizations every night.
Encouraging card-present sales: Conducting in-person payments through an EMV (Euro pay, Master card, and Visa) terminal can reduce your expenses. Customers have the choice to swipe, insert, or dip their cards.
Inputting card security information: Always ensure to input the client's security code and billing zip code, especially for online sales. Entering more details will result in lower exchange costs.
Reducing Operational Costs
Reducing operational costs can be a wise strategy to offset processing costs. Below are several methods to lower your operational expenses.
Minimum Purchase Amount: If you set a minimum purchase amount for card sales, then the processing charges levied on smaller sales will be worthwhile.
Fixed-rate processing: Fixed rate processing model is more predictable than variable rate pricing. As a business, you can opt for a fixed-rate processing model; card processors provide multiple pricing models, and fixed rate processing model can be a cost-effective option for your business.
Monitor Business Expenses: You should monitor your business expenses to figure out where the majority of your costs are coming from. This will aid you in pinpointing areas where you can diminish or eliminate costs to counterbalance processing fees.
Finding An Affordable Processing Service
Finding an affordable processor may involve various factors. Below are some suggestions for locating a cost-effective and dependable processor to help minimize your expenses.
Compare pricing: Various providers may present varying pricing structures. Seek out transparent pricing models without hidden fees and minimal transaction costs.
Cost Structure: Portal providers usually charge sale cost as a percentage of each sale plus a fixed fee per sale. Understanding their structures and anticipating your own sales volume may help you choose the right processor for your business.
Client Support: Look for top-notch client support. An efficient and responsive client support team will be able to resolve your queries quickly and give you efficient solutions for your business.
At Poslinksolution.com, we can assure you that you are getting the best price with the most convenient cost structure and exceptional client support. If you're looking for a processor to reduce your expenses, your quest concludes here. Click the button below to obtain a complimentary quote. Our client support team is available round the clock.
Establishing A Program For Surcharges
You can pass processing charges to your clients through card surcharge, but before passing it on to your clients, you should know the legalities involved. Here is how you can establish a program for card surcharges:
1) Calculating surcharge amount:
The surcharge amount can be calculated based on two types of % surcharge. These are:
Fixed % surcharge: In this type of surcharge method, you apply a fixed surcharge percentage to all sales, which may result in an over or under surcharge.
Variable % surcharge: In this method, you multiply the surcharge percentage by the amount or value of each sale. This results in a more accurate application of the surcharge.
2) Disclosing Surcharges:
Clearly disclose surcharge through signage at your business location or notify clients through the website or mobile app. Ensure that customers are informed about the percentage of surcharge applied.
3) Review and Adjustments:
Ensure that your surcharge program is effective and compliant with the law. You must also regularly monitor it and adjust the surcharge amount based on processing costs and other market conditions.
Final Word
As payments become more convenient, the high costs associated with processing them are a challenge for businesses. However, you can take strategic steps to offset processing costs associated with card payments.
For this, you need to understand the different processing costs, such as Exchange costs, Evaluation costs, and Portal costs. You also need to select appropriate pricing structures suitable to your business needs. Applying best practices in processing may reduce processing costs.
You can also reduce your processing costs by reducing operational costs, such as setting a minimum purchase amount, fixed rate processing, and monitoring business expenses. You will be able to reduce processing costs by finding an affordable processing service and by establishing a program for extra card costs, as mentioned above.
We hope we have covered most aspects of offsetting processing costs in this article, and we hope you will find a way to offset your cost. Thank you for stopping by. Have a wonderful day ahead! 😊
William Harrison
William is a consultant providing expertise in business management. He has successfully integrated POS systems into various businesses, demonstrating a passion for improving processes and offering financial advice. With a decade of experience in dealing with POS systems, payment gateways, and ATMs, he is also a passionate writer about finance and accounting.
