Seller Beware

19027616_mNo matter what industry you’re in, small business owners always have one thing in common: they like to do things themselves. If you can train yourself to build it, fix it, whatever, you can save money, and saving money is paramount.

So what to do when entering the murky waters of credit card processing? Credit cards have become a necessary evil these days, and most businesses simply cannot afford to not accept them. But who’s going to give you the best deal? Who’s going to be honest with you? Tell you about the fine print? The short answer is: educate yourself. For as much as we like to do on our own, we are woefully ignorant of how this whole credit card thing works. For most of us, it’s as simple as setting up a machine, swiping a card, and waiting until our statement to see how much money we owe our credit card company. It doesn’t have to be this way. Take some time to learn how the industry works, because it has a big effect on your business! Call your contact person at your processing company and get your questions answered.

In the meantime, here are a few pointers for those new to the credit card game, and those who are considering switching processing companies. (Note: This article assumes the most common “Interchange Plus Pricing” model. There are others like tiered and fixed models, which are almost always a bad idea, but depending on your business, they may be worth familiarizing yourself with.)

First Timers

Contract Terms

I cannot stress this enough, this is the most important thing to talk about. Contracts range from a year to infinity, so make sure you know what you’re getting into. What is the contract term and are you comfortable with it? This is especially important if you’re used to constantly changing vendors to ensure the best price. The credit card processing industry is designed to discourage this behavior. Early termination fees (ETFs) range from around $100 to as much as $500. Make sure you know how much your ETF is, and if it’s prorated yearly. If so, sometimes sticking it out for an extra month or two can save a big chunk of money when switching companies. Remember, if you can’t afford to get out of business with someone, you can’t afford to go into business with them, period.


There are essentially only two or three things you should be paying for with a credit card processing company. They are going to charge you a percentage of your credit card sales, called interchange fees. Now, while this might seem insane, it’s standard practice. All major cards charge a percentage, so the processing companies do as well. Look for the lowest rate you can find. Every sales rep will tell you, “I can save you money.” Super. Find out where it’s coming from, because there’s only so much wiggle room (Visa, MasterCard, etc. set these rates). You’re not really saving a hundred bucks a month if they’ve got a separate line item charge for snake oil.

There is a fee per each swipe of a credit card through your machine. I own a pizza place, and we have a lot of $2-$5 transactions. This is a deal breaker for me. Fees can vary from 10¢ to as high as 25¢ per swipe. If you’re doing a smaller number of transactions and higher ticket totals, this may not be a big deal. However, if you are doing a lot of transactions, this can add up quickly. Be careful you’re not robbing Peter on the monthly percentage, to pay Paul with the swipe fees. And sales reps know what type of place they’re walking into. They know you might be so bedazzled by their low percentages that you won’t even think to ask about the fee per swipe. Trust me; they won’t go out of their way to bring it to your attention.

Lastly, there is going to be a flat monthly fee to use their service. This does include legitimate costs, but this is also how they make money, and at $25-$40 a month, it is usually built into their business model. If it’s at the high end of that or higher, it’s time to start asking some specifics about what those fees are for!


Lots of companies are offering really neat stuff, from mobile card swiping to gift cards and beyond. Before you sign on, think about services you may want to take advantage of (even if it’s down the road) and find out prices now. Get them in writing and find out how long those prices are valid for. Say you want to do gift cards down the road. If you wait until six months from now to find out the prices and they are astronomical, you will already be knee-deep in your contract with them.

Are they offering you other cool stuff? Additional machines? Mobile machines? Is there a separate company handling the lease? I can’t tell you not to get involved with a 3rd party leasing company… but don’t get involved with a 3rd party leasing company. It’s always cheaper to buy this equipment on your own, if you even need it in the first place. And if you get into an equipment lease, you’re still on the hook for that even if you cancel service with your processing company.

What to look for when switching

Often, companies will pay all or part of your early termination fees if/when you switch to them. Be sure to ask. Find out what you have to do to get that money once you’ve switched and how long it will take, and get it in writing!

You may experience a change in service. Try to think about all the aspects of your current service that affect your day-to-day business. For instance, with one company you may get your money the next day, while another might take 48 hours. Address these concerns with your rep before you sign.

Again, you may end up saving money in one area, but be surprised by additional charges in another. Sit down and go over their fee structure and make sure you’re comfortable with it. Do your due diligence and make sure what they are saying matches what’s on paper, because at the end of the day, the only thing that matters is what’s in black and white.

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Avatar About the Author: The Rhode Island Small Business Journal is a printed monthly magazine and an online resource for the aspiring and start-up entrepreneur and small business owner.

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