Financially Speaking / Archive RSS Feed
Archive for the ‘payment processing’ Category
New rules which will go into effect in January 2012 require all businesses and nonprofit organizations to issue a 1099 form for all goods and services which were paid over $600 a year. The buzz that this new regulation causes can be heard from those who will impacted the most – small business owners.
How this legislation happened is another story. It was slipped into the Health Care bill which was passed in March as an attempt at closing a gap of income tax revenue reporting. The additional paperwork puts business owners at a disadvantage because of minimal or non-existent support staff.
Pennsylvania’s SMC business networking organization surveyed its members and found that they currently average 10 filings a year. The new rules might push that average to over 200 fillings per year for typical small business.
What will be the effect of this regulation?
It will undoubtedly cause small businesses to consolidate their purchases, going from many vendors they do business with, to only a few to ease on the reporting. That might hurt small businesses in general.
It will also cause a larger paper trail. ”Small businesses that lack the capacity to track customer purchases may lose customers, leaving the economy with more large national vendors and less local competition.” Says SMC Business Councils Tom Henschke.
Because of product returns and other complications, the payment documented by the 1099 won’t match up cleanly against the revenue business report, putting small business owners to have increased communication with the IRS.
How to avoid the new reporting?
The buzz this new requirement created was heard all the way to the IRS. In May, in a speech before two payroll trade groups, IRS Commissioner, Douglas Shulman, announced a major exemption to the new rule. The IRS plans to exempt transactions made through credit cards and debit cards. “Whenever a business uses a credit or debit card, there will be no new burden under the new law,” Shulman said.
The main beneficiaries of that exemption are likely to be credit card companies, which will get an added hook to get small businesses to pay their fees.
Image thanks to http://www.flickr.com/photos/joshuacraig/2415343592/lightbox/
Unfortunately most credit card processing rate quotes cannot be trusted, which is why we created TransFS, where all the offers are full-disclosure and fully accurate.
Here is an example of how a merchant account provider has advertised false rates.
A TransFS user recently asked me this question:
My customers mostly use Amex cards, so I’m looking for the most competitive rate for Amex. My bank is offering me 2.58% + $0.15 for Amex. That sounds good, doesn’t it? What are the Amex rates for processors on TransFS?
Here’s our answer:
Amex is somewhat easier in credit card processing because there is only one rule to follow: Amex rates are the same everywhere. If your processor tells you they are offering you a “special Amex rate,” they are lying. The rate your bank offered you (2.58% + $0.15) is the swipe rate for Amex. The good thing is that for Amex, there is no processor markup, so when you’re making your choice of processor, keep in mind that looking at Amex pricing is irrelevant.
Paypal Increases Amex Rates
For those people who use PayPal as their payment processor, you may have noticed a little blurb at the top of your screen about a new Amex Card Acceptance Agreement.
PayPal will now charge the 3.5% fee to accept Amex payments, including it’s usually $0.30 per transaction fee (note this is for PayPal Website Payments Pro or Virtual Terminal).
A TransFS user recently asked:
My business runs on a subscription model and requires recurring billing. Can my gateway facilitate this or do I need to get a provider such as Chargify or Recurly to handle the recurring billing?
Here is our answer:
Unfortunately, most gateways are not built to manage recurring payments. Authorize.net will theoretically do recurring billing, however, their API is not good for making adjustments. For example, if you want to refund a customer one month due to poor customer service, Authorize.net’s API will not facilitate this customization. This is why services such as Chargify and Recurly exist. We recommend going with one of them plus a gateway when your business requires recurring billing: it’ll make your life much easier.
Discount Collected
One of the ways processors confuse business owners is by having misleading statements. For example, look below at the final line of this business’s credit card processing statement. The logical assumption is that the amount being charged is $130.83
Not so. There is a sneaky line item called “discount collected” which is hidden in the “Settlement/Discount” section. This, plus the 130.83 is what the account is actually being charged.
While the business owner is led to believe that his processing fees are $130.83, in reality they are $469.82.
This leads to the phenomenon where business owners believe they are paying a low rate, but actually are paying many times that amount. When looking at your (often complicated) credit card processing statement, don’t take for granted the amount the processor wants you to think you are being charged. Instead, make sure to check your bank account and calculate your fees based on the true charge.
Learn more about how to reach merchant processing statements here.
To compare bids from top-tier credit card processors, check out the TransFS marketplace. A few minutes can help you save (average) 40% on your processing bills.
Update: Ripped-Off By Her Processor, Coffeeshop Owner Turns to TransFS and Takes Steps to Lower Fees
Earlier this summer, I reported on a TransFS user who was totally ripped off by her credit card processor. Luckily, she found a processor on TransFS who will save her serious money and act in an ethical manner. However, she took some steps to lower her credit card processing fees. These steps are easy and will have a tangible affect on her bottom line:
1) Impose a minimum for credit card use- Although this action may seem obvious, until recently it was illegal to set minimums. The Durbin amendment, passed in the last few weeks, is part of the larger Wall Street reform law and makes it absolutely legal for merchants to set a minimum value for credit card use.
2) Swipe credit cards instead of keying them in- Swiping a credit card triggers a lower interchange fee than keying it in. A card present, Visa credit card is about 1.47%+$0.10 while a card not present, Visa credit card has an interchange fee of1.85%+$0.10. That’s a difference of 38 basis points. This may not seem like a lot, but can represent significant savings for a low volume, high number of transactions business. (To put in perspective, almost $400 for $100,000 in monthly volume…over a year, $4800 in savings just from making a small change)
3) Offer incentives- This business owner encouraged customers to purchase gift cards, on which she offered 10% savings. So for example, upon selling a $50 gift card, the customer saves $5 while the business owner only gets charged processing fees for one transaction of $50, instead of 10 $5 transactions.
4) Educate your customers- Communities care about small business owners. Doing something simple to educate your customers may help them make a better payment choice for you. For example, the lady in question is considering hanging up a poster explaining credit card processing fees to her customers.
If you’re a small business owner, start an auction on TransFS now to get bids from top-tier credit card processors and start saving money in minutes.
Retrieval Fee
Often grouped in with chargeback fees, retrieval fees occurs when a customer requests a copy of the transaction receipt for a purchase. They don’t necessarily also dispute the charge (when a chargeback would occur) but rather request the receipt from the processor if the merchant for whatever reason can’t provide it.
This fee is a throwback to previous technology which did not permit copies of receipts to be stored online…now if a customer requests a receipt, it’s as easy as queuing up the receipt in your POS system.
Retrieval fee charges are super rare, and do not occur in tandem with chargeback fees.
To get the best deal on credit card processing services, comparison shop top-tier processors by starting an auction on TransFS.com–in minutes you’ll have apples-to-apples bids.
In response to a question we get very frequently from TransFS users, “Which is better, PayPal or a merchant account?” TransFS has launched the PayPal Upgrade Calculator, a tool which lets business owners quickly and easily see which option is more cost effective. There’s no signup or lead generation form; merchants can see which option is better for their business clearly and in a matter of seconds.
Below is a screenshot showing the calculator which displays PayPal vs. merchant account fees side by side for easy comparison.
The PayPal Upgrade Calculator works by looking at the main drivers of fees – average transaction size and the monthly volume of the merchant. In addition, there are optional questions about on-site or off-site transactions and name displayed on the credit card statement for those merchants who have specific needs that require PayPal’s Website Payments Pro offering. For ease of use, industry standards for these values are displayed so that merchants can get a sense for how their business compares to the average online e-commerce site.
Check out the calculator and start a free auction for binding quotes now.
Check out the official press release here or feel free to email me with questions or feedback: stella@transfs.com
Today, a disgruntled user called me up to complain about her recent credit card processing statement. Her business is a coffeeshop with high volume of credit cards used for low amounts per transaction. As a result, she gets slammed on per transaction fees. Seeking out a better option, a different processor offered her a lower per transaction fee so she signed up.
Guess what happened?
Although the salesperson made it sound as if the lower per transaction fee would apply for everything, it only applied to a small subset of cards used. No wonder she was mad!
She asked me what she could do about this. Unfortunately, not much. Here are some great sites if you also want to take a stand against inflated interchange fees.
Disclaimer: Sneaky practices like the one above are all too common in the credit card processing industry. That’s why TransFS was created…to promote transparency in pricing and fair practices. Processors on the TransFS marketplace are prohibited from changing rates, in fact, they are financially punished if this occurs. TransFS acts as an advocate for burned business owners everywhere. Start an auction now to see bids from TransFS certified processors who will save you money.
Image thanks to http://www.flickr.com/photos/51201321@N00/3219262015/
