Knowing your fees is important to ensure that your business operates financially. These fees can significantly impact a company’s revenue and bottom-line profitability. Merchant fees include a range of charges that are related to processing customer payments. This article lays out five important points to help explain merchant fees and point businesses in the right direction to get a better handle on their budget.
1. Types of Merchant Fees
There are several types of Merchant fees, each serving a slightly different purpose. However, transaction fees, monthly service fees, credit card processing fees, chargeback fees, and gateway fees are the most common examples. Payment processors usually charge a percentage of each sale processed as transaction fees. Maintenance of the merchant account incurs monthly service fees which vary by provider. If a customer disputes a transaction and asks for their funds to be reversed, there are chargeback fees. Payment gateway is charged gateway fees when making use of an online payment gateway for transactions. To properly budget it is important to know what all these types of fees are. The right fee type can influence the overall costs, and therefore, it’s important to know about it while the business is planning.
2. Selecting the appropriate payment processor
When handling merchant account fees, it is important to choose the right payment processor. The cost of a transaction is different for each processor and, thereby, can affect the total cost of the transaction. Some processors rate a flat amount per transaction, while others work on a tiered system on the basis of sales volume. Companies can find a solution with minimum costs and which will suit their needs by comparing multiple options. Secondly, you need to consider things such as customer support, integration possibilities, and contract terms. A good processor can mean less processing fees and better overall financial management.
3. Monitoring Transaction Volume
Merchant fees depend very much on transaction volume. This can help increase your transaction volumes and qualify businesses for lower rates or even better terms with payment processors. Tracking transaction volume on a regular basis lets you know when trends and fluctuations may increase or decrease costs. The future of this new business will likely depend on transaction volumes, which may necessitate renegotiating with the current processor or, more heavily, becoming proactive by actively seeking new payment processing options. Knowing peak sales periods can also help predict what the fee might increase. In a way, this also allows some business owners to become more ‘actively aware’ of their transaction volume and the associated costs around payment processing and make informed decisions accordingly.
4. Minimizing Chargebacks
If some businesses are hit with chargebacks specifically, this can result in unexpected merchant fees and additional financial stress. ‘A chargeback’ is a reversal of funds, so if a customer notices a transaction and decides they don’t want it, they’ll charge back the funds. The sale itself comes with possible losses to the merchant, and fees for the transaction. Businesses should do everything possible to minimize chargebacks by offering clear product descriptions, good and accurate records, prompt customer service, and so on. That can also help to reduce disputes by establishing a transparent return policy. Businesses saving from chargebacks by proactively managing them may opt to keep a healthier financial position and a drop in waste.
5. Regularly Reviewing Merchant Agreements
Businesses should review their merchant agreements to ensure it is still to their benefit. At any time payment processors can change what fees they charge and start charging new fees. Regular reviews make the process much easier as they can identify any change that will impact the budgeting and financial planning. It’s time for businesses to evaluate if their current processor is able to serve them adequately. If the fees are just too high or the terms are too much of an adverse, it may be time to start negotiating new terms or just switch providers. Keeping tabs on merchant agreements is a proactive way to bury any cost and help track the footsteps to a healthy financial state.
Conclusion
Building a better budget and improving your financial management for whatever business you run comes down to understanding merchant fees first. By knowing the different types of fees, selecting the most suitable payment processor, tracking transaction volume, spotting chargebacks, and auditing agreements on a regular basis, businesses can navigate the complexities of merchant fees. These strategies can help users adopt effective budgeting practices.
