Accepting credit cards doesn't have to be rocket science, but it often feels like it. From confusing credit card processing rates to lengthy service contracts and complicated compliance issues, it's no surprise that accepting plastic as a payment method leaves some small business owners' heads spinning. To help you make sense of it all, here are six of the most confusing things about accepting credit cards, and what you can do to simplify things.
1. Credit card processing quotes
The most confusing part about accepting credit cards is pricing, said Deborah Winick, an independent agent at credit card processing company BankCard Services. This is because most businesses don't really know what a competitive price quote actually is and thus rely on the integrity of sales reps, she said.
"Most business owners are very busy, so they do what seems like the best choice [and] reach out to their bank, expecting quality service," Winick said. However, this isn't always what businesses get. "The banks, for the most part, outsource merchant services, and as funny as it seems, they really do not know much about the industry." [Accepting Credit Cards: A Small Business Guide]
Instead, Winick advises businesses to find sales reps with at least two years of experience, get two to three quotes from vendors, and ask for full disclosures of all rates and fees in writing.
2. Pricing models
Credit card processing pricing also often confuses businesses because of the many different pricing models.
"There are several different pricing methods, but the two most popular are tiered pricing and interchange-plus," said Amad Ebrahimi, founder of merchant accounts comparison site Merchant Maverick.
In tiered pricing, merchants qualify for different vendor-determined rates, while interchange-plus uses rates set by the credit card brand, such as Visa and MasterCard.
"Interchange-plus is a much more transparent model of pricing, but it also leads to more confusion if the business owner does not understand what the pricing entails," Ebrahimi explained.
To clear up any confusion, businesses should determine which type of pricing credit card processors offer and which type applies to the business. They should also ask specifically what their rates are to avoid any surprises down the road, Ebrahimi said.
3. Contract terms
No one likes to read lengthy contracts, but it's a necessary evil of doing business. It's also one of the most important and confusing aspects of signing up with a credit card processor. Failure to completely understand your service contract could lead to some unpleasant surprises.
"These contracts can be very long, so unless the business owner takes the time to read through every line, they may be caught by surprise," Ebrahimi said.
That happens, in part, because a business can't always trust what sales representatives say.
"There is really no regulation to be an agent for a merchant service provider, so there are agents out there telling a small business owner what they want to hear rather than speaking with knowledge and integrity," said Cindy Bender, a senior account specialist at Total Merchant Services.
By not reading through contracts themselves, businesses risk the shock of hidden fees and service limitations.
"Sad to say, many small owners have no clue what they should be looking for, so they get caught in heavy cancellation and 'gotcha' fees that give our industry a very bad name," Bender said.
In particular, businesses should ask how long a contract lasts and whether they are leasing the equipment, Ebrahimi said. Watch out for fees, including early termination, annual, setup, monthly, monthly minimum and Payment Card Industry (PCI) compliance fees, he added.
[For a side-by-side comparison of the best credit card processing services, visit our sister site Top Ten Reviews.]
4. PCI compliance
Credit card processing security is no joke. Failure to protect customers' data won't just harm a business' reputation, but can also cost the company significantly in government and banking fines, lawsuits, and more. One area of confusion for business owners is PCI compliance, which consists of a set of credit card processing security standards.
The problem is that business owners either trust or don't know enough about security, so they may not know their vendors aren't compliant.
"Many business owners aren't even aware of their requirements, so they may be processing cards in violation of PCI compliance rules," Ebrahimi said. "Card data security is of utmost importance to your customers, so it's essential to understand this area as well."
As with pricing and fees, the best way to prevent any confusion is to ask questions. Ebrahimi advised business owners to find out from vendors if their terminal and software are in fact PCI compliant.
Subscriptions and recurring charges provide a great way for businesses to automate repeat business, but one major drawback is when payments get declined.
"One thing I found most confusing, and is usually a cause for lost profits, is dealing with expired or cancelled credit cards for recurring charges," said Mike Salem, co-founder and CEO of Vorex, a professional services automation (PSA) provider. "Many small businesses do not have a mechanism or the technology capacity to automatically stop a service until the customer updates his or her credit card information."
Declined payments, then, essentially become free services, Salem added. "Many small businesses must manually monitor credit card activities on a daily basis, and might not notice a non-payment before several days have passed after a charge has been declined — which means giving out a service for free. Trying to retroactively recoup the charges for unpaid days can be frustrating."
6. E-commerce compatibility
Technology lets merchants conduct business anytime and anywhere; both a blessing and a curse, this ability causes all types of confusion for processing credit cards. This is because not all credit card processors are compatible with different merchant services.
"Some business owners need to know that their merchant account will work seamlessly across all sales channels like retail, e-commerce and mobile," Ebrahimi said. "It can get confusing trying to make sure all channels can play well with each other."
This is particularly the case with accepting credit card payments at self-hosted online stores.
"Up until recently, accepting credit cards for online payments has been a surprisingly complicated and painful process," said Yarin Kessler, founder of online PDF conversion service PDF Buddy. "It required setting up a merchant account with a bank, signing up with a payment gateway and then using any number of payment software solutions to integrate with your app. This meant multiple applications, fees and accounts just to get set up."
As a result, some credit card processing companies have made the process easier for merchants. For example, Web payments company Stripe takes care of payments end-to-end, eliminating the need for separate merchant accounts and payment gateways, Kessler said.
"Since then, other companies like Braintree and PayPal have followed Stripe's lead by simplifying their own processes for accepting credit card payments on the Web," he said. "Consequently, it is now vastly easier to accept credit cards for an online business than it was a few short years ago."
Originally published on Business News Daily.