A Business Owner’s Guide to Minimizing Processing Costs
As a business owner, chances are you’ve become a jack of all trades and a multi-tasking ninja.
One of your many crucial tasks is keeping track of and working to creatively minimize your costs. Interestingly, one of the most consistent costs that most businesses face, can easily fly under the radar.
See the thing is– if your business accepts card transactions, you’re paying processing fees with every. single. transaction. It’s so easy to assume processing fees are nothing but a few, harmless cents but you might be surprised to see how fast these fees add up. Before you know it, processing fees can become a nearly invisible expense that businesses might not be fully aware of.
Well, today, you’re in luck! We’re going to cover a few, easy options, that don't include getting lower processing rates, but can make those costs almost non-existent. And, ready for some good news? An awesome payment processor or payment gateway provider, like Cardnetix, not only will help you to navigate these options but do a majority of the work for you.
Today we’re going to cover two different strategies to reduce your business’s processing expenses– methods of lowering your costs and ways to create compensation for fees.
Before we jump in, I think it’s important to point out that the power to determine processing fees largely lies in your hands, the business owner, or merchant, as we would call it in the processing industry. You have the choice and discretion to work with your payment processor to implement these strategies as a way to navigate the landscape of processing costs.
Let’s take a look at these 2 expense-rescuing options, shall we?
Lowering Your Costs
One of the keys to reducing your business's processing expenses is staying informed and ahead in the tech game. Thankfully, with a trusted and experienced payment processing agent, they will supply you with everything you need to know to stay up-to-date and ensure you secure the best rates from card networks like Visa and Mastercard. This isn't just a cost-cutting measure; it's your secret weapon to optimize efficiency. If you’re utilizing a payment gateway, also known as a virtual terminal, you will have access to features like recurring billing and tokenization. These features not only add effortless and instant automation to your business but offer you the option to eliminate the need for employees to do these tedious tasks, saving you both time and money while granting your customers a consistently efficient experience. And remember – cost savings go beyond lowering your processing rates. With your payment processor, together you can uncover ways, using the features available to you, to save on employee hours, unnecessary software, and even extra mental effort.
2. Compensation for Fees
First things first– it’s standard that across the board, all card transactions come with a variety of processing fees that are largely unavoidable. However, did you know that as the business owner, you have the ability to either take these expenses on with each transaction or implement various methods of including these fees in your customer’s total? Now, this is a tricky topic to articulate because it can seem off-putting to add these processing fees to your customer’s costs but allow me to explain the nuances of these options and how they can work fairly for both you and your customer. And remember– these are all optional and customizable to fit your needs best.
Ok, let’s do this!
Let me introduce you to the four most common compensation strategies available to businesses— cash discount, dual pricing, surcharge and convenience fee. These methods help to take the edge off of your payment processing expenses and we’ll go over each one in detail so you visualize their practical use. By learning about each of these options and working with a trusted payment processor, you can responsibly and tactfully add them to your business structure to reduce your processing costs.
Cash Discount
Let's start by taking a look at cash discounts. The name “cash discount” is actually a creative way of saying that payments made with cash avoid an added fee that would be applied to any card payment (debit or credit), offering a sort of “discount” and incentive to customers paying with cash or check, but technically not really a true discount at all. When a customer pays with a debit or credit card, they will pay a small percentage based fee. What makes this different from the other methods is that cash discount is much less regulated than options like surcharge, meaning that it is not required but *highly* recommended to clearly state the added fee to customers before they pay. In essence, the cash discount becomes a unique way to encourage cash transactions preventing processing fees altogether.
Dual Pricing
Ok, let's dive into the world of dual pricing. This strategy involves presenting two distinct prices for a single item – one for cash transactions and another for card payments. It's a creative way to incentivize customers to opt for cash while also maintaining transparency about the different price points. While the concept sounds similar to cash discount, dual pricing is actually the modernized version that explicitly states the two different prices, giving customers the freedom to choose based on their preferred payment method. It's a flexible approach that allows businesses to accommodate various customer preferences while making an effort to help offset inevitable processing fees. Dual Pricing It is a great way to show that you, as a business and neighbor, are working to keep pricing low amidst the rising costs in a demanding market. Although it may sound complex, your payment processing agent will do the mental tax for you. All you have to do is sit back, relax and enjoy the expense saving benefits.
Surcharge
One effective strategy to minimize costs is the implementation of surcharge fees. Businesses can use surcharges to offset increased and/or fluctuating expenses. With surcharge, businesses can impose a small added fee, a percentage, when a customer pays with a credit card that will essentially cover the processing cost of their purchase. However, it's important to note that credit card surcharges are not legal in all states, and strict rules govern their application. Surcharge fees must be displayed at the store entrance and cash register desk so that customers are well informed and consent to the added fee. No matter the compensation method you are using, it’s always a good idea to display them to your customers so that they aren’t surprised at the time of payment. Surcharge is technically the only option where posting the fee is required and it's truly enforced. By letting your customers know upfront that there will be a processing fee when paying with a credit card, you allow them the option to choose how they would like to pay – credit or debit. Transparency, in your business, helps to foster a trustworthy environment and relationship with your customers encouraging them to continue to shop with you.
In case you are weary of compensating for card fees, surcharging is a great place to start. With Surcharging, customers that prefer to pay with a card do not need to have cash on hand to avoid the fee, they can avoid the added fee by simply paying with their debit card.
Convenience Fee
Have you ever noticed a “service fee” or some variation of that added to your bill? That was a Convenience Fee in action. As a reminder, conveniences are not tied exclusively to cards and are supposed to be charged on all transactions be it card, cash, or check. This is what makes it a “Convenience Fee”.
The convenience fee is a helpful tool that is charged to buyers who choose the convenience of credit or debit cards over traditional methods like cash or checks. Convenience fees are generally reserved for special circumstances where the buyer truly is opting for an “alternative” to the standard form of payment. Businesses have the freedom to set their own fee, a fixed amount, providing a transparent way to recover processing costs. It's a win-win situation where businesses can adapt the fee structure to their unique needs while maintaining a transparent and customer-friendly approach.
Conclusion
When it comes to choosing a method that helps cut down processing costs, the choice is yours. By deploying any of the strategies we covered today and partnering with a top-tier payment processor like Cardnetix, you can confidently choose the method that works best for you and your customers and neutralize these covert processing fees.
Stay tuned for the next steps in your journey toward maximizing profits and slashing those elusive processing costs. With the right tools and strategies at your fingertips, your business is prepared to reach new heights of financial efficiency.
