Negotiating Better Rates for merchant services: A Step-by-Step Guide
In today’s competitive business landscape, every dollar counts. merchant services, the backbone of accepting electronic payments, can represent a significant ongoing expense for businesses of all sizes. Many businesses, especially small businesses, are often unaware that their merchant service rates are negotiable. This lack of awareness leads to paying more than necessary for a service crucial to their revenue stream.
This article provides a step-by-step guide to help you negotiate better rates for merchant services, empowering you to save money and boost your bottom line.
Step 1: Understand Your Current Costs
Before entering negotiations, you need a clear understanding of your current situation. Gather your most recent merchant service statements (at least three months worth) and meticulously analyze them. Pay close attention to the following:
- Discount Rate: The percentage charged on each transaction. This is often the headline rate, but it’s rarely the only fee.
- Transaction Fees: A fixed fee charged per transaction, regardless of the amount.
- Monthly Fees: Charges for account maintenance, minimum processing fees (if you don’t meet a certain volume), statement fees, and other administrative costs.
- PCI Compliance Fees: Charges for ensuring your business meets Payment Card Industry Data Security Standard (PCI DSS) requirements.
- Chargeback Fees: Fees incurred when a customer disputes a charge.
- Equipment Fees: Rental or purchase costs for point-of-sale (POS) systems or card readers.
- Early Termination Fees: Penalties for ending your contract before the agreed-upon term.
Calculate the effective rate you are currently paying. This is the total cost of merchant services (including all fees) divided by your total sales volume. This figure provides a more accurate representation of your true cost than just the discount rate alone.
Step 2: Research and Compare Competitors
Once you understand your current costs, it’s time to research and compare rates from different merchant service providers. Obtain quotes from at least three to five different providers.
When comparing quotes, be sure to ask about the following:
- Pricing Model: Understand the pricing structure. Common models include:
- Interchange-Plus Pricing: This is generally the most transparent model. You pay the interchange rate (set by card networks like Visa and Mastercard), plus a fixed markup.
- Tiered Pricing: This model categorizes transactions into different tiers (qualified, mid-qualified, non-qualified) based on card type and how the transaction is processed. This model can be opaque and often results in higher fees for non-qualified transactions.
- Flat-Rate Pricing: This is a simplified model where you pay a fixed percentage and fee for every transaction. This is often popular with startups and very low-volume businesses but can be more expensive for larger businesses.
- Contract Terms: Pay close attention to the contract length, early termination fees, and auto-renewal clauses.
- Equipment Costs: Clarify the costs of any required hardware or software.
- Customer Support: Inquire about the provider’s customer service availability and responsiveness.
- Security Features: Understand the security measures they have in place to protect your business and customers from fraud.
Consider utilizing comparison websites and online reviews to gauge the reputation and service quality of different providers. Platforms like PaymentCloud Inc. can offer valuable insights and facilitate comparisons between different processing options.
Step 3: Leverage Your Research and Negotiate Strategically
Armed with data about your current costs and competitor quotes, you’re ready to negotiate.
- Be Prepared to Walk Away: The willingness to switch providers gives you significant leverage.
- Highlight Your Value: Emphasize your business’s strengths, such as high average transaction size, low chargeback rate, and strong sales volume.
- Use Competitor Offers: Present competitor quotes as leverage to negotiate lower rates. Don’t be afraid to directly ask the provider to match or beat the best offer you’ve received.
- Focus on the Overall Cost: Don’t just focus on the discount rate. Negotiate lower fees across the board, including transaction fees, monthly fees, and PCI compliance fees.
- Negotiate Equipment Costs: If you’re required to purchase equipment, try to negotiate a lower price or explore leasing options.
- Consider a Longer-Term Contract: In some cases, agreeing to a longer-term contract may result in lower rates. However, carefully weigh the pros and cons of this approach, ensuring you’re comfortable with the commitment.
- Read the Fine Print: Before signing any agreement, thoroughly review all the terms and conditions. Ensure that all agreed-upon rates and fees are clearly documented in the contract.
Step 4: Regularly Review and Renegotiate
Negotiating merchant service rates shouldn’t be a one-time event. Regularly review your statements and compare your rates with current market offerings. As your business grows and evolves, your processing needs and volume may change, warranting a renegotiation of your rates.
FAQs:
- Q: How often should I renegotiate my merchant service rates?
- A: At least every 12-18 months. Market conditions change, and new providers may offer more competitive rates.
- Q: What is interchange-plus pricing?
- A: Interchange-plus pricing is a transparent pricing model where you pay the interchange rate set by the card networks (Visa, Mastercard, etc.) plus a fixed markup.
- Q: What is PCI compliance?
- A: PCI compliance refers to meeting the Payment Card Industry Data Security Standard (PCI DSS), a set of security standards designed to protect cardholder data.
- Q: What is a chargeback?
- A: A chargeback is a transaction that is disputed by a customer and reversed by the bank.
- Q: Can I negotiate rates even if I’m a small business with low processing volume?
- A: Yes, you can still negotiate. Focus on highlighting your potential for growth and emphasizing your commitment to maintaining a low-risk profile.
Conclusion:
Negotiating better rates for merchant services is a crucial step in managing your business expenses and improving your profitability. By understanding your current costs, researching competitors, and negotiating strategically, you can significantly reduce your processing fees. Remember to regularly review your rates and renegotiate as needed to ensure you’re always getting the best possible deal. Navigating the complexities of merchant services can be daunting, but the potential savings are well worth the effort.
If you’re feeling overwhelmed or unsure where to start, consider reaching out to the experts at Payminate.com. They can help you navigate the intricacies of merchant processing, compare different providers, and negotiate the best possible rates for your business. They will work with you to understand your specific needs and find a solution that fits your budget and goals. Secure your business’ financial future today and contact Payminate.com to start saving on your merchant processing fees.