Avoiding high payment fees in a small business

Avoiding high payment fees in a small business
Only 11 percent of shoppers used cash during 2016, according to creditcards.com.

For small businesses, this means lots of credit card processing fees are coming out of each sale and that can be expensive.

According to small business financing blog Nav, there are three ways for a credit card processor to charge fees: flat, interchange plus, and tiered pricing. Flat fee providers, such as PayPal or Square, use one rate for every transaction no matter the price or volume. Interchange plus models use a flat percentage fee along with a small charge for each sale, such as 30 cents. Tiered pricing applies three different rates depending on what type of card is used; such as debit, credit, or rewards, and is more expensive when manually keyed in.

It is easy to see that a per-transaction charge of even 30 cents could be devastating to a business that sells a high volume of cheap items, such as a dollar store. In these situations, it is entirely acceptable to list a minimum purchase amount for credit processing to make the sting of a per-transaction charge less painful.

As such, The Simple Dollar recommends that small business owners do their research and shop around for the best rates that their business can command. Those currently using or considering a tiered pricing structure, for instance, have reduced the complexity of their accounting and found savings by switching to a flat rate service. While an online search can be helpful, reaching out to other local businesses can be a great resource to see what works for those in a similar situation.

When it comes to equipment, purchasing a credit card terminal can save money over the long run compared to renting it each month so don’t be lured by the promise of savings from the credit card company. Additionally, many of the newer options such as Square provide a free scanner that can be used with any smartphone or tablet to act as a digital register both in a store or on the go.