What Every Startup Company Should Know About Negotiating Their Merchant Services Agreement
As a startup company, you’re focused on keeping your costs low, and your profits high. You know how to turn a little money into a lot, and how to do it quick. Unfortunately, there is one monetary area of the business that startup owners often fail to manage wisely: credit card processing.
If you want to be able to accept payments from most customers, clients and other businesses, you need to be able to accept credit cards. People rarely carry cash anymore, and checks? They’re almost extinct. So if you want to make money, you pretty much have to accept plastic, or you risk alienating the millions of people out there who use it almost exclusively.
Credit card processing can be a high-cost venture, though. Because it’s such a necessity, too often, business owners get stuck with a bad deal and a long-term contract with a credit card processing merchant. The expensive costs end up cutting into their bottom line, and they have to raise prices to make up for it. Neither the customer nor business owner is happy about that situation.
Startup companies looking to accept plastic need to be aggressive when negotiating credit card processing contracts. Here are a few tips:
- Shop around – Before choosing a card-processing merchant, shop around. Compare prices and contract terms, read reviews and complaints, and get quotes from a variety of different merchants. Most of all, ask questions. Make sure you’re getting the deal you want.
- Ask for interchange pass-through pricing – There are two types of pricing systems merchants can offer you: tiered and interchange pass-through. The tiered system puts credit cards into three buckets; the bucket each card is placed in determines how much you will pay for each transaction. (To give you some perspective, 80 percent of all credit cards are in the two highest-priced buckets.) Interchange pass-through is essentially a wholesale pricing system, and it’s a much more fair and affordable option for startups and small businesses.
Interchange pass-through is the system offered to big name corporations, ones who do millions in sales annually. Unfortunately, you’ll rarely hear a merchant representative utter the words “interchange pass-through,” as this system severely cuts down on the profit their company gets. In order to get this pricing system, you’ll have to specifically ask for it. If they try to talk you out of it, stand your ground and say other merchants have extended you interchange pass-through offers.
- Watch the fees – Card-processing merchants are notorious for tacking on hidden fees and charges to customer contracts. Before signing anything, look at every single charge listed. If something seems out of place or you don’t understand it, ask for clarification. Don’t sign a contract until all the charges are justified.
- Don’t sign a long-term contract – This is a huge no-no for a startup company. Because of economy changes and market shifts, startup companies come and go easily. You don’t want to end up owing money for card processing a year from now, if your company is no longer in operation.
- Consider mobile options – If your startup is on the go, or you travel to see clients and customers often, consider mobile card processing as an option. Through applications like GoPayment and Square, mobile payments are very affordable. You’re also not tied down to a typical card-processing machine, allowing you to accept payments from all over the world.
About the Author
Eric Stauffer is part of a payment processing watchdog group that reviews companies like Dwolla. He also helps small business owners negotiate fair merchant service agreements.
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