How Long Does It Take To Receive My Money For Credit Card Transactions?

Your credit card processor will be able to give you an answer to the question how long does it take to receive my money from a credit card transaction. The usual answer is “within 24 to 48 hours”. That timeframe can be affected by certain factors like how often and what time of the day you batch out your sales, but 24 to 48 hours has for many years been the industry’s standard answer to the question “When do I get my money from a credit card sale?”

What Is Meant By Payment In Arrears?

No, this doesn’t mean your credit card processor is late paying you. Payment in arrears simply means that credit card sales you transact today will be paid at a set time in the future. For example, if you are on a plan that pays two days in arrears, it means that all sales that are at least 2 business days old are paid on the third day. The cutoff point is based on your batch processing cutoff time. If you process your transaction at or before your batch processing deadline, that sale appears on your statement dated the day you posted it and will be paid in 2 business days. If you process a transaction after your batch processing deadline, the transaction posts the next day and will be paid 2 days after that.

When understanding how long does it take to receive my money for credit card transactions, you should be aware of the gap between the time of sale and the time the merchant has access to funds that can make it hard on business owners to manage their cash flow. And managing cash flow is one of the keys to growing any business. Take for example, the small restaurant owner who does the largest percentage of his business on the weekend. It could be Tuesday of the following week before he sees the proceeds from credit card transactions from Friday, Saturday or Sunday receipts leaving him little time to purchase needed supplies for the next big push. Or the small landscape company owner who needs the cash from the job he just finished to pay for the supplies he needs for the next project. Even a small delay of a few days in cash flow can make it hard to maintain and grow a business.

Faced with growing competition in the industry, credit card processing companies are always looking for new services that will appeal to prospective customers. Next day funding is a growing trend in the credit card processing industry that is especially beneficial to business owners who depend heavily on each day’s sales proceeds.

What Is Next Day Funding?

Next day funding means exactly that: process a credit card transaction today and you have access to the proceeds from the sale tomorrow morning. Sounds great, but it’s not so simple. Each merchant account provider that offers this service has different eligibility prerequisites based on your credit score, average ticket amounts, your MCC code, and other aspects of your business.

To be fully aware of how long does it take to receive my money once you are approved for next day funding, you should understand and follow the terms and conditions spelled out in your contract. Depending on when your acquiring bank or processing network submits your daily batch of transactions impacts when you get your money. For example, let’s say your acquiring bank has a batch cut off time of 5:30PM EST. If you have next day funding, the proceeds from the day’s transactions processed before that time will be deposited into your merchant account the following morning. Any transactions processed after 5:30PM EST will be paid within the regular 24 to 48 hour time frame.

If you manually settle your daily transactions or have your terminal or software programmed to settle your transactions at the time specified by your processor, you could have your money in as little as 8 – 12 hours from the time you send in the transactions, rather than waiting the standard 24 to 48 hours.

Sounds Great, But Are There Drawbacks?

Some providers do charge an extra fee for this service, often based on processing volume. Be sure you understand what you’re being charged for and ask if the fee is negotiable.

Also ask if the deadline for settling your daily batch of transactions is flexible. A fixed deadline of 5PM really doesn’t help the merchant who does most of his business in the evening.

When it comes to answering the question how long does it take to receive my money for credit card transactions, considering next day funding may sound like the perfect service to add to your credit card processing contract. It is important to be sure that it actually suits your business model. However, if you can customize the service to fit your needs, next day funding can be the solution to business cash flow dilemmas.

What Should I look For In A Credit Card Processor?

When trying to find out what should I look for in a credit card processor, take into consideration that all credit card processing companies perform the same basic service in the credit card processing transaction. Once your buyer swipes his credit card at your POS terminal, or you input the information, it passes through several processes before the money actually gets deposited into your account. The information is sent to your credit card payment processor and they submit the transaction to the bank that issued the buyer’s card. The issuing bank accepts — or declines — the transaction and returns an authorization code which is sent back to you from your credit card processing company. This and other transactions for the day are sent in a batch back to the credit card processing company, where they are distributed to the issuing banks for payment. The issuing banks send the money to your credit card processing company, who in turn transfers it to your assigned merchant bank account.

What Distinguishes Credit Card Processing Companies?

Some credit card processing companies specialize in online businesses. Some prefer to handle only established businesses, some focus on certain industries, while others have special plans dedicated to new or small businesses. But there are some basic talking points you want to explore when researching credit card processing companies:

  1. What is The Company’s Experience and Credibility?
  2. Your credit card processing company is part of the team that is actually loaning you money on good faith that each sale settles without returns or chargebacks. That being the case, you want to be sure the credit card processing company you contract with is financially stable and credible. Check with the Better Business Bureau to see if there are any complaints against the company. And don’t hesitate to ask if they have experience handling your particular business model.

  3. Is the Company PCI Compliant?
  4. Both you and your credit card processing company must be in compliance with the regulations set out by the Payment Card Industry Data Security Standards (PCI-DSS). In today’s fast-paced world of electronic communications, are you responsible for safe guarding your customers’ private information from on-line hackers and credit card thieves looking to commit credit card fraud. When answering what should I look for in a credit card processor, ask what security methods and technology the company has in place and what support they provide to help you become compliant.

  5. Will Their Equipment Be Compatible With Your Present Equipment and Software?
  6. Some credit card processors have proprietary equipment and software that may not work with what you already have in place. Be sure to check before you contract with a credit card processing company or this could be an added expense.

  7. What Are The Cancellation Policies?
  8. The majority of credit card processing companies charge an early termination fee to cancel your contract before it expires. Fees and other cancellation policies vary from company to company. Ask about termination fees and find out if there are any conditions when these fees may be waived. There are some providers that do not have contracts or charge early termination fees, this can be a major benefit in making your decision.

  9. What Are The Fees and Pricing Options?
  10. Part of the answer to what should I look for in a credit card processor is to ask for full disclosure of all the fees that might be charged to your account. What is the interchange rate? What is the cost for each transaction? Is there a monthly minimum fee, compliance fee or statement fee? And ask to see a sample statement to become familiar with how and where each of these fees are applied.

  11. Is there Customer Service Available?
  12. Ask if they provide you with a contact to answer questions that may come up during your contract period. The person who handles your initial application is often a salesperson for the company. Their job is to get you signed up. Ask who you can talk to if you have questions or need to add services to your contract.

These are some of the important questions you should be asking when comparing credit card processing companies. When you do, you will usually find the biggest differences will show up in the answers to your questions about fees and pricing options. Certain fees are fixed by the credit card associations and apply across the board to every credit card processing company. So processing companies try to beat each other out by offering low rates on the fees they control. It’s understandable that you would be drawn to the company that offers you the lowest overall fees. As a business owner/operator, your interest is in keeping as much profit as possible from each sale. But in the end you may find that choosing a credit card processing company simply on the basis of costs turns out not to be your best option. So maybe the question we need to answer here is not really “What Should I Look For In A Credit Card Processing Company?” but…

How Do I Find A Credit Card Processing Company To Fit My Business?

Finding a credit card processing company to fit your business takes some homework on your part. Before you dive into the pool of credit card processing companies make a list of your credit card processing needs so you can ask questions that are specific to your business:

  • All my credit card transactions will be processed through a point-of-sale terminal. Does that make a difference in my transaction rate?
  • I have an on-line store and need to process credit cards through my shopping cart. How will that affect my rates?
  • I have to process credit card payments in the field. Do you have any mobile devices or software available?
  • I sell products that can be paid for with a government sponsored program card. Can you set up my program to accept EBT cards?
  • I expect to have a high volume – or low volume – of business. Do you have monthly minimum or maximum fees?
  • I operate a seasonal business. What should I look for in a credit card processor? and What are my upfront expenses to open an account and what are the early termination fees?
  • I am located in a tourist area and will need to accept foreign-issued credit cards. What are your conversion rates?
  • I want to accept American Express and Discover Card along with MasterCard and VISA. Can you link those to my merchant account?
  • I want to accept gift cards. Will your equipment be compatible with my gift card software program?
  • My MCC (Merchandise Category Classification) code classifies me as a high-risk business. Will I have to maintain a reserve account?

Armed with these kinds of questions and, of course, taking into consideration the most important one what should I look for in a credit card processor, you may discover that the credit card processing company offering you the lowest rate, is not necessarily the right processing company for you. Whatever your business, if you want to accept credit cards, you’ll have to open a merchant account with a financial institution or a credit card processing company. Take an inventory of your credit card processing needs, and you’ll be much better prepared to find the best processing company for your business.

How Much Will It Cost Me To Accept Credit Cards?

To understand what will it cost me to accept credit cards, check the credit card processing providers fees. They must charge as dictated by the credit card brands and fees they charge for their services. Let’s start with the fixed charges.

Interchange and Assessment Fees

Interchange and assessment fees are set by the credit card brands (Mastercard, Visa, etc.) and the bank that issued the card. As the merchant, you do not pay these fees directly; they are included in the fee structure you negotiate with a credit card processing company.

Interchange fees vary depending on several factors. A credit card that offers rewards may have a higher interchange fee than a standard credit card. And credit cards have higher fees than a debit card. Rates also vary depending on what services or products the merchant sells, and whether the card was presented in person at the time of the sale or if the purchase was made on-line. But regardless of the kind of credit card used or the processing procedure, Interchange fees are listed on each credit card brands’ website and represent a set fee schedule paid by all merchants.

Processor Charges

When it comes to the question what will it cost me to accept credit cards, the answer is that all credit card processing companies perform the same basic service in the credit card processing transaction. Once your buyer swipes his credit card at your POS terminal, or you input the information, it passes through several processes before the money actually gets deposited into your account. The information is sent to your credit card payment processor and they submit the transaction to the bank that issued the buyer’s card. The issuing bank accepts — or declines — the transaction and returns an authorization code which is sent to your point-of-sale terminal from your credit card processing company. This and other transactions for the day are sent in a batch back to the credit card processing company, where they are distributed to the issuing banks for payment. The issuing banks send the money to your credit card processing company, who in turn transfers it to your assigned merchant bank account.

Though the services may be comparable, the charges are not. There are a number of ways a credit card processor may charge for its services:

  1. Monthly fee: flat fee each month added to the fixed fees.
  2. Discount rate: a percentage of each sale added to the fixed fees.
  3. Transaction fee: a flat fee for each sale added to the fixed fees.

On top of these fees, your provider may also add a number of other fees: a monthly service fee, a terminal rental fee, a fee for not meeting your monthly minimum, a contract termination fee, a minimum purchase amount fee, etc. These fees are all negotiable and you should be aware of how they can impact your processing cost.

How Can I Estimate What It Will Cost Me To Accept Credit Cards?

So maybe the questions you should ask yourself are what will it cost me to accept credit cards and if there is some way to estimate what your credit card costs might be.

Start by answering these questions:

  1. How will you be processing your credit card transactions? Do you own and operate a brick and mortar business or do you do all your business on-line? Will you be processing credit cards at a POS terminal or will you be manually inputting the information? Do you need to process credit card payments in the field? How you process your credit card transactions affects the fixed fees you pay as Interchange.
  2. What is your average ticket size? Do you have less sales with a higher ticket price versus a high sales volume low ticket? If you are processing a large volume of credit card sales, and you are paying your credit card processor a set amount per sale, this could have an impact on your processing costs.
  3. Are you a seasonal business? If so, you don’t want a contract that enforces a monthly minimum charge.
  4. Are you a high risk business?
  5. Are you a new business or an established business?

If you are prepared with answer to the question what will it cost me to accept credit cards and other questions about your business operations when you apply to a credit card processor, they will be able to give you a more accurate estimate of what each type of credit card transaction you process will cost.

When choosing a credit card provider, cost per transactions should be the primary factor in your decision. But the extra charges tacked on by providers add to the bottom line costs. There are a lot of variables that will affect your rate: some of these variables you can control and others you can’t. So when choosing a credit card provider, be sure to read their offer carefully and ask questions about all the fees that are listed.

Is My Terminal Compatible With Any Processor?

The short answer is No, your point-of-sale terminal is not compatible with every processor. Processor compatibility is determined by which terminal will work with their system, so be sure to ask before you contract with a new credit card processing company. The good news is that more and more terminal and software providers have been manufacturing open platform hardware and software solutions for merchants over the past 5 years to meet their customers’ demands for technology and compatibility.

How Do Payment Terminals Differ?

Just because two credit card machines look exactly the same they may not be able to perform the same functions. There are three important things to know before deciding on a POS terminal.

  1. Compatibility and Memory
  2. Credit card processors operate on different types of processing platforms. Because there are some similarities, the major manufacturers build their terminals to be compatible with the largest number of these processing platforms. When you sign up with a new credit card processor, they will download their platform information along with your unique merchant account information into your credit card terminal. This software programs the terminal to handle transactions, secure data, and perform other proprietary functions, much like an operating system for a computer.

    These programs can be lengthy. If you have an older terminal from a previous processor, your terminal may not have enough memory to handle a new program. And as new regulations come along, more data must be loaded into your terminal. Many standard dial-up terminals lack processor compatibility but can be reprogrammed over the phone in a few minutes, while other types of terminals may have to be shipped to the processor for updating. But if there’s not enough memory in your terminal to download your new processing platform, you’re looking at an added expense to your processing costs.

  3. Buy or Lease
  4. Most experts recommend you buy your credit card terminals rather than lease them. You may be tempted to lease the equipment rather than pay out an upfront expense, especially if you need a large number of terminals. But if you lease your terminals over an extended period of time they could end up costing you far more.

    Experts also recommend you purchase credit card terminals that are manufactured for the general market rather than terminals built to run only one platform. If your processor insists you must lease or purchase their terminal, be sure to ask if their terminals are proprietary equipment to be used exclusively with their platform. No matter what the savings now, remember if you ever want – or need – to change your credit card processor, you can’t reprogram proprietary equipment.

  5. Take stock of your needs before shopping for POS terminals
  6. There are so many types and styles of POS terminals to choose from so it is important to consider the processor compatibility. But how do you know which one is right for you if you’re not clear on how and where the terminal will be used.

  • Do you have room on your counter for a terminal?
  • Would a hand-held terminal work better for your purposes?
  • Do you want a dial-up terminal or a high-speed internet ready machine?
  • If you expect to be processing debit and EBT cards, can the terminal be interfaced with a PIN pad?
  • Do you need a terminal with a printer?
  • What is the terminal processing speed?
  • Does it support PCI compliance software?
  • Will all your credit card transactions be done with a swipe of a card or will you have more card-not-present transactions?
  • Do you really need a point-of-sale terminal? If most of your credit card transactions will be done in the field would a mobile card reader be a better choice?

The new chip-embedded credit card technology is already being used in other parts of the world and is being phased in here in the US. If you already process a number of credit cards issued by foreign banks, do you need a chip-embedded card reader?

The answer to any and all of these questions will help you determine which type of credit card processing terminal is right for you. Well, right for you now. Because as your business grows and as new technology in credit card processing becomes available, your present credit card processor compatibility will change and so will your credit card processing equipment.

Why Are Debit Card Rates Cheaper Than Credit Card Rates?

To process credit and debit cards, a merchant must establish a merchant account with a financial institution or third-party processor. In order to understand why are debit card rates cheaper than credit card rates, you should know that there are processing fees associated with each transaction and these fees are subtracted along the way as a sale settles. The bulk of these fees, the interchange fee, is set by the card issuing banks and the credit card association and have long been a bone of contention for the merchants.

Legislation Law For Debit Card Rates

In October of 2011, a law was passed lowering debit card fees. Dick Durbin, the Republican Senator from Illinois, felt interchange rates were unreasonably high and authored a piece of legislation proposing a reduction of these to more reasonable amount. As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Durbin Amendment has significantly reduced the interchange fee to process debit cards; before this legislation, debit card fees ranged anywhere from 1% to 5% of the total amount of the sale, the Durbin Amendment limits the interchange fee to a maximum of $0.21 plus .05% of the total of the sale. This amendment also allows merchants to process their debit card transactions over their choice of PIN debit networks, promoting competition between the PIN networks that has also resulted in a cost savings for merchants.

How Are Credit Cards Regulated?

Understanding why are debit card rates cheaper than credit card rates, will lead to the fact that no such legislation has been proposed to reduce credit card interchange rates. So credit card companies have put on a big push to encourage their cardholders to process their debit card like a credit card transaction. And why…because they make more money that way. When your customer presents you with a debit card and you ask, “Will that be debit or credit?” you are asking them how they want the debit transaction processed. Their answer impacts your bottom line, because debit cards can be processed in several ways. And each type of transactions comes with a different set of costs.

To understand what this means, you need to know how a debit transaction works.

  1. Offline or Signature Debit Transaction:
  2. An offline debit transaction is when the cardholder swipes a debit card, chooses credit as the processing method, and signs a sales receipt. The only advantage to the cardholder is a slight delay in the withdrawal of funds from their account. That may be a benefit for the cardholder, but not for the merchant. An offline debit transaction is processed through the card brand’s network and the merchant will be charged interchange and assessment fees. Good for the banks, but not the merchants.

  3. Online Debit Transaction:
  4. When considering why are debit card rates cheaper than credit card rates, you should know that online debit transactions require a PIN to authorize the transaction. This PIN, which is the legal equivalent of a signature, and the rest of the transaction information are sent directly to the cardholder’s bank for authorization. If there is enough money in the account, the amount of the sale is immediately debited and scheduled for deposit into your merchant account. The transaction is an immediate debit and direct deposit that bypasses the card brand networks and reduces processing fees. Good for the merchant but not for the banks.

Most buyers don’t really understand that there’s no real benefit when they select “credit” at the time of check out, and sign a sales receipt. Not to the buyer, anyway. The money is still drafted directly from their account. No credit is being extended.

But as the merchant, you should know why are debit card rates cheaper than credit card rates and why you have to pay more for signature debit transactions, than you do for PIN debit transactions. So while credit card companies are urging their cardholders to use their debit card as a credit card, now you know why you should be encouraging your shoppers to say, “Debit, please.”

What Is The Wholesale Rate For Credit Card Processing?

Using the term “wholesale” when referring to credit card processing rates can be confusing, that’s why understanding what is the wholesale rate for credit card processing is so important. Usually when we think about buying wholesale, what comes to mind is buying in bulk to resell, or buying direct from the manufacturer, thus avoiding any markup in the price by a middleman.

The wholesale rate for credit card processing actually refers to the fees charged by the credit card issuing banks (called interchange fees) and the fees charged by the credit card brand associations (called assessment fees) for the role they play in processing your credit card transactions. In truth, a more descriptive term would be “base rate” or “pre-markup rate”. In other words, when a processor refers to a wholesale rate for credit card processing, they’re quoting a figure for your fixed costs before they add their transaction and other service fees.

Knowing what is the wholesale rate for credit card processing it is important to understand the credit card brands and their issuing banks set their own interchange and assessments fees. These fees are listed on the brand association websites. These fees are non-negotiable, meaning they are the same for all processors, and most processors simply pass these fees along to you at no extra cost. Hence the term “wholesale rate”.

Understanding Basic Credit Card Processing Fees

To better understand credit card processing costs, you have to understand the fees that make up your rate. There are three basic fees for processing credit card transactions. Simply stated they are:

  1. Interchange Fees: The fee your bank pays your customer’s bank (the bank that issued the card) for processing a credit card transaction.
  2. Assessment Fees: The fee your customer’s bank pays to the credit card associations (Visa, MasterCard, etc.) for the privilege of handling their brand card.

When learning what is the wholesale rate for credit card processing, you should know that interchange and assessment fees are in total approximately 75 – 80% of your processing costs. Interchange fees and assessment fees are fixed and non-negotiable. However, there’s no rule that says a credit card processor can’t add a markup to the interchange and assessment fees charged to them. In today’s market, it would certainly be hard to do that and remain competitive. But since these fees are public record, you can check to see if your processor is adding anything to either of these fees.

Also keep in mind the card brands and issuing banks review their rates regularly. These rates are subject to change twice a year, in April and October. And just as there are no rules preventing credit card processors from marking up interchange rates and assessment fees, there are no rules stating that a credit card processor has to lower the rate set out in your contract if the card brand associations or the issuing banks lower their fees. So it’s in your best interest to read your monthly credit card processing statement carefully and check the internet for any rate changes.

  1. When taking into consideration what is the wholesale rate for credit card processing, you should know what are the merchant account fees: Everything else you pay for the privilege of being able to accept credit cards at your place of business. They can include: Transaction Fees, Processing Fees above Interchange, Annual Fees, Monthly Fees, Minimum Fees, Statement Fees, Termination Fees, and more!
  2. Merchant account fees, or markup fees, make up the other 15 to 20% of your credit card processing costs. These fees are to cover the services provided by your processor and is the source of their profits. Merchant account fees vary from processor to processor and rates and markups associated with these fees are not always made transparent. However, these fees ARE negotiable, and you should have a list of these rates to compare before choosing a processor.

So It’s Buyer Beware!

When you think about it, the term “wholesale rate” does make sense. The credit card brands and issuing banks charge your processor interchange and assessment fees. Your processor, acting as the middleman passes these fees on to you at cost, and makes a profit from adding service fees. And the combination of these fees add up to your cost for processing credit card transactions.

Just remember, when researching what is the wholesale rate for credit card processing “wholesale” rates, or fees, are fixed by the credit card associations and issuing banks and processors are charged the same rate across the board. So don’t be taken in by processors who claim they can get you a lower wholesale rate!

How Do I Accept Credit Cards For My Business?

To understand how do I accept credit cards for my business as payment for merchandise or services, the requirements are that, as a business owner, you will need:

  1. A merchant account
  2. Processing Equipment

With these basics you will be set to process credit cards. Sounds simply, right? Well it is…and it isn’t. Let’s review.

What Is A Merchant Account

A merchant account is a special bank account that allows you to accept and process credit and debit card transactions. It’s the bank account where your proceeds from a creditor debit card sale are deposited after all the steps and fees of the transaction are finalized. You can apply to your local bank for a merchant account, or you can research the many options offered by third party providers who will manage your credit card transactions for a fee. Typically you will find more value working with third party providers from both a cost and support standpoint.

While you are learning how do I accept credit cards for my business, to finalize the first step and get a merchant account, you will need to go through an application process. You’ll be asked to provide the bank or third party provider with:

  1. Company name; business address; business phone, business fax and website
  2. Full Name, social security number, and contact information of the officer(s)
  3. Business bank account information
  4. TIN/EIN (Tax Identification Number)
  5. Type of Business or Merchant Category Code (MCC)

Although this may not seem like a lot of information to you, this information is all a bank or credit card processing provider needs to define the legal properties of your business, the type of merchandise or service you offer, and your credit history. These three factors will determine the processing rates you’ll be offered. Does this mean if you operate a high risk business or have bad credit you’ll be turned down by the credit card processing companies? Not always. But you may be subject to higher processing fees, or you may be asked to set up a reserve account as insurance against the possibility of charge backs due to returns or other purchase disputes.

Getting approved for a merchant account, in order to understand how I accept credit cards for my business can take anywhere from a few days to several months or more, so don’t delay. You want time to review offers and decide which merchant account provider will work best whether you own/operate a brick and mortar business or you have an online shop. Read all the fine print and be sure you understand all the fees. Once you are approved for a merchant account, you will be able to process the most common credit cards, Visa and MasterCard, Discover, and American Express. American Express has a separate approval process however your third party provider will apply on your behalf. You will receive a separate merchant statement from American Express however your American Express transactions will be reflected in your monthly statement from your provider.

Processing Equipment

Once your merchant account has been approved, you’ll need credit card processing equipment or software to complete your transactions. A point-of-sale (POS) terminal reads your customer’s information from the magnetic strip on the back of his credit card, transmits this information and all the details of the sale to your credit card processing company, then receives the approval or denial for the purchase from the bank that issued the card. Online stores use dedicated software to transmit and verify credit card information. This instant verification process makes credit card transactions easy and secure.

Low Rates Are Not Always The Best Rates

In today’s economy, it doesn’t matter whether you’re a retail merchant selling your products at a physical location or online, or you operate a restaurant, or offer a service…you need to be prepared when your customer asks you the important question how do I accept credit cards for my business.

A merchant account and credit card processing equipment are the foundation for processing credit card transactions. But not all merchant accounts or processing equipment are created equal. Some providers offer lower per-transaction rates but tack on extra service fees. Some providers offer a simplified monthly rate. Some providers have restrictions on the minimum or maximum amount on a charge. Some providers can service credit cards issued from a foreign bank, while other can’t. And some processing equipment cannot process foreign-issued credit cards.

There’s much to be done before you open your doors — whether they are glass, wood, or virtual — to your new business. But it’s important to understand how do I accept credit cards for my business since it takes time to find the credit card processing company that best suits your business needs. Compare rates, check out their support services and reliability, ask questions, learn which fees are negotiable and which fees are not, and before you sign anything READ THE FINE PRINT!

What Is An Assessment Fee?

There are a number of fees that determine your total credit card processing costs. The answer to what is an assessment fee is related to the charge against your monthly sales volume. Visa, MasterCard and Discover each have set a small, flat-rate percentage that is charged against the total of your monthly sales processed with a credit or debit card bearing their logo. Assessments are paid directly to the card associations and are their primary source of operating income.

All credit card processors are subject to the same assessment fees. They pass this fee on to merchants at cost and may appear on your monthly credit card statement as a separate line item, listed as “Dues and Assessments”, or individually as “Dues” or “Assessments” Other times, processors will bundle this fee with other charges, such as Interchange, to come up with a single processing rate. At the time of this writing:

  • Visa charges an assessment fee of 0.11% or 11 basis points
  • Discover charges an assessment fee of 0.0925% or 9.25 basis points
  • MasterCard charges an assessment fee 0.095% or 9.5 basis points

When understanding what is an assessment fee, should be taken into consideration the fact that major credit card associations review their fees twice a year. Be sure to check your credit card processing statement for any increases to your Assessment fee.

Difference Between Assessment Fess and Interchange Fees

Assessment fees are not to be confused with Interchange fees. The Interchange fee is a percentage set by the credit card association that is deducted from each credit card transaction and a portion of this fee goes to the issuing bank. An Assessment fee is charged on the total of your monthly sales for each credit card brand and is paid entirely to the credit card associations. The combination of these fees are sometimes referred to as a “swipe fee”. This term describes these fees well. These are the fees you pay to the credit card associations to be able to accept and process their credit cards at your place of business. One more fact worth mentioning is that Interchange Fees and Assessments are the same for all merchants, regardless of the size of the merchant or the amount of credit card volume processed.

The more payment options you can offer your customers, the better your chances are of making a sale. In fact, reports show that shoppers may spend as much as 20% more if they have the option to use their credit card at checkout. Though credit card processing fees can add up, these costs will be offset by the benefits of accepting credit cards in payment for your goods or services. Knowing what is an assessment fee will make your credit card processing Assessment fee a pretty smart business investment.

What Does Bundled Fees Mean?

The term bundled fees for credit card processing seems rather self-explanatory. When answering the question what does bundled fees mean, you should consider separating out all the fees that make up the cost of credit card processing, the processor charges one rate that covers all the fees. How do processors come up with this rate? They combine the interchange fees paid to the issuing bank, the assessment fees paid to the credit card associations, and add in their processing fees to come up with a single flat rate percentage charged on each transaction. Bundled pricing certainly sounds like the easy way to manage your credit card processing costs:

Total sale x fixed percentage = cost per credit card transaction.

Bundled fees are based on your average total sale. This number is determined by your sales history, and becomes part of the equation for determining your processing rate, making bundled fees good for businesses with a steady ticket size. For example:

  • Let’s assume you own a mid-sized business. After a few years in business you can show an average ticket of $30.00. All your transactions are card-present transactions swiped through a POS terminal, making them eligible for the qualified rate.
  • Now let’s apply a standard qualified processing rate of 1.75% (the total of the interchange and bank processing fees) + $.22 per transaction charged by the processor.
  • That makes your average cost per transaction: $.75. Converted into a percentage, this would be 2.5%, making your bundled processing fee 2.5% of every sales.

But Be Careful…

Explaining what does bundled fees mean, will help you understand, why bundled fees are not as cost effective as they may seem. What happens when you run a $100.00 ticket sale through the same process?

  • With a standard qualified processing rate of 1.75% + $.22 per transaction, you would pay $1.97 to process this credit card transaction.
  • With your bundled rate of 2.5%, you would pay $2.50 to process this credit card transaction.

One could argue that your costs would eventually even out over a period of time using a bundled fee program to process your credit card transactions since most ticket sales will be in the average range, while the transactions that are lower should balance out the sales that are higher than average. And even if they don’t, is there really such a big difference in costs? Well, no, not on a few sales, but if your business sees an increase in your sales tickets several times a year due to seasonal buying or if you begin to stock higher ticket items, a bundled rate could wind up costing you thousands of dollars a year.

The Real Downside To Bundled Fees

When hearing what does bundled fees mean it’s hard not to be won over by the credit card processing ad that claims to have the lowest fee, especially when those fees are presented as a fixed percentage rate. On the surface a 1.8% rate sure looks like a better deal than a 2.2% rate. But dig deeper and you will find the real downside to bundled fees.

Bundled fee plans seldom have just one set percentage rate for all your transactions. In the example above, we clearly stated the rate was based on average ticket sales + qualified transactions. But bundled fee plans also have provisions for transactions that don’t fall into the qualified category.

Credit card transactions fall into one of these categories, each with some basic requirements that must be met:

  • Qualified: Card-present transactions, swiped at a POS terminal, authorized and settled as per the regulations of the plan.
  • Mid-Qualified: Manually keyed-in transactions using Address Verification Service to identify the card holder.
  • Non-Qualified: Keyed-in transactions without AVS; transactions that are not settled within a 24-hour period; transactions that don’t meet the conditions set out for the other categories.

Answering what does bundled fees mean, will give you a better idea about the existence of transactions that seem like they should fall into one category but are downgraded for a variety of reasons. For example, rewards card transactions, even if they are processed at a POS terminal, usually fall into the Mid-Qualified category.

So that low rate you were quoted is not the rate you will pay for every transaction. Bundled fee plans actually have multiple rates, one for each qualifying category. And with a bundled fee structure, your processor gets to choose which transactions are considered qualified, mid-qualified and non-qualified. That base rate may seem really attractive, but a processor could simply route more of your business transactions to its higher qualifying rate, costing you even more money every month.

And don’t assume that a low qualified bundled rate from one processor means the rates in each of the other qualifying tiers will be lower as well. When researching what does bundled fees mean, in order to choose a bundled fee plan, be sure to compare rates for all the categories to be sure you are choosing the credit card processing plan that’s right for your needs.

What Is Required To Get A Merchant Account?

You’re almost ready for the grand opening of your new business. All that’s left is to find a way to accept credit card payments. You did your homework, you found out what is required to get a merchant account that seems to fit your needs, and you submitted an application.

You gave them your company name, address, phone, fax and website information.
You also provided your name, social security and contact information of the officer(s) of the business. You provided your business bank account information, TIN (Tax Identification Number), and the type of Business or Merchant Category Code (MCC).

Now what? It really doesn’t seem like a lot of information, but what is required to get a merchant account from the processing company could get you approved in 48 hours or less. Although it may not seem like a lot of information to you, the credit card processing company can learn almost all they need to know to approve you – or not – with the basic information they get by using your social security number to do a personal credit check. Your credit history is very important, because when you sign with a credit card processing company, you’re actually agreeing to their terms for borrowing money.

How Credit Card Processing Works

A credit card payment transaction goes through a series of borrowing and lending steps until the money finally reaches the seller’s account. When your customer swipes his credit card at your store, the bank that issued the card checks to see if there’s a sufficient balance left on the card to cover the purchase. If so, the issuing bank is actually loaning the purchase amount to their cardholder by authorizing the charge. When the sale settles, that money is loaned to your credit card processor who in turn loans it to you when they deposit the balance, after fees, into your merchant account. That ends the money trail for the seller for the time being. Meanwhile the issuing bank bills their cardholder for the purchase and collects their money when the cardholder pays his monthly statement. That closes the borrowing loop.

Simple, right? Well, most of the time, the process runs smoothly. However, once the proceeds of the sale are deposited into the seller’s account, the issuing bank and the processing company assume the risk that the merchandise is acceptable to the buyer and won’t be returned. In other words, what is required to get a merchant account include good credit to reduce the risks of the merchant account provider and the issuing bank take when they lend you the money in the event there is a problem with the sale. That’s why the credit card processing company does a personal credit check. Your credit score is an indication of your financial stability and your ability to cover transactions that may be reversed at a future date.

Does this mean if you have low or bad credit you’ll be turned down by the credit card processing companies? Not always. If you have a low credit score, provide the processor with a short message about why your credit rating will show up as low. Perhaps you have recently gone through a divorce. Or maybe you lost your job due to a downturn in the economy and decided to start your own business. Whatever the case, give the person reviewing your application some facts to help to better understand your credit score number. This may help you get approved, though you may be subject to higher processing fees to justify the risks, or you may be asked to set up a reserve account as insurance against the possibility of charge backs due to returns or other purchase disputes.

Why Do They Ask For A Merchant Category Code (MCC)?

After your credit standing, the type of products and/or services you offer is the biggest factor of what is required to get a merchant account. Credit card processing companies and other merchant account providers use merchant category codes to identify high-risk businesses.

Some high-risk businesses include:

  • Companies that sell adult products or provide adult services.
  • Companies that provide travel services.
  • On-line gambling sites.
  • Companies with automated, recurring billing for annual memberships (i.e. on-line dating services, or fitness centers).
  • Telemarketing companies.
  • Companies that only sell a few high ticket items.

Though high-risk businesses can be very profitable, they often have a higher number of chargebacks, a disproportionate ratio between sales volume and available cash, or a higher risk of fraudulent charges. Any one of these complications poses certain financial risks for the credit card processing company or merchant account bank, as well as the issuing bank involved in processing their credit card transactions. Credit card processors rely on MCC’s to establish the nature of a business, and to determine if they need to charge higher transaction and service fees to cover the increased risk for any financial losses.

However, understanding what is required to get a merchant account and finding the right credit card processing company, your bad credit and other business risk factors will not keep you from being accepted for a merchant account. The key to finding the best rates will be to find the credit card processing company that will look at you as an individual and not just a credit score number.