5 tips for reviewing your credit card processing contract

January is a great time for reflection and planning.

For instance, now that we’re all done gorging on food and wine, we can pretend that we’re going to get back in the gym on some sort of regular schedule.

For business owners, managers or accounting staff, January can be the perfect time to review your credit card processing rates and setup. Unfortunately for many people in this situation, they aren’t reviewing things from a position of strength. They can also be afraid to admit that to others in the organization, which limits the effectiveness of the review.

On a recent phone call, a business owner told me he’d just renegotiated his contract. “So, I’m good, thanks,” he said. But when I pressed him, he admitted he actually didn’t understand what he’d signed, so it wasn’t much of a negotiation after all. A few weeks later, after transparent and fruitful discussions, we completed a deal that saved that company more than $100,000 in credit card fees on $5M in annual credit card sales.

Here, in no particular order, are five friendly suggestions for your business when it’s time to review your payment processing:


1. Have a review free from finger-pointing

Credit card processing is a simple enough industry that’s been made confusing for merchants. There are hundreds of interchange rates and assessment fees, complex pricing models that make it very difficult to compare quotes, unscrupulous companies and salespeople looking to take advantage of you, and impossible-to-read monthly statements.

These are just a handful of the pitfalls, and you are not alone in struggling to fully understand your agreement. From mom and pop operations to experienced CFOs at large companies, we meet with people who have the same confusions and concerns.

Lately, we’ve seen a lot of re-pricing during contract terms, and plenty of misunderstanding around PCI Compliance requirements and the related fees.

We suggest you have a frank internal conversation about your payment processing agreement and come to an understanding of what your organization does and don’t know. Seek outside expertise if needed, and only work with processing companies who are willing to share knowledge on the industry and earn your trust through transparency and clear pricing (our preference being Cost Plus pricing).

At the risk of stating the obvious: Don’t fall for teaser rates, and don’t sign anything you don’t understand.


2. Check your statement for re-pricing

Somewhere in the fine print of your agreement, you might notice that your payments provider can re-price you during the contract term as long as they provide notice. What passes for notice? Often, it’s just a note in small font on your monthly merchant statement, so you really have to be paying attention to catch these changes.

Some of these rate adjustments are dictated by the card brands. For example, this past November, Mastercard changed some rates (some went up, some went down) and those rate increases applied regardless of who your processor is (unless you are on a flat rate pricing model with the likes of PayPal, Stripe or Square). But other changes to pricing can be your processor increasing their margins in one way or another and those shouldn't be happening.

We are always meeting with prospective clients who remember signing a contract for a given set of rates and are then shocked to see what’s on their statement.

If you think (or know) you’ve been re-priced, you might be able to get out of your contract and any equipment leases free of penalty, depending on if (and when) you were given notice of the increase. This is all covered in the credit card processors Code of Conduct.


3. Read your merchant statements!

This leads us into a more general point. We know that reading your monthly merchant statements isn’t exactly fun (a cure for insomnia, perhaps), but if you can’t understand your merchant statement, then how can you possibly have a transparent relationship with your processor? Would you let this kind of arrangement go on with anyone else you conduct business with?

If you don’t understand your merchant statement, ask for a detailed and clear review with your processor. And if they can’t explain — and justify — every aspect of that statement, you might want to consider other options. Obviously you have better things to do than examining your merchant statements with a microscope every month (such as growing your businesses). All the more reason to work with someone you trust.


4. Check your equipment inventory and charges

It’s surprisingly common to come across merchants who are being charged for more terminals than they are using, or who have no idea they are actually in a lease arrangement with a third party, with separate terminal charges coming out of their bank account each month.

If you have replaced a terminal (or a few terminals) over time, the review process is a good time to make sure those returned terminals have been removed from your account. And if there are no terminal charges on your statement, this means you’ve either purchased your terminals outright, or you’re in a lease arrangement with a third party. These lease agreements can be nasty pieces of business if you don’t understand them well.

Generally speaking, we believe that merchants should rent terminals for maximum flexibility since equipment cannot be reprogrammed if you decide to switch processors. Purchasing terminals outright can also make sense for a business in certain situations.


5. Understand your PCI fees and requirements

Payment Card Industry (PCI) Compliance is the industry standard for data security. It’s also a growing area of concern (and confusion) for many merchants.

The rise in data breaches has businesses of all sizes thinking more in depth about how they process payments and how they store cardholder data. That’s a good thing, and you should work with companies who can add value to your organization on this front.

In addition, the rise in PCI Compliance and PCI non-compliance fees has many businesses trying to understand what it is, exactly, they are paying for, and how they can reduce those fees through compliance measures.

We’ll discuss PCI Compliance in more depth at various times this year. But, put simply for now, if you are seeing hundreds of dollars in PCI and non-PCI fees on your statements each month, we’d strongly suggest that you seek a new processing relationship. Work with providers who will clearly explain PCI Compliance requirements and benefits to you, and will ensure that you attain (and retain) compliance.

What is a good rate for credit card processing?

What is a good rate for credit card processing?

One of the most common questions we get from a potential client is: "What is your rate?" This, of course, is a perfectly normal question to ask, but it opens the door for questionable practices if you don't fully understand how credit card processing works.