Understanding Minimum Processing Fees

Another Merchant Account Fee Explained

Understanding merchant account fees can get real confusing, real fast.  One fee that trips up lots of business owners accepting credit cards for the first time is the “monthly minimum” fee.

Let’s face it, how can you compare merchant accounts if you don’t really understand how the fees work?

To help clarify things, I put together a short audio and 3 examples that should help make sense of things for you.

[audio=http://www.ampyourcashflow.com/minimumprocessingfees.mp3]

Note:  You can download a copy of the audio transcript by following the LINK.

For all examples I’m going to simplify things by using only 1 process rate to demonstrate how the minimum processing fee works…

Example 1:  Let’s say you have a $25 monthly minimum processing fee.  If for a given month your processing fee was 1.72% (for retail) and your processed $1650 in transactions, your processing fee would be: $28.38.

Your monthly minimum would NOT come into effect, because your ACTUAL processing fee was MORE than the monthly minimum.

Example 2:  In this example let’s assume your monthly minimum fee is $20.  Your processing fee was 1.72% (to keep things simple) and you processed $975 for the month.  Your processing fee would be $16.77.

Because your ACTUAL processing fee is LESS than the monthly minimum, the merchant account provider would add another $3.23 to your account to bring your processing fee to $20.

Example 3:  For this example, let’s work with a monthly minimum of $15.   Again, using the same 1.72% processing rate, if your monthly sales volume for Visa and/or MasterCard was $725, your processing fee would be $12.47.

Your merchant account provider would add another $2.53 to your fees to bring your processing fee to the minimum of $15.

As you can see, this is more an issue for new businesses, or businesses just beginning to accept credit cards for the first time.  And that’s because any significant sales volume will make the fee irrelevant.

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