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The ability to accept payment via credit card is an important part of setting up a small business. Understanding the various fees and charges associated with a merchant account will help you get the best value for your money and help reduce the likelihood that you will pay bogus charges.

Discount Rates

While discount rate is a type of transactional fee I decided to mention it first because it is one of the largest fees. If someone purchases a product or service from a merchant for $100 and the discount rate is 2.5% then $2.50 is charged to the merchant and subtracted from the total.

There are additional fees that can be tacked on the discount rate such as Partially Qualified Fee, Non Qualified Fee and Surcharge Fees. You can incur these charges if during credit card processing the card info is keyed in rather than swiped or if someone pays using a card with a reward plan. These additional fees can add up quickly so it is imperative to find out how much they are.

The discount rate should be around 2%, it is higher if the business is conducted online due to the additional fees mentioned in the previous paragraph.

Monthly Costs

There are 2 types of monthly fees, monthly statement fees and monthly minimum fees. A monthly statement fee is a fixed fee that is charged for customer service and support. It is typically around $10 a month. A monthly minimum fee is charged based on the amount of business done per month. If the monthly minimum is not met, the monthly minimum is charged. It ranges between $15-30 a month.

Annual Fees

Although some merchant account providers do not charge an annual fee there is a possibility you might have to pay one in the event that you have been provided with a free point of sale machine as part of your contract.

Startup and Termination Costs

These are fees associated with starting or terminating a merchant account. A setup fee is charged to setup the account (it is also known as an application fee). Some merchant accounts wave this fee. When setting up a account you are normally required to sign up for a one or two year contract, it is therefore important to find out what the cancelation fee is if you decided to terminated your contract early.

Transaction Based Fees

Transactional Fees consist of address verification fees, transaction fees and charge back fees.

If a credit card is not swiped by a card machine an address verification fee is charged. This is done in order to protect the merchant from fraudulent transactions. The charge should be 5-10 cents. Transaction Fees are charged to the merchant by the merchant account provider on every purchase. They are generally between 20-30 cents each transaction.

A charge back fee is charged if the customer disputes the charge because they doesn?t recognize the charge, or feel the product was not as described correctly or due to fraudulent use. This fee is normally around $25 per charge back.

Other Fees

Daily batch fees are charged to the merchant for settling the day?s transactions into the merchant?s bank account. This fee is typically 5-50 cents.

Gateway Fees are charged for internet merchant accounts. This fee is assessed by the gateway service provider which might be different from your merchant account provider. This fee can be as high as $35.

Voice Authorization Fees are charged when calling in your transaction. The average cost is between 75 cents to $1.50.

Any changes to the merchant?s hardware or software can potential result in a reprogramming fee.

Bogus Fees

Beware of other fees not mentioned above particularly for terms like over the limit fee, file fee, conversion fee, audit fee, and excessive transaction fees. In addition pay attention for teaser discount rates that could spike after a couple of months.

Understanding credit card processing fees is paramount when shopping for a merchant account provider for your business. You now have a better understanding what the fees are and how much they should be so you can get a great deal and avoid paying too much.

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