Understanding Payment Processing Fees: A Guide for Small Business Owners

As a small business owner, understanding payment processing fees is crucial to managing your finances and maximizing your profits. Payment processing fees are the fees charged by payment processors for processing credit and debit card transactions. In this article, we’ll take a closer look at payment processing fees and how they affect your business. We’ll also explore some of the popular POS companies in the market and what each specializes in.

Payment Processing Fees

Payment processing fees can be broken down into three main categories: interchange fees, assessment fees, and processor fees.

1. Interchange Fees: Interchange fees are the fees charged by the banks that issue credit and debit cards. These fees are set by the card networks (Visa, Mastercard, etc.) and are typically a percentage of the transaction amount plus a flat fee. Interchange fees vary depending on the type of card used (debit, credit, rewards, etc.) and the type of transaction (card-present, card-not-present, etc.). Interchange fees are typically the largest component of payment processing fees.
2. Assessment Fees: Assessment fees are the fees charged by the card networks (Visa, Mastercard, etc.) for the use of their networks. These fees are typically a percentage of the transaction amount plus a flat fee. Assessment fees are usually a smaller component of payment processing fees than interchange fees.
3. Processor Fees: Processor fees are the fees charged by the payment processor for processing credit and debit card transactions. These fees can include a per-transaction fee, a monthly fee, and other fees such as chargeback fees and statement fees. Processor fees vary depending on the payment processor you choose.

Popular POS Companies

1. Square: Square is a popular POS company that is ideal for small businesses. Square offers a range of payment processing services, including card payments, online payments, and invoicing. Square charges a flat rate of 2.6% + 10 cents per transaction for card payments. Square also offers a range of POS hardware, including card readers, terminals, and registers.
2. Shopify: Shopify is an e-commerce platform that also offers a POS system. Shopify’s POS system is ideal for businesses that sell both online and in-person. Shopify offers a range of payment processing services, including card payments, online payments, and invoicing. Shopify charges a monthly fee of $29 for its POS system, plus a transaction fee of 2.7%.
3. Toast: Toast is a POS company that is tailored to the restaurant industry. Toast offers a range of payment processing services, including card payments, online payments, and gift cards. Toast also offers a range of restaurant-specific features, including table management, menu management, and online ordering. Toast charges a monthly fee of $79 per terminal for its POS system.
4. Lightspeed: Lightspeed is a cloud-based POS system that is ideal for retail businesses. Lightspeed offers a range of payment processing services, including card payments, online payments, and invoicing. Lightspeed also offers a range of retail-specific features, including inventory management, customer management, and reporting. Lightspeed charges a monthly fee of $69 per terminal for its POS system.
5. Clover: Clover is a popular POS company that is ideal for small businesses. Clover offers a range of payment processing services, including card payments, online payments, and invoicing. Clover also offers a range of POS hardware, including card readers, terminals, and registers. Clover charges a monthly fee of $29.95 per terminal for its POS system.
6. Helcim is a Canadian-based payment processing company that offers a range of point of sale (POS) solutions for businesses of all sizes. Helcim POS systems are designed to be user-friendly and customizable to meet the specific needs of each business. The company offers both software and hardware solutions that can be used on a variety of devices, including smartphones, tablets, and computers.

How Payment Processing Fees Affect Your Business

Payment processing fees can have a significant impact on your business’s finances. The fees you pay for processing credit and debit card transactions can eat into your profits, especially if you’re a small business with tight profit margins. Here are some tips for managing payment processing fees:

1. Shop around for payment processors: Don’t just go with the first payment processor you come across. Shop around and compare fees and services from different payment processors to find the best fit for your business.
2. Negotiate fees: Some payment processors are willing to negotiate fees with small businesses. Don’t be afraid to ask for a lower rate or to negotiate other fees, such as chargeback fees.
3. Understand your fees: Make sure you understand the fees you’re being charged for processing credit and debit card transactions. Look at your monthly statements and identify any fees you don’t understand. If you’re unsure about a fee, contact your payment processor for clarification.
4. Pass on fees to customers: Some businesses choose to pass on payment processing fees to their customers by adding a surcharge to credit and debit card transactions. This is legal in some states but not in others, so make sure you understand the laws in your state before adding a surcharge.
5. Offer cash discounts: Another way to manage payment processing fees is to offer discounts to customers who pay with cash. This can incentivize customers to pay with cash and reduce your payment processing fees.

Conclusion

Understanding payment processing fees is crucial for small business owners. By understanding the different types of fees and how they affect your business, you can make informed decisions about payment processing services and manage your finances more effectively. Remember to shop around for payment processors, negotiate fees, and understand your fees to maximize your profits and minimize your expenses.