The banking industry has created a system of billing customers that is very complicated and virtually impossible to understand. The itemizing of costs can be even more confusing if you are entering into an agreement with a credit card merchant company that has allied with your management software company.
Today there are even more costs to understand. Let’s start with the agreement. Many companies ask for contracts that can vary from one year up to three years. They ask you to commit to low rates, and then raise them on you each month. Some management software companies use this confusion to charge customers for checking transactions, which is pure profit for them, and usually hidden in fine print.
In terms of monthly billing, Congress recently passed the Durbin Amendment, which created a billing rate for the major banks, in major metropolitan areas that issue credit cards. This rate has a higher per transaction rate, but a lower percentage rate. If you are a club near a big city and your dues are $40 or more, this is good. If you are near a big city and your dues are $10 per month, your rates just went up. Debit cards are the lowest cost.
Checking accounts are not only no cost, but they don’t expire, have a limit and aren’t impacted by address changes — hence, they decline less often. Look at your average rate of payment, versus credit card dollars received. It should be around 2.7 percent. Many management software companies add an extra 1.5 to 4.5 percent as their profit.
Now, let us look at retail merchant rates. “Card present” debit cards have the lowest rate, which means you must be swiping the card. Many companies are not allowing credit card charges of less than $10. Another way to reduce cost is to allow house charges, and roll the total into one transaction, or to allow account payments of $25 to $100, and then deduct from that throughout the month. Allowing someone to charge, using an account on file, is “card not present” and more expensive.
Corporate credit cards that provide people miles are not funded by the credit card company, but they are instead funded by you with significantly higher rates. Another important item to discern is whether your management software company is using IP charges versus PC charges for retail. Many times this practice eliminates the dramatically lower “card present” rates due to Internet processing.
Another way to save is to complete PCI compliancy. First, you need to team up with a management software company that is compliant themselves. This will protect you from the risk of billing files being “hacked.” The next step is to complete the application survey for PCI compliancy. This will allow you to save $190 per year, every year.
One of the primary benefits of choosing a management software partner with excellent customer support and an easy to understand cost structure, is being able to measure and monitor your costs. As the owner or manager of your company, you should be able to understand and measure all of your expenses. Whether you are interfacing directly with a merchant, or through your management software partner, it is imperative that you are able to receive a concise and easily understood explanation of all costs. In this challenging economy, none of us can afford to be inattentive to rising costs — take the time to understand and measure your merchant costs.
David Porter has been a sales consultant at Twin Oaks Software Development for many years. Previously he ran several businesses, including Suburban Athletic Club outside of Boston, which he co-owned and operated for 10 years. He can be reached at 860.829.6000 or dporter@tosd.com.
