Scott Rapoport, Account Manager at Eliot Management Group, guest blogs for us today and shares some advice on how to avoid a bad payment processing deal. With so many options available for payment processing, it’s extremely important for merchants to understand how to select a provider that has their best interests at heart. Scott’s seven tips for avoiding a bad deal will help you weed through potential pit falls and strike a deal that works best for you and your business.
After a year and a half in the payment processing industry, I am by no means an “expert” in the field, but considering that the average person lasts less than 3 months (industry wide) before moving on, many would consider me to be one. That being said, I want to share some of the insights that I have gained during my tenure in the merchant processing industry.
I strive to be ethical and completely upfront with the merchants that I work with. I have to be, seeing as what I do directly impacts their income. But some of the things I have seen from others (not within my company, as we do a pretty good job of not hiring unethical people) are downright disturbing. I was motivated to put pen to paper after one of my co-workers came across a client that was treated in a manner that would make your stomach turn. They were completely swindled because the sales rep for their current processor took advantage of their lack of experience with payment processors to make a bigger profit for himself.
So to help you avoid the same fate, here are some things I have learned:
1. Learn how to interpret your merchant processing statement.
90% of the merchants I have worked with have no clue how to read their merchant processing statement. Most of them know that if you take your total fees and divide them by the amount you processed, you come up with a percentage. Whether its 10% or less than 1%, no merchant is happy about paying a fee to take payments. My job is to make that fee as small as I can, but there will always be a fee. It is important to know how to read the statement, because you need to know why you are paying those fees. This is the main reason that I always make it a practice to teach my clients how to read their statement. Your fees are a controllable expense, and knowing how to read the statement will give you insight on how to possibly change your business practices in order to lower this necessary expense. To get a more in-depth break down of this information, check out our earlier post on reading your account statement.
2. Understand where your fees come from
The vast majority of the fees that are paid to take card payments are not from your processor, but from the banks that issued the card your customer used. In most cases, the processor only makes a small portion of what you are paying in fees, while the banks get the rest. Depending on your rates, if you have a monthly statement for $2,000, the processor is usually making no more than $100 of that (of course, I have plenty of examples of times I have seen a processor completely ripping off a merchant, but most of the time, that is not the case). I know that you all feel ripped off when you get the statement and the money comes out of your account, but it is usually not the processor’s fault.
3. Make sure you understand what you are getting into BEFORE you sign anything.
I once saw a merchant get stuck in an equipment lease on their terminal for 48 months at $199 a month. This is something that they shouldn’t have paid more than $69.99 a month for, at most. They were taken advantage of by a sales rep that most likely glossed over or left the terms and/or pricing blank on the agreement when the merchant signed it (this is the exact reason that my company caps commissions on equipment at a certain level, giving the sales rep no reason to charge a customer more than what most people would consider reasonable). It is ok to leave some things on an agreement blank to save time and fill in later, but the term and the pricing is not one of those things.
4. Don’t be scared of long-term contracts.
There is a reason that the industry standard contract length is 36 months. Because of the cost of doing business, the processing company doesn’t usually see a profit until 28 months in. Shorter term contracts usually come with a higher processing rate, so if you factor in the termination fee, it is usually a wash.
Take for example a 36-month agreement, I might be able to cut your cost by $250 on average per month, and there might be a $499 ETF on that contract. On a 12-month term, I might only be able to save you $50 on average per month, with that same $499 ETF during that year. Take the first two months of savings and put it away to cover the ETF. Everything after that is pure savings. The 10 remaining months of $250 average savings is going to be a lot higher than the $50 a month for 12 months, so if you have that ETF put away somewhere, if you ever wanted to get out of the agreement after the first year, you have it covered, and you will have realized a much better financial gain because of the higher monthly savings.
5. Free is not always free.
Processing companies will sometimes offer free processing equipment to merchants when they sign an agreement. Just because they are not charging a line item for the equipment, doesn’t mean there isn’t a cost. The companies that do this usually have higher processing rates than processors that charge for the equipment. Remember, eventually, the equipment will get paid off (and equipment in this industry tends to last a long time), but higher rates will always be higher rates. I know one example of a processor that has really low rates, but charges $129 a month for a standard terminal. Sure, there are some high volume merchants that this would actually make sense for, but for 90% of businesses out there, this makes no financial sense.
6. Stick with local reps.
There are a lot of processors that will pay to send sales reps to markets for several weeks at a time, set appointments for them, and have them say and do anything to get a deal signed, even if they have to lie through their teeth. They send them away from their home market because they know that they are going to be asked to do things that will severely damage their reputation. Always ask where your sales person is from, or if they come recommended by someone you know (sometimes being from out of town is ok).
7. Don’t let someone sell you something you don’t need.
I see it a lot: a merchant purchases a service or product that was clearly not the right fit for them, and now has to pay a much higher rate without being able to use all of the product or service’s features and benefits. Carefully examine how you do business and what your needs are before you start looking at processing services and systems. The only time to consider something that goes beyond your present needs, would be if you were going to have a use for it in the very near future, and even then, there needs to be an explicit understanding between both the merchant and processor before a contract is signed.
In a nutshell, do your research, ask lots of questions and maintain a constant awareness of your business’ needs and objectives. I could go on for days about all of the things I have seen, and how to avoid a bad deal, but I will leave it at these seven tips for now. As always, please reach out to me with comments or questions.
About Scott Rapoport
As an Account Manager at Eliot Management Group, Scott works with clients to make taking payments more efficient and less painful to their wallets, as well as showing them effective ways to use the technology available to them to market their businesses. Prior to working for Eliot, Scott spent 15 years in the wireless industry with a few stops along the way as a political consultant. In his free time, Scott enjoys being a lifelong fan of the 2016 World Series Champion Chicago Cubs, and the 2010, 2013, and 2015 Stanley Cup Champion Chicago Blackhawks. If you’re interested in learning more about how Eliot can partner with you to reach your business objectives, you can reach Scott at 847-827-2800 x1800 or firstname.lastname@example.org.