Anyone that’s had to take care of merchant accounts and credit card processing will tell you that the subject might get pretty confusing. There’s a lot to know when looking for first CBD merchant processing processing services or when you’re trying to decipher an account that you already have. You’ve got to consider discount fees, qualification rates, interchange, authorization fees and more. The report on potential charges seems to become and on.
The trap that many people fall into is that they get intimidated by the volume and apparent complexity belonging to the different charges associated with merchant processing. Instead of looking at the big picture, they fixate using one aspect of an account such as the discount rate or the early termination fee. This is understandable but it makes recognizing the total processing costs associated with an account provider very difficult.
Once you scratch the surface of merchant accounts the majority of that hard figure out. In this article I’ll introduce you to industry concept that will start you down to path to becoming an expert at comparing merchant accounts or accurately forecasting the processing charges for the account that you already have.
Figuring out how much a merchant account will set you back your business in processing fees starts with something called the effective interest rate. The term effective rate is used to to be able to the collective percentage of gross sales that company pays in credit card processing fees.
For example, if a business processes $10,000 in gross credit and debit card sales and its total processing expense is $329.00, the effective rate of business’s merchant account is 3.29%. The qualified discount rate on this account may only be 5.25%, but surcharges and other fees bring the sum total over a full percentage point higher. This example illustrate perfectly how focusing on a single rate when examining a merchant account can prove to be a costly oversight.
The effective rate could be the single most important cost factor when you’re comparing merchant accounts and, not surprisingly, it’s also the more elusive to calculate. When shopping for an account the effective rate will show the least expensive option, and after you begin processing it will allow you to calculate and forecast your total credit card processing expenses.
Before I pursue the nitty-gritty of methods to calculate the effective rate, I have to clarify an important point. Calculating the effective rate of having a merchant account for an existing business is less complicated and more accurate than calculating the price for a new business because figures are dependent on real processing history rather than forecasts and estimates.
That’s not to say that a start up business should ignore the effective rate of a proposed account. Usually still the biggest cost factor, however in the case regarding your new business the effective rate always be interpreted as a conservative estimate.