~ The Credit Card Wars ~

by Betty Chypre

Knowledge is Power

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.

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