Void vs. Refund

If you ever rang up a customer, chances are, you've been there.  After processing the transaction, your customer pulls out a coupon, or decides against one of the items you rang, or questions a price.  "Okay," you say.  "I'll just do a refund and start over."  As a merchant, however, handling that situation with a refund is costing you money, and while it may only be a few cents, it'll add up if you do it often enough.  If the customer is still in front of you, or for that matter, any time before your business's end-of-day settlement, using the "Void" feature will likely be a better way to make a change in the amount you're charging your customer. 

Over and above any percentages, most businesses are charged a flat fee for every transaction.  When a refund is processed, the original transaction still incurs that flat fee, even if the entire amount was refunded.  When you void a transaction, on the other hand, it's as if you're saying the original transaction never really took place at all, and therefore, there's no transaction fee. 

Recently, the assistant manager at a major, regional department store was amazed to hear me explain the differences between refunds and voids.  She had no idea, and with literally thousands of transactions taking place in a typical day, leading to numerous situations requiring correction, that store could potentially save some serious cash by simply training employees to void sales when the opportunity presents itself, rather than issuing refunds. 

Of course, you'll still need to do refunds, too.  You won't be able to void any transaction that has already been settled with your bank, for example, but if the transaction just took place and voiding it is an option, choose to void and save some money. 

What Are Your Rates? Pt. 2

Always beware of sales reps that start with, “I can lower your rates.”  Chances are, they can, but at what cost?  Costs could be a lower level of service, or less dependable product, but in the merchant services industry, there are usually literal costs over and above the rates.  Less scrupulous reps won’t volunteer this information, and will often get you to sign a long term contract with a high exit fee before you realize you’re actually paying more.  

 

The other costs may be very legitimate, especially if they’re within reason, but sometimes they become excessive, or downright unnecessary.  You’re very likely to incur monthly fees, for example, and they usually range from 6 or 7 dollars, up to 20 or 25.  You may see an annual fee of anywhere from a few bucks, to a hundred or so.  There are usually PCI compliance fees which may be billed monthly, quarterly, or annually, and can range from about $80 a year, to $15 a month.  Transaction fees, batch fees, and equipment rental fees are also very commonly seen on processing statements.  Some other fees that are out there, although less common, include setup fees and tax reporting fees. 

These extra costs are not necessarily bad, especially if they’re offset by reduced costs elsewhere, such as lower rates.  For example; a Square account, with no added fees, may be ideal for a business accepting a few hundred dollars worth of payment cards each month, or processing in some months, but not others.  A business regularly processing a couple grand, or more, however, will almost certainly save money by paying a reasonable monthly fee, and a small transaction fee, in exchange for rate savings of a half percent or more. 

It becomes very difficult to compare the cost of one processor to another when they aren’t charging the same sets of fees, so consider your bottom line effective rate.  There’s usually one deduction made each month to cover a merchant’s processing costs.  (Even that can vary as a small number of processors take a fee from every daily batch or transaction, but you can always add up your total for a one month period.)  Divide the monthly cost by the total gross amount of card payments you accepted that month, and you get the effective rate.  For example; $250 in costs, divided by $10,000.00 worth of card payments accepted, equals 0.025, or a 2.5% effective rate.  The effective rate will vary from month to month, depending on how much you process, what types of cards were used, security features that may or may not have been implemented, or fees that aren’t consistent, such as quarterly or annual fees.  Despite such variances, you’ll have a much more accurate picture of what your processing costs are as a percentage of sales.  Keep in mind, your effective rate will be higher than the rate you were quoted, because it does include all other costs, too.

Be sure to compare all costs, and not just rates.  Also consider whether you may be willing to pay a little more for services and features that may be attractive to you, especially if those features may save money elsewhere.  Card processing is not just a commodity, even though many reps present it as such. 

What are Your Rates? Pt. 1

When calling on prospects for my merchant services solutions, the most common question I hear is, “What are your rates?”  Unfortunately, too many processors have trained clients to ask that singular question, while overlooking the other areas that are sure to incur costs.  I’ll point out some of those other cost areas in the next blog, but for now, let’s just take a look at the rates everyone seems to ask about: 

First of all, there’s something called interchange.  That’s the amount charged by the cards, themselves, such as Visa, Mastercard, and Discover.  No processor can manipulate what interchange is.  It’ll be the same regardless of who you work with.  I had one merchant prospect practically call me a liar for suggesting that he was not, indeed, paying less than interchange, but I can assure you, his processor would not have been taking a loss to make that happen.

What can be manipulated is the amount over interchange that your processor charges.  Perhaps they’ve provided you with 3 or 4 rates called, tiers, into which various transactions will fall.  The lowest tier will cover the cost of the interchange on a typical debit card, or a basic credit card run with all the proper security measures, and build in a profit for the processor.  The next tier provides profit while covering the higher interchange costs that could arise from rewards cards, or a missing address verification, or CVV code.  A third or fourth tier would cover even higher interchange rates.  After all, there are probably hundreds of different possible interchange rates.  Tiered pricing simplifies that for merchants by putting similar interchange scenarios into a few easy to understand tiers.  

An analogy I often use equates taking your vehicle for service and asking the price of a tire rotation, an oil change, and a radiator flush.  Imagine if the service rep said, “Those are all preventative maintenance items, and have, therefore, been put into one price tier to make it easier for you.”  The problem is, the facility can’t take a loss when they actually do perform the higher cost radiator flush, so that price tier will be sure to account for that, and you’ll likely overpay when you really do want just a tire rotation.    

Back in the merchant services world, a pricing model that’s gaining ground is “Interchange Plus,” which passes on the actual interchange rates, and adds a flat rate over that, which is usually the fair share for the processor’s, services.  Using the auto repair analogy, it would be like paying the actual cost of the parts, plus a fair share for labor.  Whether the “plus” portion is 10 basis points, 100 basis points, or somewhere in between, will vary by business, by processor, and by other charges.  Unfortunately, the “plus” portion is often referenced with no mention of the interchange.  If the “plus” is 50 basis points, clients may believe they’re paying 0.5%, but after adding 1.6% in interchange, for example, their real rate for that transaction is 2.10%.  

As you can see, rates do get complicated.  Some businesses pay higher rates because they’re higher risk.  Some pay higher rates for a higher level of service.  Some pay lower rates because their other costs are higher.  As mentioned before; that’ll be a subject for the next blog.  Please check back for part 2 in the coming week or so.      

Why the Interrogation?

"They want my bank statements?  ...pictures of my business?  ...social security number, and references?"  The fact is, you may be asked for a lot of information, sometimes sensitive information, when establishing a new merchant services account.  Some providers ask for more than others, and some businesses are required to provide more than other businesses, but there's usually a legitimate reason for such requests.

The first reason that comes to mind is fraud.  Let's think about this one from the viewpoint of a consumer.  If anyone can claim to be a business and set up a credit card processing account, then anyone can run a charge through on your card, even if their product or service is not legitimate.

I don't want to sound like I'm bashing other services.  In fact, I sometimes refer people to Square if all they want to do is accept cards on a sporadic basis, perhaps at craft shows, estate sales, or farmers markets.  The fact is, however, Square, PayPal, even Intuit's Go Pay are really accounts known as "money movers" and just about anyone can get one.  Their rates are usually higher, but they're offset by lower, or no monthly fees, which makes a difference if you're only processing a few hundred dollars here and there.  Usually the deposits are delayed, sometimes as long as 30 days, which means the provider has time to be sure they'll get their money, before giving any to you.  The actual transactions and equipment used to complete them are often less secure as well.

The question becomes, "Why would a business clearly processing more than a few hundred dollars monthly, and doing so every month, use a money mover account with higher rates and less security?"  It could be as simple as being convinced by a well-produced TV ad, but the fear could be that the business may not be as legitimate as you think.   

Recently I was contacted by a "business" out of state, who wanted to set up an account with one of my providers as quickly as possible.  As the provider requested information, it became apparent that the merchant's business was actually fraudulent.  Had the account  been approved, that person, could have run your debit card for a product or service that was truly fraudulent, and may be doing so right now with a Square account.

There are reasons beyond fraud prevention for more detailed information, too.  If the merchant is receiving deposits the next day, or even within the next 2 or 3 business days, it's highly likely that the provider is fronting that money.  The more the provider knows that your business is good for it, and that your product won't incur a lot of charge-backs, the more likely you are to receive your deposits promptly.  If you've provided less information, and a questionable transaction comes through - perhaps something considerably higher than usual - the money may be held for a week or so while the transaction is investigated.   

Many factors play into the type of information that may be required.  Does your business process a couple thousand dollars a month, or a couple hundred thousand?  Is the typical purchase ten bucks, or a thousand dollars?  Do you have severe seasonal fluctuations creating the possibility of a high processing fee being deducted from a low cash-flow month?  What's the credit history of the business and the business owners?  Do you sell a product or service with higher return rates?

Different companies look at the factors differently.  Some businesses may be turned down for a merchant account from certain providers, despite having good credit.  Just understand that there are reasons for the "interrogation," and it can affect the type of account a business ends up with.  The bottom line is, real merchants use real merchant accounts.  In the long run, it'll likely be worth it to provide some sensitive information up front. 

Rough Week

Every chance I get, I preach about the advantages of having a local merchant services representative.  A local rep knows your business and your community, and may even be your customer.  He or she will refer other local customers to you.  After all, the better you do in your business, the more residuals your representative earns on those debit and credit card payments.  A local rep can be there in person to train or help you and your staff with the card processing procedures and equipment.  Should there be an equipment problem, you may even be able to get replacement swipers, signature pads, or other items hand delivered within an hour.  Furthermore, living in the same community you do business in, your representative wants to do right by you, thus earning a good reputation, and hopefully some referral business. 

I encourage my clients to call me first.  Even though I can't handle every circumstance that may arise, I can take care of a good share of them.  Recently, however, I sincerely hoped my clients would NOT call me.

I felt run down at first.  Then I developed headaches.  There were chills and sweat.  I hobbled with aching legs.  Simply answering the phone was a chore.  I had contracted Lyme's disease.  While I'll gladly accept your sympathy, that's not what I'm looking for.  My point is; while having  a local representative is a great idea for all the reasons stated previously, and more, that person can become temporarily incapacitated, or even go away entirely, with little or no warning.  That's when the service you receive directly from your provider becomes all the more important.

Some merchant services providers have excellent reputations for customer service, but not all.  I've seen situations where simply finding a phone number to call practically required some expert detective work.  Each of the 3 vendors I currently work with have toll-free numbers to reach a live person that is directly employed by that company (as opposed to a call-center employee).  Those numbers are are readily available to the clients, and they're also published at creativecardacceptance.com. 

Whether I'm knocked out for a week or two with Lyme's, or hit by a truck and permanently removed from the picture, I'm confident that my clients have top-notch support.  Do you have that confidence for your business?    

 

Stealing Your Business

There are some great merchant services providers and reps out there.  Unfortunately, there are also some that are not so great, and others that are downright shady. 

A client of mine just called me to say that he had just been contacted by someone claiming to work with his credit card processor.  She asked him to send copies of two recent statements to her for verification purposes.  Fortunately, the client has a local rep, in me, who he can contact to talk about such suspicious situations.  I was able to immediately assure him that the name and email address of the person making the request was in no way affiliated with his card processor, or me, as a local representative of his merchant services provider. 

A very official sounding request from someone you believe is working with your trusted provider could easily fool many business owners, especially when caught off guard.  When thinking it through, however, your processor would not need to have you send information to them since they already have all the details they would need.  Furthermore, even if they had to share information with a legitimate third party, such as an auditor, there are much more efficient ways to accomplish that without the need to contact every client.  The only reason the caller wanted my client's statements was to look for a pricing angle that might appeal to the client, and convince him to switch.

"So what?" you may say.  "If I can save money, who cares how she made the initial contact? 

For one thing, you would be entering into business with someone who's already established herself, or himself, as a liar.  For another thing, there's a good chance the lies, or failure to disclose information, run deeper than the original request for your statements.  Often such companies promise lower rates, but fail to mention other fees that are likely higher, or may not have existed at all with your previous provider.  Perhaps they make a rate reduction sound like it'll save hundreds of dollars for you, when in all likelihood, it would only save a couple bucks.  After all, a tenth of a percent, or 10 basis points, only amounts to 10 dollars for every $10,000.00 you process.  Additionally, the service may not be nearly as good, with no local rep, longer deposit times, less management capabilities, less versatility, and so on.  Oh, and once you're in their contract, there may be expensive exit fees should you realize later that you've been suckered. 

For important products and services such as credit and debit card processing, work with someone you know and trust whenever possible.  It's okay for someone to earn your business, but by all means, steer clear of those who try to steal it. 

To Be, or Not To Be...In a Contract

"I hate my credit card processor, but it's going to cost me $1000.00 to switch."  Unfortunately, I've run into situations like that far too often.  While there can be legitimate reasons to be in a contract, such as a price guarantee, or for free or reduced-cost equipment, many contracts seem to exist simply to make it difficult for merchants to make a change, even if they're unhappy.

It is true that your processor went through a certain amount of expense and effort to secure your business.  A reasonable exit fee, therefore, could be understood, but what is reasonable?  That's only for you to decide.  My providers often have no exit fees at all.  We want you to remain our client because you truly like the products and services, not because there's a $500.00 gun to your head.  Having said that, I've seen exit fees as low at $30.00.  Quite commonly, two hundred to three hundred dollars will be charged to businesses that terminate contracts early, and the duration of most contracts is between 2 and 5 years.  Such fees may seem reasonable, and in some cases, a merchant can save that much money in a matter of a month or two, making a change more palatable.

There are times, though, when the early termination fees are nothing short of usury.  I've seen exit fees over $1000.00, and sometimes even multiplied by the number of months remaining on the contract.  Be very leery of entering into an agreement such as that.  There's a good chance you'll never see your representative again, and the processor has no motivation to keep you satisfied, since there's no way you can feasibly make a change.  Chances are, if you look closely, there'll also be an automatic renewal if you don't notify your processor of termination within a certain window of time. Such tactics are often used by traveling sales personal who seek to sign as many contracts in your community  as possible, before moving on to the next town, leaving you with little or no support, and no recourse.

So while it's true that not all contracts are bad, be sure you know what you're getting into up front, and by all means, avoid any contract that includes an early termination fee that's more than you would be willing to pay for better service if the need should arise.