It can seem unfair to be charged money simply for the privilege of accepting credit card payments at your small business. After all, not accepting credit cards could result in a significant amount of money left on the table and often isn’t feasible when your goal is to generate enough revenue to keep your doors open.
To be fair, there are numerous middlemen and processes that occur behind the scenes to enable every credit or debit card purchase. But any business owner wants to save money, especially for intangible services like credit card processing. So, how can you obtain credit card processing for your small business with no monthly fees? The answer lies in the agreement you have with your current Merchant Account Provider and the commitments noted within.
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Credit Card Processing for Small Business
It bears repeating that an elaborate, technical dance occurs every time a customer pays you with a credit or debit card.
In brief, the numerous facilitators include the following:
- Card Associations: You’ll recognize them (Visa, MasterCard, Amex and Discover) but might not know that the Card Associations are responsible for setting rules and managing things like Interchange, which affects processing rates for all businesses. Furthermore, they support the back-end functionality that enables all transactions.
- Merchant Account Providers: To accept credit cards, you need a merchant account. These providers oversee the sales and marketing of the products and services used to process transactions and work directly with businesses to facilitate the interplay of the Card Association’s network and the businesses’ bank accounts.
- Payment Processors: These manage the transmission of transactions and maintain the computer networks that facilitate communication between your Merchant Account Provider and the banks.
- Payment Gateways: These are systems that facilitate the transfer of information between a payment portal (like an e-commerce store) and a processor. They interact with both businesses and processors.
All of these providers help facilitate transactions. But we all know that there’s no such thing as a free lunch. You’ll see some fees in your statement that are known as “pass-through” fees. Usually, one provider assesses these fees and charges them to another, which ultimately passes them down to you.
Now that you can appreciate the reasoning behind standard monthly fees like dues and assessments, we’ll dive into the monthly obligations or terms that could result in monthly fees.
Potential Monthly Fees for Small Businesses
The following fees all pertain to agreements that should be disclosed in your merchant account contract. It’s recommended that you read your proposed contract thoroughly before signing it to ensure that you’re aware of and comfortable with all terms. This will help you sidestep any unsavory contractual terms like terminal leases, auto-renewal clauses and termination fees.
These fees are all tied to your processing volume (a.k.a. the monthly total of your credit card transactions).
- Monthly Fee: Many providers charge monthly fees that cover the basic use of their services. Depending on the provider, these fees might be waived if you process a certain credit card volume every month.
- Monthly Minimum Fee: This fee is related to a predetermined requirement in your contract. Essentially, your provider requires a certain value in processing fees each month, that is a portion of your total volume. If your volume is insufficient to generate the required fee amount, you may be charged for the remaining balance.
- Processing Commitment Fee: Similar to the monthly minimum fee, this fee is predetermined in your contract and states that you’ll process a required minimum in total volume. You may be charged a fee if you don’t reach this minimum.
If these requirements sound unfair, the good news is that some providers don’t charge these fees. To reiterate, this is why it’s so important to review all terms before partnering with any Merchant Account Provider. If you have a patchwork of providers (say a separate Merchant Account Provider and Payment Gateway), it’s all the more critical that you confirm whether these monthly fees are assessed with every provider you have. Otherwise, a monthly fee might pop up in more than one of your monthly merchant statements.
Additionally, not all providers charge exorbitant monthly fees. Consider how the fees noted above will be calculated and what your expected average volume will be before agreeing to any terms that will result in a monthly fee.
Learn about (and identify) unethical fees you shouldn't be paying with our free checklist!
Does your business get hit with multiple monthly merchant fees? Have you asked your provider about ways to waive them? We’d love to hear from you!