Understanding Merchant Account Fees
When searching for the ideal merchant account for your small business it is imperative that you understand all of the fees that are associated with establishing and maintaining your account. While at first glance all of the fine print and fees can seem extremely daunting, it is of the utmost importance that you have a full understanding of these merchant account fees before you sign with any particular merchant account provider. Otherwise you could be entering into an agreement that will end up costing your business in the long run. Of all the fees that are associated with credit card processing there are a few basic fees that you should understand fully to ensure that you are getting the best deal possible for your small business.
The first of these fees are extremely straightforward and deal with the initial set up of your merchant account. Typically when you first apply for your merchant account, the provider will charge you a small setup fee. The setup fee is issued to cover the fees to process your application and any administrative costs related to the establishing of your merchant account. Processors will usually waive this fee during sales promotions, but if a promotion is not occurring most processors will waive the fee to get you on board.
When initially getting your account set up you may also find that you are issued an equipment fee. The actual terminals and installation of the equipment is typically covered under this fee. Depending on whether or not you purchase your processing terminal the equipment fee can be recurring monthly if you lease your equipment. If you plan on using an internet payment gateway you will also be subject to an internet gateway fee.
With the basic and most straightforward of the merchant account fees you will encounter addressed it is essential that you have a firm understanding of a few of the more complicated fees that affect your everyday transactions and long term processing. Chargeback fees are the bane of every small business owner but an integral and crucial part of the credit card processing world. A chargeback fee results from a customer’ dispute of the charges processed to their card or a unauthorized purchases being made with a stolen card. In parallel to a bounced check, whenever the processing company does not receive funds on account of charge disputes or unauthorized charges the merchant receives a chargeback fee. It is critical for any small business owner to understand the chargeback fees for their account as they are a regrettable but staple part of any business that processes credit card payments.
A large majority of small businesses are also subject to an address verification system fee, typically found in applications and contracts as an AVS fee, more confusion for the uneducated. The AVS fee is mandatory for any MasterCard or Visa accounts that are manually keyed in. For small business owners who are hoping to reduce fraud, and thus chargebacks, the AVS fee is also of use. In paying the AVS fee the merchant is included in a service that will provide the merchant with both the card holder’s address as well as zip code.
A minority of small businesses owners may also find that their merchant accounts are subject to reserve fees. If your small business is considered a high risk merchant account, typically those businesses dealing in mail order products, travel, or online purchases, you run a greater chance of encountering reserve fees. The reserve fees can be either charged as a flat rate or as a monthly percentage on sales and can reduce over time if your effective monthly chargeback number is consistently relatively low. This fee can be a of crucial import in regards to saving your business substantial funds in the long term by negotiating and understanding of the fee upfront.
Of all the fees addressed to this point the next two fees are the most critical and important fees that a small business owner needs to consider when applying for a merchant account. The discount fee is hands down the one fee that every small business owner needs to know. With each transaction that your small business processes there is a percentage paid to your merchant account processor, the rates of which are historically higher for online transactions as compared to those for physical transactions in store. Coupled to the discount fee is the monthly minimum fee. If your monthly volume is ever low and you fail to meet the discount rate for MasterCard or Visa for any given month, you are charged a monthly minimum fee to make up the difference.
With the knowledge of these basic fees you should be able to navigate the waters of credit card processing applications with a new found ease. While this article covers the most basic of fees there are a myriad of other potential fees that may be present within the contract for your merchant account and it is in your best interest to make sure you know the exact meaning of those fees. Be sure to keep an eye out for any hidden fees or teaser rates to ensure you don’t end up paying egregious fees after the promotional trail period. Good luck in your endeavors and make sure to keep a keen eye out for those fees.
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