~ The Credit Card Wars ~

by Betty Chypre

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Knowledge is Power

A phone call from a friend reminded me how difficult it is to find a good deal in merchant credit. She'd been dealing with a sales rep for several weeks, talking fees and discount rates, -  and when it got down to the wire "Oops, (I forgot to mention) there is another charge(s). "

It's called "low-balling."  They quote low figures, and come out with the truth in the last minute, when you are so tired of researching, and have gone through so much paperwork, you sign up because you are too tired to go find another company and start the research process again.  It also happens frequently when shopping for mortgages and cars.

In her case it was a "minimum charge" that the rep neglected to discuss. These can run from $15-$25 a month, - or more.

A minimum charge is what they are going to charge you every month even if you have no sales.  If you don't pay at least that amount for your processed credit card sales in 'discount fees' (your percentage) you will be charged a 'minimum charge.'  Since most artists and artisans go through a several-month dry period every year, they will be charged a minimum fee even when they have no sales. Some merchant credit companies will even close your account after several months of inactivity.

When you are researching merchant credit (MC) providers, try to find one who is used to working with home-based businesses.

One of the common fees across the MC industry is a monthly statement fee usually $7.50 - $12. If everything else on the contract is favorable, put it down to the cost of doing business. Don't confuse this statement fee with a minimum fee. It's a charge for tallying up your activity, printing it out, and mailing it to you. They may want to charge you a minimum fee, in addition to the statement fee . Truly, there is no free lunch !

Comparing Costs in the Merchant Credit Industry

Obsolete equipment:  I have an obsolete old Tranz 330 unit. It's a bare-bones unit that will take a card-swipe or I can key in the numbers. It's not portable; it must be plugged into both electricity and a telephone line. If I wanted to switch merchant credit companies, I might have to pay a re-programming charge, anywhere from $150 - $500, (or more) or buy a new modem! You will find some reluctance in the MC industry to reprogram a used unit.  (There are now portable Tranz units that work on battery and home in on a satellite signal for communication.)

I also have access to a virtual terminal (VT) on my computer.  Unless you have a laptop with satellite internet access, that type setup won't help you much at all.  (I sit in the office all day, - some of our sales are MOTO (Mail Order, Telephone Order) - other than the sales from people that sign up on our website.

You will find there's a whole new world of modern technology equipment that can verify your customers' credit card order for you - everything from calling in on your cell-phone (which will cost you a slightly higher rate, when they offer this type of plan) - to having a Point-Of-Sale unit.  The POS works like a combination Tranz and cell phone.  You can take orders in the middle of a field, - and yes, - occassionally, you will be in an area where it will not transmit, in which case you swipe the card and complete the sale.  When you arrive in range of the signal, it will update the sales for you. 

The old 'knucklebusters'.  That's what we used to call the imprint machines.  Be careful here, - professional scam artists LOOK FOR merchants who set up at shows using these units because they usually can't get approval for purchases and customers walk away with merchandise without being approved by the credit card company.

Then the vendor gets back home and finds out the bad news, "credit card purchase rejected."  Even if your Point of Sale (POS) unit doesn't work, leave it out in plain sight so that you are not a target, - then (out of sight)  imprint the sales slip on your knucklebuster, get a signature, and ask to see a driver's license, (check that the address and person is the same as listed on your sales slip and in the photograph.)  Ask to see another credit card - and make sure the name is the same as the name on your purchase ticket - and on the driver's license.  Yes, it's additional work, but it's worth it to most people!  

Merchant Credit Charges & Fees

How do they add up?

For most craftsmen and artists, a good discount rate is not as important as recurring fees : e.g. a $25 minimum fee or a monthly fee, etc. because they are not high-volume sellers. 

Recurring fees are separate from leasing or buying a unit, they are in addition to the discount rate (percentage); you may also be charged a per-transaction fee and possibly a batch-out fee , (at the end of the day you total your sales, and batch-out.)

Let's look at what a $1,000 in credit card sales would cost to process. Let's say these were for the month of June, (all in two weekends, at the end of the month.)

$1,000 in sales at a 2% discount rate  would cost $20....

at 3% would cost $30...

at 4% would cost $40...

at 5% would cost $50. These are your charges at the stated discount rate.

If your average sale were $40, $1,000 in sales means you had 25 sales .

At 25 cents per transaction , - times 25 transactions, = $6.   At 50 cents to batch out, five 'batches' (batching out each night after a show: a Friday-to-Sunday show, and a Saturday /Sunday show) .....$2.50 in batch fees .

Minimum Fee:  This is the fee you have to pay, if you don't have enough sales so that your discount rate fees total a certain amount.

Some companies charge a $25 minimum fee, or more. ( If your discount rate were 2.5% or more, with $1,000 in sales to be processed, there would be no minimum fee, since you already paid that amount ($25) to process $1,000 in credit card sales.)

If you had less than $25 in discount rate charges , according to your contract you might be charged the balance to make up a minimum fee of $25, (or whatever the contract called for.)  

In addition, you might be charged a statement fee.................... $10.00 or more is common, and perhaps an additional 5% - 1% higher rate for keying-in the numbers as opposed to swiping a card. There might be other charges .

Add your discount rate total (for $1000), and your transaction fees, batch out fees, statement fees, and/or minimum fees. That is your true percentage of credit card sales for that month .

For instance: if you were charged 4% per transaction ($40 per $1000) and you paid $5 in transaction fees, and an additional $2.50 batch fees, and a $10 statement fee, your actual cost that month would be $57.50, or 5.75%.

If you paid a discount rate of 2%, on processed sales of $1,000 you would pay $20. If your contract had a minimum-fee clause , ($25 - whatever ) now it would kick in, costing you an additional $5. Add to that $5 in transaction fees, and $2.50 batch fees, and $10 statement fee for the month of June, and your total is $47.50 or 4.75% of processed sales.

Don't forget that this is on $1,000 of processed credit-card sales. You will also have sales that are paid by check, and by cash, so realistically, $1,000 in credit card sales is $2-2,500 in gross sales .

If your processed credit card sales are less than $1,000, plus monthly fees, minimums, etc. your net rate will be higher. Conversely, if your processed credit card sales are more than $1,000, plus monthly fees, your net rate will be lower. Let's use the same rates as above and see why:

For the sake of argument, lets just say you only had $200 in credit card sales at a show the last week in June. (You process no other charges in that month.)

At 2% x $200, you would pay $4, (at 4% you would pay $8.) If your contract called for a $25 minimum you would be charged the balance of $25 less the $4 or $8. (Total cost: $25.)

If your average sale was $40, your fees per-transaction (5 transactions x .20) is $1, and $1.00 in batch fees, and a $10 statement fee for the month of June. Your total cost is $37.00 - but look at this number as a percentage of sales.

Your true cost is a big fat 18 1/2 % of sales. Now do you understand why I say 'Watch your monthly charges, minimums, miscellaneous fees, etc.?" SonnovaGun!

Now, include the cost of buying equipment: if you contract to buy as opposed to rent equipment, you are paying on an investment. Eventually, it will belong to you.   (No more payments.)

Keep your equipment contract in a safe place so you can prove it belongs to you if you ever want to switch merchant credit providers.  

ONE MORE THING:  Make sure your contract does NOT contain a clause that says that if you want to leave this provider you must pay a fee! - (That's what I call a "Gotcha!")  You should be able to leave, - say, after a year, without paying a penalty!

When you find a provider you like, who will be available to service your account when you have questions or are in trouble, understand that what you are paying in fees are business expenses that allow you to process more sales.  Simple bookkeeping techniques will identify these expenses that are deductible from your gross sales at the end of the year and are a reflection of your ability to be in business.  People run out of cash; they run out of checks, - and most of them carry plastic.  It's a convenience.  They are often willing to blow their budgets for the right product at a show, if you are able to process the transaction so they can pay for it next month.  This is an important part of your business: impulse sales.

Bottom line:  your ability to process credit cards will help your business, and is worth the processing fees - but it is important to find the right provider who supplies what you need at a price you're willing to pay.

      Comments invited :  email

Copyright 1996-2007 Betty Chypre, All Rights Reserved.
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