Choose the ‘Right’ Merchant Service Provider by Avoiding these 3 Common Mistakes Made by Most Small Business Owners.
You learn things several ways. One way is simply going out there and doing something and learning from your mistakes. Another way is to learn what others have done wrong and make sure you don’t repeat their mistakes.
Don’t repeat these common mistakes that many small business owners had to learn the hard way.
MISTAKE # 1: PLAYING THE RATE GAME
Most small business owners lose at the rate game. Calling all the merchant account service providers in the Yellow Pages or off the internet and choosing the one that states the lowest discount rate will not necessary secure you low rates.
Would you play a high stakes one-on-one basketball game with Shaquille O’Neal?
Of course not!
You wouldn’t because he is a pro and knows all the tricks in the book to win at basketball.
Small business owners who try to negotiate debit/credit card processing fees with a merchant account sales pro are attempting the business version of taking on Shaq. Can you guess who the winner will be?
The small business owner almost always loses because they do not understand the intricacies of rate structures and how to look at the over-all payment processing service program.
MISTAKE # 2: COMPARING APPLES TO ORANGES
Not all merchant account providers are created equal. Price is not everything. Small business owners must also consider:
- Service
- Tech support
- Equipment
- Software
- Warranties
- Training on proper protocols for using services, etc.
For example, one company I know offers a very competitive discount rate program, BUT their program has major flaws. At first glance it seems like a good choice to make, but if the business owner had the knowledge to be able to dig a little deeper they would be able to pinpoint why this program would probably not be right for them.
Let’s look at this example:
This company (I can’t say the name, because I am not looking for a lawsuit) offers every business the same rates-which in itself is a sign of misleading advertising. Not all businesses can qualify for the same rates. Different businesses have different risks associated with them, and higher-risk businesses will pay higher rates. Let’s look at what this company is doing:
- 1.69% on Visa and MasterCard
- 10 cents per transaction
- $26/month POS Terminals
- $899 to purchase
Looks like a good program, right…? WRONG.
If you look a little closer you will see in the fine print that this is an introductory rate, and that after six months of processing they will give your business the real rate.
- There are a few hidden fees, statement fee, admin fee, and an annual recurring membership fee.
- That rate only applies on qualified transactions (card present transactions). Anything keyed-in, any corporate card, etc. will be charged at a much higher rate.
- Their service hours are 9am – 5pm.
- They offer no lifetime warranty on the Point-of-Sale Terminal (just the standard one year manufacturer’s warranty, which is the legal requirement in Canada)
- If the hardware does break down and has to be fixed, it needs to be shipped to Texas to be repaired-probably taking two weeks before you have a working Point-of-Sale Terminal back in your business.
How well would your business perform without a working Point-of-Sale Terminal for two weeks? How many sales would you lose? Is this still looking like a good deal…? Probably not.
LESSON OF THE STORY: Not all payment processing services are created equal.
This above example is just one of many sneaky marketing ploys that some merchant account providers have chosen to use.
MISTAKE # 3: BEING FOOLED BY LOW BALL DEALS, HIDDEN FEES, AND “FREE EQUIPMENT”
We touched on some of this in the above examples, but let’s dissect this in a little more detail.
Low Ball Deals
It’s always a wise tactic to ask yourself: is it too good to be true?
Is one company offering much lower discount rates then any other company-if it is, then it’s probably not cheaper. Remember, don’t compare apples to oranges. Some companies will offer low introductory rates to capture business only to raise rates once they have secured your business into a contract.
It really isn’t that hard to figure out. Remember, a good merchant account broker knows the wholesale buy rates that credit card processors pay (as I mentioned earlier, it’s called interchange) and if a credit card processor is offering lower rates than what it costs them, its business would not be profitable. How long do you think a business will last losing money? They are either going to raise your rates or they are off-setting the lower rates with back-end hidden fees.
Hidden Fees: What you do not know can hurt you. Many payment processing companies are very good at creating an illusion of being competitive, but make up for it many times over by sneaking in tons of nickel & dime fees on the back end. These could consist of:
- Monthly warranty fees
- Monthly minimum processing fees
- Administration fees
- Monthly/Yearly membership fees
- Added value fees
- Monthly system access fees
- Monthly maintenance fees, etc.
These merchant account companies can be very creative when it comes to naming bogus monthly fees. Of course, it is almost impossible to avoid getting dinged with some fees, and some are perfectly legitimate. Paying $10-$15/month in additional admin-type fees is acceptable, but anything beyond that and the odds are you are paying too much.
Free Equipment: Let’s keep this one short. Nobody gives anything away for free. Enough said, right?
Choosing a Payment Processing Provider is a serious decision, and you want to make sure you have crossed all your “t’s” and dotted all your “i’s” before committing to an agreement. Most Companies’ volume runs through Debit/Credit Card Payment Processing and most payment processing costs are 2-5% of that volume (when all said and done), so making a good decision is important.
Therefore, in order to evaluate the cost effectiveness of any Debit/Credit Card Payment Processing Provider, you need to consider ALL the fees and charges, not just the discount rates. You are most likely starting to see the huge benefit that a solid merchant account broker can provide.
