
Invoices for your merchant services can be very cryptic and puzzling. Understanding your monthly processing statements gets harder by the second, as credit card processing companies become invoicing masters. Here, I will help you understand what is on your bill.
Basics of Your Statement
Rates and transactions fees will be on most monthly statements. Your rate is called the “discount rate,” even though it is a fee.
Dues, Fees, Mark-Ups, Assessments, and network charges make up the discount rate that you are required to pay for accepting cards. When merchants use networks like Visa and MasterCard, an interchange fee is charged. This is a fee that the merchants’ bank pays the customers bank.
Depending on card type, interchange fees vary. Fees also vary depending on how the card was accepted and sometimes even transactions amounts. There are hundreds of different interchange fees that can be charged, and they are usually around 1 to 3 percent of the transaction.
Various Pricing Structures
First, there is FLAT RATE PRICING. A flat rate is charged for all transactions, no matter how small or large the sale is. If you are set up this way, your processor is hoping that most of your transactions will clear at the lower interchange rate, rather than the up-charged rate that they are giving you. Statements are easy to read and understand, but you are paying more in the long run.
Secondly, there is TIERED PRICING. Most merchants find interchange pricing confusing, so some companies have divided transactions into tiers. Most companies use three tiers: Qualified, Mid-Qualified, and Non-Qualified. The processor makes a minimal amount in fees over the interchange cost. The statement is pretty easy to read, and the pricing is significantly better than flat rate pricing.
Thirdly, there is INTERCHANGE PLUS PRICING. The true cost or processing a credit card is interchange. Some processors offer interchange+ pricing as an option. The “+” is the fee that your processor charges on top of the interchange charge no matter what interchange level it qualifies under. This structure is the most difficult to understand, and is usually used by larger clients.
Lastly, there is BILLBACK PRICING. Processors that want to offer the customer the lowest rates possible, but do not want to pay for the higher interchange levels use this structure. A low rate is offered to the customer, but all interchange prices are added for and cards that clear at higher interchange level. Statements are hard to understand, and it is the most costly.
Processing Fees
Most processing statements have a transaction fee section. For each transaction that is processed, a transaction fee is charged along with the discount rate. Sometimes, authorization fees take the place of transaction fees. This does not work in your favor, as you are charged whether or not the card goes through. There may also be batch fees, set-up fees, yearly fees, etc. in this section of the statement.
Processing Solution
Simple math and a second opinion can help you defeat a confusing statement. Try taking your total sales, and dividing it by your total service fees. If your rate seems too high, ask your processor for a reason. If your processor doesn’t take time to explain it to you, have another company perform a statement analysis for you. They will give you a comparison and an honest breakdown of your current fees. It’s always good to know if a better option is available!