The True Cost of Merchant Account Fees

Or… “Are you still chasing checks?”

Say it ain’t so…

Roughly a month or so ago I attended a business networking “after hours” event at a local chamber of commerce.  As I made my way around the room, one dominant theme emerged from all the conversations in the room.  Roughly speaking, it was this…

Lately business owners and professional service providers are finding it next to impossible to get paid on time.  Here is a short list of their problems:

1. Sending out invoices multiple times before getting paid
2. 30 to 60 day waiting periods between service deliveries and getting paid
3. “Check’s in the mail” syndrome

The reason?

It doesn’t take a genius to link the current economic climate to folks wanting to hold on to their money as long as possible.  And when it comes to accepting checks for payment, you run smack dab in the middle of a cash flow crunch.

Merchant Account Fees vs. Checks

To break this out a bit, let’s us a concrete (if not “real life”) example.

My friend Vance Hancock is an attorney in Fairfield.  For the sake of argument let’s say he charges $250 an hour for his services.  Now, he does NOT accept credit cards, YET (and yes, I’m going to send this article to him, LOL).

Merchant account fees are dictated by two (and ONLY two) factors:

1. HOW a card is processed (i.e. “face to face” or not)
2. The TYPE of card processed (i.e. a corporate card, rewards card, visa check card, etc.)

If you process payments remotely, using a virtual terminal (ideal for professionals that do not necessarily meet their clients face to face during the payment process – if at all), your fees will run between 2.25% and 3%.

Now, faced with these fees, some people say to me…

I’m not paying that!  Why would I pay that when checks don’t cost me anything?

Okay.  I understand where you are coming from here.  But check this out.  Would you rather get paid when you want? Or would you rather wait (and hope) that a check is coming soon.

Let’s get back to Vance.  For our example, let’s see he spends roughly 2 to 3 hours per month re-invoicing clients, waiting on check, calling clients, etc.  Given his hypothetical hourly rate, this would come out to $500 to $750 per month spent chasing after checks.  And clients.

Would you pay 2 to 3% to speed up the payment process?

Merchant Account Fees Explained

One more quick example.  I’m not sure if you know that I run a web marketing business with my good friend Rob Bronson called Success Marketing, LLC.  And we ONLY accept credit cards for payment.

So I practice what I preach, if you will.

Why am I willing to pay someone else these fees, since Visa and MasterCard rules don’t allow me to open up my own merchant account?

It’s simple.

Because we want to get paid when we want to get paid.  Not to mention that a lot of clients are on “auto rebill,” meaning their credit cards are charged a certain amount each and every month.  All on autopilot.

Now, we had one client paying us by check early on.  And this is the normal timeline for getting money into our bank account:

Check:  Invoice emailed (and mailed) on the 1st.  Email sent 14 days later asking for payment, and told “it’s getting sent out right away.”  Checking the mailbox next 7 days.  No check.  Check finally arrives 25 days after invoice sent out.  Go to the bank 2 or 3 days later (we’re busy) and drive 2o minute away.  Cash check, and wait 3 business days until it gets “cleared.”

Credit Card:  Client is billed at 10 pm on the 1st.  Transaction clears before midnight.  24 to 48 hours later the money is in the account and is free to use.  Three to four days later the money is free and clear.

And we haven’t even talked about chasing “bad” checks.

Now, I’ll ask you one more time, what’s the real cost for accepting checks versus accepting credit cards?

Here’s what one of our new clients had to share with us:

“I have to tell you that I’m so happy we took the opportunity to try out the credit card machine. My business partner is thrilled that I decided to do it as our sales have gone up considerably.  The customer service is great and always readily available if needed.  Thanks…”  –Kim, New2You

If you think it’s time to start accepting credit cards, or you would like merchant account fees explained a bit more with regard to your particular situation, there are a few things you can do:

1. Download a copy of our merchant account guide
2. Request a free merchant account quote
3. Search for a merchant account provider near you by searching through our directory.

We welcome your comments, so please let us know what you think.  And if there’s a topic you’d like me to discuss, just let me know!