Being a small business owner can be as stressful as it is rewarding. Reviewing a payment processing statement is probably the last thing on many business owners’ and operators’ minds. Yet this vital service is not one-size-fits-all. Many merchants overpay for credit card processing and other related services because they do not fully understand how and why they are being charged.
For this and many other reasons, it is important to understand your small business payment processing statement. Today, we will be identifying different pricing models, examining effective rates, discussing merchant service fees, and finally reviewing how to compare statements.
Identifying Your Merchant Account Pricing Model
According to Merchant Maverick, there are four (4) primary pricing models for credit card payment processing.
Flat-rate pricing model: also sometimes referred to as “blended” pricing, this is one of the more simple statements to read. Your processing fees and rates are blended into a singular flat rate which is given per transaction regardless of other factors.
Membership pricing model: most membership statements will include a monthly membership cost, a flat rate transaction fee markup, interchange rates per item, and more.
Interchange-plus pricing model: perhaps the most complex payment processing statement, interchange-plus or “cost-plus” statements can take more effort to read and identify. In a nutshell, interchange rates and markups are both listed separately. For more information, read more here.
Tiered pricing model: unlike interchange-plus, tiered pricing models lump interchange charges and processor markups together. This makes statements clearer, but also provides less information.
Reading through your payment processing statement and understanding which of these models is being applied is perhaps the best place to start. Now that you understand the basic pricing model of your merchant service account, you can take whatever next steps best suit your needs.
Effective Rate of Small Business Payment Processing
What most merchants are concerned with is how much they are being charged per credit card transaction. This is known as the effective rate. This takes every fee, charge, and underlying rate and gives business owners an idea of just how big a hit they take for processing each payment.
Regardless of your pricing model, the following formula will give you your effective rate:
Divide the sum of your monthly fees by the sum of your monthly sales (fees / sales)
Multiply that figure by 100
This is your effective rate for the month
Some billing methods will spit out a consistent effective rate while others may shift from month to month. Running this comparison each time you receive a statement is a great way to cut to the chase and understand if you are being charged consistently and fairly by your merchant service provider.
Understanding Merchant Service Fees
There are a few key ways that business owners and operators can better understand their merchant service statements. The many variables of statements can make this process tedious, but it is certainly possible when taken a step at a time:
Identify the pricing model. We reviewed this earlier, but it bears repeating. The first step should be understanding how exactly you are being charged for payment processing.
Understanding related terminology. Few business owners immediately understand all of the terms found on a typical payment processing statement. Take the time to look these terms up on reputable sources like investopedia or go straight to the source and contact a knowledgeable merchant services representative.
Calculate your effective rate. Again, cutting through the noise and understanding your per-transaction cost is perhaps the most important step to take. If nothing else, it allows business owners and operators to compare their current pricing statement to other options as we will explore below.
Comparing Statements to Competitors or Previous Statements
Last but not least, pulling all of this information to determine whether or not you are being charged fairly for payment processing is key. Most of us will not know how much we should be getting charged for these services, let alone whether or not the rates, fees, and billing practices are fair. To make this determination, it is important to occasionally compare your real statements against the alternatives.
This begins by keeping track of your effective rate. The effective rate you are being charged may change somewhat over time, but any significant changes (particularly when those changes mean an increased rate) should certainly raise red flags.
Any industry professional from a competing merchant service organization should also be able to provide an idea of what your effective rate might look like should you be interested in switching services. The more you know about how you are being charged currently, the better position you will be in to improve your rates!
Fair and Transparent Merchant Services from True Merchant
The payment processing professionals at True Merchant have extensive experience helping our clients throughout the journey from opening a small business to helping that business thrive. We understand that small business owners and operators have so much to juggle in their everyday lives. This is why we strive to offer easy-to-understand and above table statements for services including CardSecure, online payment solutions, POS credit card machines, and much more!
True Merchant services are structured to provide the best possible solutions for the fairest possible rates. For more information including a complimentary rate review, feel free to give us a call or email today!