Identifying Important Criteria in Merchant Processing Contracts

Merchant Processing Contracts

Identifying Important Criteria in Merchant Processing Contracts

Over the past few decades consumer credit card use has risen exponentially. While some businesses still only accept cash, the truth is, that allowing credit cards increases profit. Why? Because by accepting credit cards you’re able to accommodate more buyers. That being said, accepting credit cards is anything but free. To offer credit cards you have to work with a credit processor, who adds fees to your account and every transaction. Luckily, you have a wide variety of credit processors to select from. By understanding their merchant processing contracts and identifying important criteria in their contracts, you can select the best processor for your needs with the lowest cost per transaction.

Getting Started with Credit Processing

To accept credit cards, you have to have a merchant account with your credit card processor. This will allow you to deposit funds from cleared transactions as well as pay processing fees. The cost of this account and the fees that come with every transaction will cut into your profit- but you can minimize the impact but reviewing what fees are going to be applied to your transactions and understanding credit processor lease agreements.


Understanding Credit Processing Fees

Many small business owners assume there will be a fee for every credit card transaction they run (referred to as an Interchange Fee), and they’re right. But what they don’t know is that there are many more fees as well. When reviewing your merchant processing contract, keep an eye out for hidden (and not so hidden) fees. These fees can quickly decrease your profit, but not all credit processors activate them. Main credit processing fees are:

Interchange Fees: Already mentioned above, Interchange Fees are applied to every credit transaction processed for your company. The fee ranges from 2-3%. However, this fee is not set- it is actually dependent upon several factors, such as the type of credit card, the type of transaction (online or instore), and the size of each transaction. Make sure to understand how this fee will be applied to your transactions and adapt your store policies to lower the impact on your profit.

Monthly Statement Fees: Some credit processing companies charge you for mailing you your monthly statement. Make sure to review your contract to avoid this cost, or, if possible, receive electronic statements instead.

Application Fees: Many credit processing companies will charge you a fee just for applying to work with them. However, some companies will then deduct this from your future bill if you end up signing a contract with them.

Monthly Minimum Fee: This fee refers to the amount of transactions you must run in a month. If you don’t hit the minimum amount of transactions you could incur a fee.

Monthly Gateway Access Fee: Some processors charge you for using their payment gateway, which is how you complete your transactions. This fee can range from $10 – $30. You may be able to eliminate this fee by purchasing your payment gateway outright.

Early Termination Fee: Unfortunately, if you aren’t happy with your credit processor and try to end your contract early, you may incur a cancellation fee. Make sure to look into your contract when you sign up to see if this fee may apply to you.


Merchant Processing Lease Agreements

Merchant Processing Lease Agreements refer to when you lease your credit processor system as opposed to purchasing one. While you can also purchase a credit processor system, some companies choose to lease them, allowing them to upgrade to a new system when their lease ends. In addition, leasing also provides the convenience of monthly payments, offer low-cost upgrade options for companies who haven’t yet reached the end of their lease, and offer free replacements during the lease term. If you do choose to go the route of leasing, make sure that you fully understand the agreement. Make sure to review the following:

  • How long is the lease for?
  • How much notice do you need to provide when ending the lease?
  • What is the fee for cancelling a lease early?
  • Are there any additional fees to lease a system?
  • Are there tax benefits to leasing this system?


Does your POS offer your business the support you need? Are you ready to simplify your business with the use of a new POS? SilverEdge can help.  If you are ready to talk with a SilverEdge representative about the right choice for your business, contact 970-800-2890 or email today. Also, take a look at a great way to eliminate your credit card processing fees altogether, SilverEdge’s No Cost Credit Card Processing Program.

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