Credit card use has permeated almost every industry, with an estimated 30 million businesses accepting credit cards worldwide. The percentage of payments accepted via credit card continues to increase in all industries; including over 20 percent increases in industries such as business-to-business (manufacturers, distributors and wholesalers), professional services and health care. In 2016, the volume of credit card purchases for goods and services grew to exceed $5.14 trillion on credit cards issued in the United States.
Unfortunately, costs for accepting credit cards are mounting as well. Few business owners fully understand the complex transactional fees and therefore underestimate the true impact that accepting credit cards has on the profitability of their businesses. This lack of education on cost structures associated with accepting credit cards as payment has most businesses overpaying by 20 to 40 percent.
CPAs and accounting professionals are well positioned to advise their business clients on cost containment and risk mitigation. As such, a more in-depth understanding of credit card processing and acceptance will allow for better advocacy for your business clients. Optimizing credit card acceptance is an often-overlooked opportunity to save clients money and reduce risk. Providing clients with an understanding of credit card acceptance can go a long way in curbing their costs and reducing financial losses. Your clients should understand how payments flow, the types of transactional and recurring fees, fair contract terms, and how to avoid fraud risks.
Credit Card Fees 101
Many businesses overpay because accurate information regarding the procedures, account setup options and real operating costs is not readily available. Businesses can’t always rely on sales personnel for guidance either. Often, sales representatives have limited knowledge of the industry and resort to aggressive sales tactics to succeed in the competitive climate of the processing industry. This lack of advocacy and support has made it harder, if not nearly impossible, for decision makers to recognize the true costs associated with accepting credit card payments or select an optimized solution for their business. Nonetheless, business owners commonly look to their CPA and accounting professionals for financial advice and counsel.
Accounting professionals can help their clients steer clear of common pitfalls companies must navigate, including confusing and costly rates, incorrect merchant account setups, unnecessary elective fees, overpriced equipment and punitive contract terms that lock businesses into expensive, long-term commitments.
Here are seven tips accounting professionals should consider while evaluating their clients’ payment processing services and helping protect their bottom lines:
1. Adopt an Interchange Pass Through and not bundled-rate programs. Interchange Pass Through programs separate Interchange fees from other fees. Interchange fees are fees dictated by a card brand (such as-Visa, MasterCard, Discover and American Express). Other fees such as processing and sales channel fees should be separated and transparent. With a cost-plus-pricing approach, the fees are more clearly delineated, making it easier to see and monitor what your clients are being charged.
2. Make sure the payment account is optimized for the business. Even an Interchange Pass Through program may not be setup to maximize the efficiency of the payment processing. An analytical review will help confirm the payment account is set up correctly for your clients’ type of business, with tools tailored to their industry. Correct account setup that is optimized for their business can be the single greatest area of cost savings, often exceeding 40 percent.
3. Understand so called “non-qualified” transactions. Recognize why certain transactions are classified as non-qualified, and understand the additional costs for these transactions. In general, if the terms “mid-qualified” and/or “non-qualified” appear on a client’s merchant processing statement, opportunities exist for you to guide them toward savings. Typically, a few simple improvements to their business processes will reduce or eliminate the number of non-qualified transactions a company has and thereby reduce their costs.
4. Understand all fees. Many fees are elective and can often be reduced or eliminated completely. If it is not an Interchange fee or industry-dictated fee, it should be questioned.
5. Use the Address Verification System. Including a customer’s billing address and zip code when entering a credit card transaction is an easy and effective way to reduce your clients’ costs and risks of compromised data and fraud.
6. Remove punitive contract termination penalties. Merchant account contracts are inherently confusing and often punitive, so clients benefit from guidance walking through them. Review their contracts and help them understand the terms for terminating an account. Also advise your clients to work with vendors that do not penalize them for canceling a merchant account.
7. Do not lease equipment. Leasing credit card and check processing equipment is expensive. In many cases, businesses pay five times more for equipment when they lease. It’s usually best to advise your clients to purchase outright.
When a business client is selecting a solution to accept credit card payments or evaluating their current solution, remember that information is power, especially in the payments industry. Simply “rebidding” credit card acceptance services usually does not result in the savings businesses are seeking. Merchant sales groups excel at this shell game of hiding fees, and often a business will end up in an even more punitive program. Completing a detailed analytics review of the business’s current solution can provide valued insights. With an optimized payment acceptance solution, companies can obtain all the benefits of accepting credit cards while avoiding the excessive costs, penalties and risks.
If you are uncertain whether your clients have the most optimized solution, seek assistance from a knowledgeable advocate. Risk and the potential for higher fees vary broadly from industry to industry, particularly for those outside of the retail and restaurant spaces. It is important to partner with an advocate who has experience specific to your clients’ industries to identify these risks and provide tailored and cost-effective solutions.