Consider all possible fees before picking a merchant account

Consider all possible fees before picking a merchant account

TAKING CREDIT

Stephen Windhaus is the founding principal of Windhaus Associates, a business planning firm operating out of Port St. Lucie, Florida since 1999. Ask a question. Taking Credit stories

When brainstorming my premiere column for Merchant Account Guide, I admit to having been a bit stumped. I thought to myself that all merchants certainly have credit card transaction services for their customers. Surely, they all know the processes and procedures. Even the dollar-store industry wised up to the fact that more and more people heavily rely on the convenience of credit and debit cards when making purchases. What could I possibly tell them they didn't already know?

So I decided to research the merchant account industry. Much to my chagrin, I found many business owners, especially those running startups and e-commerce enterprises, are asking many basic questions regarding merchant accounts. Many of their questions and complaints addressed the various fees that surround merchant accounts.

Fortunately, the competition for your account is intense, resulting in changes to fee structure, including the variable rates associated with debit vs. credit card transactions. Owning and operating my own business-to-business (B2B) enterprise, I am quite aware that B2B enterprises constantly monitor the issuance of occupational licenses, incorporations and state fictitious name registrations. This means that often before you even open the doors, your business will be flooded with mail and phone calls offering products and services. Merchant account providers can be counted among these suitors..

Assuming you have decided to implement a merchant account, accepting customer payments by credit and debit cards, begin your search by first considering all the basic fees:

1. Types of merchant accounts -- Merchant accounts are categorized by the type of business and the type of storefront from which you operate. They include retail, Internet, wireless, telephone and mail order accounts. This can impact your costs.
2. Equipment fees -- If you operate a classic brick and mortar storefront, there is the need to purchase or lease card processing equipment. A typical e-commerce site requires no such equipment. Processing is conducted online.
3. Transaction fee -- The standard cost of convenience in accepting credit/debit card payments is the transaction fee the provider collects. It is important to note that the monetary volume of credit transactions charged each month, most often, impacts the percentage rate charged by the provider -- also called the merchant account processing company. This is commonly referred to as the discount rate.
4. Gateway fee -- In simple terms, this is the fee for accessing the account processing company to process sales, refunds and/or monthly reports. However, it can be a bit more complicated. This fee can be fixed or variable. It can also be a one-time, monthly or other recurring fee. For example, some providers may offer this as a one-time charge at the outset, reflected as an application and/or software fee. It can be a monthly fee for gateway access, and it can be fixed or variable, depending greatly on the total number transactions and transaction sales volume. Suffice it to say, this is a topic requiring detailed discussion at a later date.
5. Chargeback fee -- It is not uncommon for a fee to be contested by a cardholder. It may be that the card was stolen. Customers can also contest the amount of a charge. Regardless of the reason, if the customer contests the charge with his/her credit card company or bank, the funds will not be forwarded to the processing company. In turn, you will not receive your net funds from the transaction. You will also incur the chargeback fee. Given industry practices and policies and the impact this can have on your bottom line, I will offer up more information about this particular fee at a later date.

Clearly, for the enterprise considering merchant accounts for the first time, this can be overwhelming and confusing, especially regarding the variable fee structures related to gateway fees. Do not make a hasty decision. And be certain, as in the case of gateway fees, that you are comparing apples to apples.

Stephen Windhaus is the founding principal of Windhaus Associates, a business planning firm operating out of Port St. Lucie, Florida since 1999. With over 23 years of small business development experience, Mr. Windhaus has provided business plan services and training to the entrepreneurial community throughout the United States and overseas. Clients reflect a wide range of industries including the e-commerce, retail, service, manufacturing, real estate, medical, new product development, software industries and more. A published author, Stephen has co-written and contributed on books about business planning, organization, and the virtual assistant industry, his most recent effort being The Everything Business Plan Book. As a freelance journalist, his columns have been published at Bankrate.com, PaloAlto.com, bplans.com, MyCorporation.com, SmallBusinessComputing.com, BizLand.com, SmallBizManager.com and Scripps Howard News Service which distributed his weekly columns to its newspaper and television outlets nationwide. For further information and any communications with Mr. Windhaus you can email him at swindhaus@hotmail.com.

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Published: July 1,2023