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How to Accept Credit Cards Without Accepting Crippling Fees

Closeup image of a man giving credit card to waiter in cafeThere's often a narrow margin between a successful business and a struggling one. Something as simple as credit-card processing fees can spell the difference between black ink and red. But if you think those fees are an unavoidable cost of doing business, think again.

When the Fine Print Isn't So Fine for You
As we trend toward a cashless society, more and more businesses have begun accepting credit cards — which also means accepting the processing fees that come along with them. But what many merchants fail to realize is that those rates are flexible. And the merchants often end up paying way more than they need to.

To give you just one example: Let's say your business accepts different cards with processing rates that range from 1% to 3%. Some third-party processors simply round everything up to the highest rate and charge 3% for all cards. So even if you accept four cards that charge 1% and just one card that charges 3%, you end up paying your processor 3% across the board. The merchants are actually entitled to rebates in that scenario, but few know enough to ask.

I ask. And when I get those rebates for my clients, they treat me like a modern-day Robin Hood because they had no idea that was even possible. (I had one client who had been paying 7% for years. When I told him how badly he was getting ripped off, he had some colorful words for the processor who had been taking advantage of him.)

I see unnecessary fees floating around in credit-card agreements all the time. My goal is to get rid of them. I try to live in the margins of volume and be really fair to people.

The Card Benefits the Customer (So the Customer Should Pay for It)
Another simple approach to the high cost of processing fees is what I call the "gas station solution" — one price for cash, another price for credit.

It's simple. If you run a sandwich shop, you charge $10 for a cash sale and, say, $10.40 for the same sale with a credit card. In that instance, most customers will simply pay the higher cost for the convenience of using their card. A few will switch to cash. Not many will choose to go elsewhere — although the situation is highly subjective. Some merchants simply aren't comfortable with a two-tier pricing structure. Others are convinced that their customer base wouldn't accept it. Only you can decide what's right for your business.

By the way, some businesses try to get around the credit card question by using popular online money-transfer systems instead. Those are an acceptable "for now" solution for certain startups, but they aren't scalable for a growing business. And there are often crippling stipulations hiding in the terms of service. I know of one merchant who had his entire $30,000 online account frozen when a customer disputed a single $10 charge.

A Eureka! Moment for Professional Services Firms
Finally, many businesses that have not traditionally considered credit cards are discovering that cards can be a terrific way to solve an age-old problem with accounts receivable.

The check is in the mail. We've all heard that one, right? The problem is, by the time we realize the check is not in the mail, that payment can be 45 days past due — or more. And we've got a cash-flow problem.

To resolve that, many professional services firms now require that the client furnish a credit card upfront, with the stipulation that the final payment will automatically be charged to the card upon completion of the work. The benefits are twofold: Either you get paid once the job is done, or the card gets declined and you can begin the collection process immediately.

That process doesn't have to be adversarial, either. If the card is declined, you can just have a conversation with the client about the state of their business without framing it as a collections call. You can begin working on a solution to the problem right from the start rather than let it fester.

Best of All, It Works Both Ways
Credit cards also benefit the client in that arrangement. For one thing, instead of writing a big check as soon as the work is complete, they get an extra 30 days to make that payment by putting it on their card. In most cases, they can then pay the balance in installments if they choose. Plus, those large charges can give the client a big boost on airline miles and other rewards programs. (I've heard of clients who helped fund vacations through the miles they accumulated in this way.)

Like it or not, cashless commerce is spreading to every type of business. You can either figure out how to make it work in a way that's fair to both you and your clients — or you can get left behind.

Walter Ramin is a merchant services specialist in New York City

Topics: Small Business Advice, Manhattan Financial District, NYC - Midtown, Tips for Startups, Business Advice

Walter Ramin, Merchant Service Specialist

Written by Walter Ramin, Merchant Service Specialist

Merchant Services Specialist in New York City

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