Seven Ways Auto Dealerships Can Lower Payment Acceptance Costs

The costs of accepting payments at automotive dealerships can add up quickly, especially with high-ticket down payments, major repairs, and expensive parts. Inefficient business processes only amplify these expenses, increasing operational costs and straining cash flow. If not addressed, profits can stall.

Every payment-related expense is an opportunity to optimize, lower transaction costs, and improve your dealership’s financial health. Implementing modern solutions and processes can keep your operations running smoothly and profitably.

Read on to learn about best practices, features, and tools to help your dealership reduce payment acceptance costs and maintain peak performance.

Challenges Impacting the Cost of Payment Acceptance at Auto Dealerships

Let’s open the hood on payment acceptance and inspect how transaction fees, time, and labor impact your bottom line.

Outdated Payment Acceptance Solutions

Customers demand easy, digital-first payment experiences for goods and services. Outdated systems that rely on paper receipts and standalone credit card terminals exacerbate inefficiencies and slow cash flow.

Lowering or offsetting transaction costs is crucial for controllers seeking to maximize profits. Expanding payment types beyond credit cards can save thousands. However, many payment providers don’t offer solutions that optimize acceptance costs based on factors like the type of card presented. As a result, dealerships miss out on shaving 1% - 3% off transaction fees.

Time and Labor Costs
The operational costs of managing payments are significant. Labor-intensive tasks like reconciling receipts, preparing deposits, and researching disputes consume valuable time and resources, frustrating staff and leaving dealerships with less time to focus on strategic initiatives.

For example:

• Calling customers to track down payments: Playing phone tag to receive approval and payment for services is inefficient, often adding 15 minutes of back-and-forth messages and callbacks to reach one customer.
• Manual reconciliation: Matching credit card receipts to transactions is error-prone and time-consuming. End-of-day processes can take 30 minutes or more, and balancing the books at the end of the month can take even longer, especially considering multiple departments and locations.
• Dispute management: Tracking down invoices and receipts for chargebacks can require extensive effort, often leading dealerships to write off disputes below a certain threshold.
• Fragmented systems: Lack of visibility across payment channels, departments, and locations prevents accurate, real-time reporting, delays financial closes, and limits insights.

Processing Rates and Fees

Deciphering costs is confusing and complicated, considering over 300 interchange categories and varying rates depending on card brand, card type, payment method, and industry. Additional “junk fees” from payment processors, including setup, PCI, risk, and statement fees, further complicate the picture.

Many controllers struggle to parse their monthly statements, suspecting unfair charges but lacking the transparency to confirm them. Costly transaction downgrades, though avoidable, often go undetected.

Seven Ways to Reduce Costs at Your Auto Dealership

Advanced payment tools streamline processes and introduce cost-effective alternatives to traditional methods. These alternatives are popular with consumers and ultimately reduce transaction costs and the financial and operational burdens of payment acceptance.

1. ACH Account Transfers

ACH payments are more convenient than paper checks and offer a cost-effective alternative to credit cards for large purchases, such as vehicle down payments. Dealerships that accept ACH can realize tremendous cost savings on their monthly processing statements. For example, since ACH per-transaction costs are typically 0.50%—1%, compared to a typical range of 2%—3% for credit cards, the fees for a customer paying a $8,000 down payment would be $40-80 via ACH vs $160-240 via credit card. 

Drive more value: Encouraging ACH payments reduces payment acceptance costs for high-ticket transactions. A Virtual Terminal or integrated software captures bank routing and account numbers in a few steps and securely stores the details in customer records for future transactions, including recurring payments.

2. Credit Card Surcharging 

Surcharging allows dealerships to add a small fee (up to 3%) when customers pay with a credit card. The fee must be disclosed and applied only to credit card purchases. Customers can avoid the surcharge by paying with debit cards, cash, checks, or ACH bank payments. 
States have different rules regarding surcharging, so it’s crucial to stay informed about the laws in your area. Ensure your surcharging practices comply with local regulations to avoid penalties and maintain customer trust.

Drive more value: Be sure your payment provider employs innovative technology that only applies a surcharge to credit card transactions. Also, understand buyer behavior. Many consumers carry rewards cards that offer points or cash back, typically 1%—2% of the purchase value. Customers may tolerate a modest surcharge (e.g., 2%) in exchange for the benefit of accumulating points toward airline tickets, hotel stays, merchandise, or cash rebates.

3. Digital Pay-by-Link

Tracking down customers away from the dealership can take time and effort. Digital invoices allow dealerships to email or text a secure payment request, including a description of services. Customers tap on a “pay now” button and enter card details into a secure form, avoiding the hassle of in-person or phone payments.

Drive more value: Digital invoices boost productivity, especially for service and parts departments. Pay-by-link speeds up payment collection, reduces processing time and improves cash flow. Plus, customers appreciate the speed and ease of completing a payment from anywhere.

4. Recurring Payments

Dealerships that offer subscription-based services for oil changes, detailing, and fleet management create predictable revenue streams. Recurring billing automates payment schedules, reducing administrative effort and ensuring timely collections.

Drive more value: Automating recurring payments improves cash flow consistency and minimizes the risk of missed payments. These programs also build loyalty by keeping customers visiting the dealership for services and potentially buying add-ons that increase purchase value.

5. Avoid Transaction Downgrades

Downgrades occur when a transaction doesn’t meet the minimum requirements set by the card brands. The costs add up quickly. Personal card downgrades cost 1.25% more on average than those qualifying correctly. 

Require staff to input Address Verification (AVS) when keying in orders. With AVS credit card match, the customer’s address and ZIP code are captured and quickly verified against the billing address associated with their credit card. AVS is a proven way to reduce risk, build customer trust, and help transactions qualify for lower interchange rates.

Drive more value: In addition to AVS, ensure authorization and settlement amounts match and separate purchase amounts from sales tax. Use a solution like PayJunction that automatically settles all transactions within 24 hours.

6. Efficiently Manage Chargebacks

Transaction disputes can create financial strain, disrupt operations, and damage customer and dealer relationships. Dealerships experience revenue loss, inventory costs, chargeback fees, and reputational damage.

With the right strategies, technology, and proactive management, dealerships can mitigate chargebacks and strengthen their foundation for long-term success. To streamline processes, use tools like PayJunction’s Online Chargeback Management System.

Drive more value:  Implement resolution strategies to handle disputes, including a timely response with detailed, compelling evidence. Encourage clients to contact you directly with billing or service concerns. A proactive and responsive customer service approach can resolve issues before they escalate to chargebacks.

7. Get Interchange-plus Pricing

Providers add a markup to transactions to help them operate their businesses and maintain their data and operations centers. The markup helps them keep their solutions current with industry trends, deliver best-in-class integrated solutions, fund your bank account, deliver reports and statements, and provide customer support.

Unfortunately, some providers practice unethical billing, such as padded interchange rates, or add nuisance charges with vague descriptions like “risk fees” or “non-compliance fees,” which add unnecessary costs. Work with a payment provider like PayJunction that offers clear and straightforward interchange-plus pricing, adding a modest markup on card brand rates. Interchange-plus pricing plans clearly outline fees and terms based on the card brands’ published Interchange rates.

Avoid working with a processor that charges:

• Startup fees
• PCI compliance/non-compliance fees
• EMV non-compliance fees
• Risk fees
• Customer service or reporting fees
• Early cancellation fees

Drive more value: Transparent, interchange plus pricing builds long-term trust and provides dealerships with predictable, manageable payment costs. Read contract terms carefully. Month-to-month agreements ensure no hidden fees or long-term commitments, empowering dealerships with flexibility and peace of mind. 

Rev Up Payment Acceptance at Your Dealership

Optimizing your payment acceptance processes saves money and drives your dealership forward. Implementing modern solutions like PayJunction’s advanced tools, cloud-based platform, and ethical pricing lets you boost productivity, reduce costs, and position your business for sustainable success. Contact a provider like PayJunction for a detailed statement analysis from payment experts trained in spotting padded rates and unnecessary fees.