We’ve talked at length about how to choose the best credit card, but what we haven’t really discussed is how to choose a credit card processor for your small business. Much like choosing a personal credit card, finding the best processor involves reading of a lot of complicated, boring stuff. But our little guide to picking a processor will – hopefully – prevent you from making a big mistake. When searching for a credit card processor you should shop around, read the terms and beware of the risks.
Shop around. Having your credit card transactions processed can be expensive. For instance, furniture maker Paul Downs paid $27,000 in fees on $600,000 in transactions last year – and that was using the best rate he could find. Before he shopped around, he was paying an even higher percentage.
The kind of business you’re in can affect your rates. If you do business online or by phone, you’re more likely to get chargebacks. Suppose an identity thief uses a customer’s card number to make purchases from your company. The processor will have to refund that money, so if you run this type of business your fees may be higher. But you should watch out for rates that are very low, too: a low rate means you could be looking at a bunch of extra “tacked-on” fees that aren’t immediately obvious.
Other factors that will influence how much you pay include how long you’ve been in business, your personal credit score, the dollar amount of your average transaction and the amount you make in sales each month.
You should also consider installation costs when shopping around. Identical software and equipment can vary in price by as much as $600, depending on who you buy from. So don’t be lazy.
Comparison shopping is hard because you’ve got to really do the math. It’s worth the effort, though, because transaction costs can make or break a small business. Seriously. That’s why it’s so important to read up on your options before you sign a contract.
Read the terms carefully. Bust out your bifocals, because you’re gonna need to read the fine print. Look for little add-on fees, because this is just another sneaky way that credit processors can profit off of small businesses. Look for phrases like “per transaction,” “swipe fees,” “monthly statement fees” and “interchange fees.” Some companies will also require you to keep a minimum balance in your bank each month in order to process credit cards. If you don’t, they can put a hold on your account. After you’ve read the terms of your contract yourself, make a note of anything you don’t fully understand and have your lawyer go over it with you.
Be aware of the risks. Unfortunately, if you shop around for providers – as you absolutely should – your personal credit score may show multiple inquires. That’s because, in some cases, you can’t actually learn what you’ll be paying until you authorize the provider to look at your financial situation. This necessitates a hard or a soft credit check. You should also be aware that some contracts will require you to put your personal assets – like your house or car – up as collateral in case anything goes wrong. Whether or not this is a factor depends in large part on the structure of your company.
And there you have it – our definitive guide to choosing a credit card processing company that won’t rip you off. Well, at least too much, anyway. How have your experiences with credit card processing for your business been in the past? Mostly good? Totally awful? Somewhere in between? We’d love to hear about them in the comments.