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Credit Card Processing Companies

Merchants who want to accept credit cards must work with credit card processing companies. Therefore, it's vital to understand the procedures and associated costs to prevent overpaying

Taking time to compare various credit card processing companies can save merchants a lot of money over time. Companies generally assess fees to process credit cards, along with a per transaction fee, while some even charge fees for printed statements.

Sole proprietors and small business owners often find it difficult to find companies willing to provide merchant accounts. Instead, entrepreneurs usually have to work with third party providers who will obtain the merchant account. Unfortunately, the more people involved the higher the rates.

Furthermore, the way business is conducted can affect the overall cost. Companies who accept online payments or other transactions where the card is not swiped through a processing machine typically pay higher fees. This is due to the fact that there is higher incidence of credit card fraud when transactions are not performed in person.

Merchant rates are determined by various factors. A few of these include how long the company has been in operation; the type of business; the merchant's credit rating and personal finance; the average amount of individual transactions; and the total amount of monthly sales.

Another element that affects fees is the type of credit card. For example, accepting VISA and Mastercard generally costs less than cards issued by American Express or Discover. These fees are referred to as discount rates and typically hover around 2.25 to 3 percent of the sale.

Along with discount rates, merchants have to pay other fees to obtain the privilege of accepting credit cards. They will need to purchase processing equipment which requires an Internet connection either through a landline or cell phone. This in turn, involves having cable installed at the physical location or a monthly cell phone plan.

Credit card processing companies can tack on other charges which cut into profits. These can include per transaction fees; monthly minimum fees; monthly statement fees; address verification and voice verification fees. Combined, these fees can strip away as much as 5 percent of profits.

Small business owners often make the costly mistake of leasing credit card processing equipment. It's always best to purchase equipment outright to avoid paying double or triple the actual amount.

To add insult to injury, business owners that lease equipment and later decide to purchase or go with another processing company may find they are faced with hefty cancellation fees.

Business owners who want to accept payments using cell phone credit card processing applications will want to spend time looking into available options. While mobile phone apps can be a cost-effective alternative to machines there are pros and cons that need to be explored.

There are dozens of mobile apps, but a few of the top rated include PayPal, GoPayment, Inner Fence, ProPay, and Square. Some charge a nominal fee to download the app while others provide it at no charge. Most have maximum transaction fee which can be limiting for large volume merchants.

Regardless of the type of merchant account needed, taking time to explore options and reading the fine print is vital. Stick with credit card processing companies that are well-established and reputable to avoid paying high discount rates and business fees.

Click here to get more money-saving tips for small business owners. Our blog covers topics of business banking, generating positive cash flow, and investing.

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Published on December 20, 2012 at 05:03 AM

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