Whether you’ve just started shopping for a merchant account or you’ve had one for years, don’t let a credit card processing company take money right out of your pocket!
There are seven terms to avoid if you want to ensure that you’re not being overcharged for credit card processing. Go ahead and open up those statements and agreements from other companies and start searching for any of these words…
- Qual
This is short for “qualified rate” which indicates immediately that a merchant account provider is giving you three-tier pricing (the worst option for small businesses). A qualified rate is the percentage rate that you (as a business) will be charged whenever you accept a consumer credit card and process it in a manner defined as “standard” by a merchant account provider. This is the lowest rate you’ll be charged within a three-tier pricing structure, and it’s usually the rate that will be quoted to you upfront. (By the way, corporate credit cards and rewards cards are never processed at a qualified rate so they’ll cost you even more to accept.)
. - Mid-qual
Also known as a “mid-qualified” rate, this is the percentage rate you will be charged whenever you accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:– A credit card is keyed into a credit card terminal instead of being swiped.
– A special kind of credit card is used, such as a rewards card or corporate card.A mid-qualified rate can be from 1.50%-2.50% higher than a qualified rate, and the use of “rewards cards” can be as high as 40% of transactions. Be aware that this is going to impact your bottom line significantly!
- Non-qual
The “non-qualified” rate is the highest percentage rate you will be charged. In most cases, all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:– A credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed.
– A special kind of credit card is used like a business card and all required fields are not entered.
– A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization.A non-qualified rate can be from 2.00%-2.50% higher than a qualified rate, and the merchant account provider is taking money right out of your pockets as a business owner.
- Surcharge
Although “qual, mid-qual, and non-qual” may not show up on your monthly statement, oftentimes a merchant account provider will lump the extra fees from mid-qual and non-qual transactions into one bucket that shows up as a “surcharge.” These are extra charges for transactions that didn’t meet the requirements as a “qualified” transaction.
. - Discount Rate
By reading the term “discount”, you may feel like you’re getting a bargain, but you’re not. “Discount” does not refer to the common meaning of the word, but it deals with computations of present value (e.g. net present value or discounted cash flow). It simply comprises all of dues, fees, assessments, network charges, and mark-ups that you are required to pay for accepting credit and debit cards, the largest of which by far is the Interchange Fee (charged by Visa and Mastercard). Don’t think you’re getting a discount!
. - One Rate or Flat Rate
Merchant account companies will quote “one flat rate”, and they hope you don’t read the fine print. The low rate that’s shown is just for “qualified” transactions under a tiered pricing structure, which would only include non-rewards, non-business credit cards (standard Visa/MasterCard) that are swiped on the spot. This will be a very small percentage of your transactions.
. - Three Rates or Three Tier Pricing
As mentioned above, three-tier pricing (often disguised as “one flat rate”) is the worst option for small businesses due to the fact that very few transactions receive the “qualified” rate which is the low rate that’s often advertised.
Don’t let all these special terms confuse you. Take the time to understand each one, and look closely at the contract/agreement that’s being offered to you. Do your homework, and ask every question that comes to mind. Don’t be embarrassed. This is your business, and you have the right to know what you’re being charged for.