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When was the last time you reviewed your Merchant Services account?
Card companies take on board that most business owners are too busy to reduce merchant services (e.g. card processing fees), or don’t have the patience, or are too easily confused by the many different fee structures, or simply don’t know when their agreement expires!
What generally happens is that the fees go up and up every year, unchallenged, while the card processors take 3% or more of your turnover. If you are making 20% gross margin, this is a massive cost.
Switching suppliers in order to reduce your merchant fees is a whole lot easier than you might think.Here are some tips and advice on how to negotiate for the first time, or re-negotiate an existing deal.
9 Top Tips on Reducing Merchant Card Fees
1. Use a comparison site
The golden rule is to shop around, and there’s no easier way to do this than with a comparison site. Try Cardswitcher. They do instant online quotes and save money for 2 out of every 3 customers who fill out their form.
It is tempting to fixate on the credit card percentage fee, but remember also the start-up fee, the monthly minimum fee, the transaction fees, the terminal lease fees and even the possible cancellation fee. Suddenly, it is very difficult to compare like for like. There may be as many as 30 different charges.
However, this is easier than it seems – simply calculate the Effective Rate. This is the cost of all services as a percentage of card sales. Eg if you pay £300 total fees per month for £6,000 sales, your Effective Rate is 3%.
2. Know when your contract expires
Not many people know precisely when their contract expires, and before they know it have inadvertently got tied in to another 2 years, at costs which are suddenly over market rate.
Even if you do terminate early, the savings of switching may more than cover the early termination fees.
3. Do a little research
To reduce your card fees, know what the best rates are before you start negotiating. Check with colleagues what they are paying. Speak to the FSB who can bulk buy you into a very competitive deal with Streamline.
Remember, when you get a quote from a sales person, it is them offering you the deal, not the card processing company. He or she will charge you what they think you can, based on your knowledge, awareness, and the questions you don’t necessarily ask! They have many tariffs to choose from, and like most sales people, they will charge you as best they can.
4. Know your ‘Interchange Rates’
This is the rate that Mastercard and Visa charge the card processors. The differential in these rates should be the same as the differential passed on to you. Card processors might like to slap a little more on one of these rates, but you should knock them back. If the Interchange differential is 1% between Mastercard and Visa, so it should be with you. If the card processor reduces this to 0.5%, you are giving away 0.5% of sales on Visa.
If you cannot find the Interchange rate online, just ask your sales person.
5. Research Customer Reviews
Check out with the companies you are short-listing. A quick search on Google will give you ample reviews.
6. Study your charges
Take 6 months of past statements and look for anything out of the ordinary – and challenge them with your card processor.
If you have mysterious ‘downgrade fees’ or ‘charge-back fees, make sure you understand their root cause. It may be something you can improve your end. Often downgrade fees can be be caused by not closing the credit card batch in your terminal on a daily basis – in which case, use an auto-settle facility.
7. Separate your Terminal Costs
You can hire your card terminals very easily elsewhere, and with less cost. However, try to always sync the renewal date with your card processing renewal date. Try AcceptCards for a quote.
8. Delay payment into your account
To reduce merchant fees, many large companies, such asAmazon, don’t take payment from your account until you’ve received the item.
Why? Because it lessens the risk for the Card Processor, as they are at financial risk if your company goes bust between the order being place and being received. To mitigate this risk, they charge more for quick settlements, and less for longer settlements.
9. Challenge annual increases and regularly benchmark
Some industry experts and even industry insiders, have been taken aback by the huge annual increases in fees. They are easily challengeable – not least by getting quotes elsewhere and benchmarking the costs.
It is especially important to benchmark costs if your business is growing fast, as your merchant card fees should certainly reduce substantially.
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