Things to Know About Credit Card Processing Fees

Credit Card Processing Fees

As a business owner, accepting payments from customers via credit cards is a must if you want to sustain a healthy cash flow. Unfortunately, the fees for such payments can have a negative impact on your profits. Where do these fees come from, and how can merchants minimize them?

Credit card processing fees are the fees merchants must pay every time they accept credit card payments. There are different types of processing fees, such as interchange, payment processor, and assessment fees. The fees may not seem like a lot, but with every payment, they quickly add up. 

Luckily, there are ways to lower the credit card processing fees, like avoiding flat-rate pricing, minimizing or avoiding fees, and opting for payment processing methods that minimize chargeback fees. If you want to learn more, read on! Here is a guide to the most important things about credit card processing fees. Hopefully, they will help your business prosper!

What Are Credit Card Processing Fees?

Credit card processing fees are the fees merchants must pay to the credit card company and their payment processor every time they accept a credit card payment. There are many common merchant credit card fees, such as interchange and assessment.

Interchange fees are the fees credit card companies charge every time a customer uses their credit cards. They are called merchant discount fees or acceptance fees that are fixed per transaction and vary depending on the type of credit card used by the customer. Assessment fees are flat-rate percentages that credit card companies charge against the merchant’s total monthly sales made with credit cards bearing their logos.

How Much Are Credit Card Processing Fees?

Credit card processing fees can be pretty high, especially for businesses that do not have a solid payment processing plan. You might have heard horror stories about the costs of accepting credit card payments. Fortunately, such stories are a thing of the past. Nowadays, such fees are much lower and can be lowered even further in a number of easy and quick ways.

How Can I Lower My Credit Card Processing Fees?

The first step to lowering the fees is to avoid flat-rate pricing, a common practice among payment processors. Flat-rate pricing is a method wherein the merchant pays a fixed fee every time they accept a card. It is quite problematic, as it does not consider the different rates that apply to different types of cards. For example, a flat-rate pricing scheme may charge the same fee for all cards, even if some have lower rates. 

Another way to avoid fees is to opt for payment processing methods that do not charge any per-transaction fees. You can also opt for a payment processing method that minimizes chargeback fees.

Are Credit Card Processing Fees Tax-Deductible?

Credit card processing fees, like any other business expense, are tax-deductible, but there are specific rules to follow here. The first one is that all the credit card processing fees must be for business expenses, not personal use. The next rule is that you, as a merchant, must be registered with the IRS to claim the credit card processing fees as tax-deductible. If you are unsure whether you are registered with the IRS, you can contact them to verify.

Are There Any Alternatives to Credit Card Processing?

If credit cards are a hassle, why not opt for other payment methods instead? To give an example, some stores have already started to accept cryptocurrencies as a form of payment, and while it is not the most popular option, it is still worth looking into.

Another interesting alternative to credit cards is loyalty points. In other words, you give each customer a certain number of points for each dollar they spend. Then, you allow them to use these points to pay for products or services. It is a great way to lower the number of credit card processing fees that you have to deal with, as well as encourage customers to make repeat purchases at your business.

In Conclusion

To sum up, credit card processing fees can be a pain in the neck to deal with, particularly if you do not really know what fees you are paying and why. There are ways to prevent this from happening, though.

For starters, understanding what all those different processing fees are about and what they mean for your business is essential, and so is doing your best to lower these fees. If you do so, your profits should increase significantly. 

For instance, you could stop opting for flat-rate pricing and avoid excessive fees. Also, you should always read the fine print of your merchant agreement so that you know what you are signing up for. While it might be a bit time-consuming and boring, it is definitely worth the hassle.