If you offer credit cards as a form of payment option, then there is no escaping credit card fees.
Fees and charges that negatively impact your cash flow and affect your bottom line.
The team at Direct Route has pulled this particular post together as we believe that it’s vital to know credit systems inside and out, and this includes credit card fees, what they are, various types, how they work, and most importantly, how they impact you.
What are credit card processing fees?
Using and paying for goods and services by credit card is quick and convenient. However, businesses pay for this convenience in the form of fees.
Fees can range from 1.5% to 3.5% (and, for some networks, even higher) for each transaction. If not managed, they can start building up and become expensive.
From merchant account fees to bank account fees, fees represent the charge for using the issuer’s services, and they come and are set by the card issuer, i.e., the bank, AND by the credit card network, i.e., Visa, Mastercard, American Express, etc.
Ultimately, these fees exist to cover the costs of developing and maintaining credit card transactions, from initially setting up the account and payment channels to installing and issuing card readers and then processing, maintaining, and managing payments.
Why are there payment processing fees?
Typically, fees cover the teams who work behind the scenes to process and manage credit card payments.
Types of credit card processing fees
Each credit card company will have different fees attached to their cards, as how they process, handle, and manage transactions may vary.
Note: Credit card fees are typically higher when processing credit cards online rather than in person, as there is a higher risk of fraud. High-risk industries can also face higher fees.
Typical costs for credit card processing include:
Merchant service charges – these fees cover the cost of accepting credit card transactions and are typically a flat fee or a percentage of the transaction amount.
Cost of credit card machine – this will depend on how many terminals you require. However, you will have to factor in monthly service fees, set-up costs, PCI compliance fees, and admin fees.
Interchange fees – also known as swipe fees, this fee goes directly to the bank (card issuer) that has issued the credit card for each swipe transaction and is a percentage of the total transaction value. Fees in this situation do vary based on the card type (i.e., Visa or Mastercard (network)), how much the sale was for, and the industry; however, for all these fees do vary they are capped by the regulators.
Interchange plus – in this instance, a company will pay a basic fee PLUS an additional set markup. This can save you money; however, fees will vary month on month.
Assessment fees – this is considered a maintenance fee paid for using their payment networks and can range from 0.01% to 1%. In these instances, fee rates are based on monthly sales rather than individual transactions.
Payment processing fees – this is the mechanics of processing the credit card transaction. Fees can range from 1.5% to 3.5%. Charges here may include monthly service fees, per-transaction fees, rental processing fees, statement payment fees, account maintenance fees, withdrawal processing fees, chargeback fees, equipment rental fees, etc. All of these fees are entirely dependent on the credit card issuer.
Charging – this is a flat-rate pricing system where a single rate is charged to cover all of your credit card processing costs. This can be a great solution when you’re looking for better planning and budgeting, but it may come with a higher fee.
Subscription pricing – most suitable for high sales volumes, where monthly fees are low, and there is a small, fixed fee also attached per transaction.
Note: None of these charges can be passed on to the customer, making it vital that you find the right merchant to meet your business needs.
Why offer credit card payments as an option?
- Making credit cards a valid payment option can help businesses get paid faster as you open up the number of payment options to your customers.
- It’s a great way to offer customers more flexibility in how they pay.
- It can help to reduce the risk of late payment of invoices.
Company not paying invoice
Accepting credit cards as a payment option is a great way for businesses to avoid invoice-not-paid situations and to build better relationships with customers as you offer them choice and flexibility.
However, before jumping straight in, it’s important to understand all of the fees associated with this. How you can negotiate these, keep them simple for your credit accounting function, cut out extra fees, handle payment disputes, and select the right pricing plan for your business. When you provide a quote and invoice, ensuring transparency about potential payment options and associated fees can prevent misunderstandings.
Working as an extension of your credit collection team, we can help you with all late payments and outstanding invoices. With a high success rate on collections, we help to keep your cash flow and bottom line healthy.
To find out more, contact us today.