Credit card usage today is more than ordinary. Paying with a card, rather than cash, is a preference held by 75% of those polled by Statista in 2018. Of those asked, credit cards were the most common preferred payment methods, with debit cards following close behind.
A small business that cannot process credit cards, or any other type of card-based payment, is losing business. With a credit card, it’s possible to have your entire bank balance and more on hand with just one swipe- you can’t say the same for cash.
However, just having the ability to process these payments won’t do much good if using a payment processing method is too expensive. The following information should help you learn the how and why of processing credit cards as well as ways to lower your credit card processing fees or completely remove it.
How Does Credit Card Processing Work?
Credit card processing is a straightforward 3-step process.
Step 1: Authorization – During this step, a customer will present their credit card, and it will be read by a POS (point of sale) device. The card’s information will then be sent to the acquiring bank. This bank sends those details to the credit card network. They clear payment and will request specific authorization details from the acquiring bank such as credit card numbers, billing address, and payment amount.
Step 2: Authentication – In this stage, the information given for verification is checked by the issuing bank. Once validated, the transaction is approved or declined. If approved, the sale can continue.
Step 3: Settlement – Money doesn’t change hands the moment a payment is authorized. At the end of each business day, banks and financial institutions will handle these requests in a batch format. Fees, such as interchange fees for bank transfers and merchant fees for the use of equipment, are added or deducted at this time. Due to these fees on all credit card transactions, many businesses choose to offer a cash discount as cash has no processing fee.
How can a small business accept credit cards?
To accept credit cards, a small business often needs to sign up with a payment processing service. There are many different payment solutions of this type available, all coming with their own equipment, fees, and other advantages. You can learn more about the payment processing options below.
How To Get the Most Cost-Effective Credit Card Processing
Credit card processing isn’t all that complex. However, there are a lot of people and institutions involved. Having to pay a transaction fee is reasonable, but other fees often are not. Choosing what credit card processor to stick with can impact your business’s bottom line for years to come.
Consider the following points before signing up with any credit card processor to save the most money and hassle.
1. Choose a PCI Compliant Payment Solution
This should be an easy thing to accomplish. Any good payment processor will be Payment Card Industry (PCI) compliant. This means that they have followed the best-practices recommended by the payment card industry to maintain a secure payment process.
2. Accept EMV or “Chip” Payments
To make sure that your business is up to the latest credit card processing standards from the start, look for a merchant company that is EMV compliant and has this technology integrated with every POS (point of sale) system they offer. EMV standards can help reduce credit card fraud, including theft and chargebacks.
3. Choose a Merchant Services Provider Instead of a Bank
A bank will often contract out to a third-party for card acceptance services. Deciding on a Merchant Services Provider directly substantially cuts out the middleman and gives you greater control over how your business processes payments. Working directly with a Merchant Services Provider can also help make the whole process that much more transparent- fewer unknown fees.
4. Payment Processing Contract Length
Some payment companies will require you to sign a contract. A few will have a grace period where you can try something out for a few months before being fully committed. Always know what you are getting into.
Finding a payment processor that has no contract is ideal. If you do have to sign up, make sure there is a reasonable penalty if you have to break the contract and be aware of what the company considers breaking your contract.
5. Payment Processing Mystery Fees
Always ask that the fees you are charged be broken down. There will always be processing or transaction fees, but there should be no maintenance, support, or other additional fees from your Merchant Services Provider.
6. Quality of Customer Service
Don’t be afraid to ask as many questions as you can think up before you make any commitment. Ask about any potential fees, the topics covered in this guide, and any particulars that might make your situation unique. The more thorough and encouraging the answers to your questions are, the better the company will be able to serve your needs in the future.
It’s also possible to charge a flat fee to recoup part of this cost or only apply this charge to particular products or a total purchase amount. Keep in mind that different payment processors and credit card networks have their guidelines and offerings when it comes to surcharges.
7. Payment Equipment and Maintenance Costs
Credit card processors all have different types of equipment that they rent, lease, or give to their customers. Their maintenance fees vary, as do upgrades and replacements. Ideally, updates that will keep equipment in line with the accepted payment security standards should be free, especially if you are using rented or leased equipment. Maintenance should follow the same rule.
It’s also essential to consider turnaround times or replacement policy for faulty or non-functional devices. Is there a local place that can repair or replace this equipment? Will you have to send in the unit you are renting and wait for a verdict? This is an important policy to know.
8. Utilize a Cash Discount program
A cash discount is just what it sounds like; you offer a discount to customers who pay with cash or check.
The idea here is that at the time of sale, when a customer pays with cash, they receive a discount off the regular sales price.
When a customer pays via a payment type other than cash at the time of sale, they do not receive any discount for the transaction.
9. Look for Surcharge Options
If you’re not too excited by the idea of having to deal with fees all of a sudden, consider passing them on in the form of surcharges. Surcharges allow you to add any payment processing fees you would have been charged to your customer’s bill.
We hope you have enjoyed this guide. Feel free to contact us to learn more about how we can assist you in selecting the best credit card program for you and your business. Learn more about the eHopper free credit card processing program for your business.