The most commonly asked question heard by merchant services companies is, “What are your rates?” The unfortunate misunderstanding is that the prospective merchants think that the rate is the only thing that matters when searching for a new provider. In fact, 90% of merchants who ask this question do not fully understand how to calculate their effective rate. So what are these merchants really asking?
A merchant services provider could arbitrarily throw out any percentage that he/she thinks the merchant wants to hear, and if the merchant likes the number, he/she might be won over. The unfortunate truth is that far too many times, merchant services providers offer “teaser rates” to entice uninformed merchants to sign on with their services. So with so many “scam-artists” out there, what are the important questions we need to be asking in order to choose the company that will benefit me most?
The first question isn’t directed towards the merchant processing companies at all; it’s an internal question. The first question you need to ask is “what is most important for my company specifically”? This question is so important because it is the foundational factor of your company’s production. If you are a retail company, you need to work with a company that has in-store POS solutions, or online e-commerce solutions. If you are a manufacturer or wholesaling company, you need to work with a company that has the ability to process cards through your billing software to expedite the payments process. Your business is not like everybody else’s, so the company you work with shouldn’t have a “one-size-fits-all” solution for every company that approaches them. If the company you are working with has never asked about your business structure and only discusses rates, that should be your first red flag.
The next question asks about your current fee structure. In order to compare what other companies have, you need to first understand how often your fees are paid currently, and how much. You need to know if you have a daily debit, or a monthly debit. Also, are you on an interchange-plus, tiered, or flat-rate structure? And finally, what is your current effective rate? This means you need to understand what your current out-the-door price is for merchant services.
Now that you fully understand what you need, and how you are currently set up, you are well-prepared to discuss services with other merchant providers. Let’s take a look at an example:
Company XYZ is a manufacturer that bills on net 30 terms. This company is currently charging cards on over the phone on a stand-alone VeriPhone terminal, while keeping track of their invoices with QuickBooks. They are paying on a tiered structure of a QUAL 1.89%, MQUAL 2.89%, and NQUAL 3.89% rates.
This company would first need to know that in order to create efficiency; they will want to maximize output with their given input. In other words, they will want to find ways to use their current tools at their maximum potential. They would need to realize that their company could process cards right inside QuickBooks and get rid of the double-entry process that they are currently using. Also, they would have to recognize that all of their cards are qualifying at the Non-Qualified tier due to the fact they sell 100% B2B. This means that all of the cards that they see are business cards, corporate cards, and purchasing cards. Setting up a payment structure on a tiered system is not cost efficient.
Knowing this, the company can now ask the pertinent questions without running through the song and dance that most processing companies will work you through. Bypassing this step leads you to asking the questions that will get you the best product for the best prices, without being fooled by teaser rates.