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Grow Your Business Finances

What Credit Card Processing Services Aren't Telling You

What Credit Card Processing Services Aren't Telling You Credit: Money question mark image via Shutterstock

With credit cards, the details are always in the fine print.

While most credit card service providers will openly boast about their cheap rates, low fees and mobile options, there are other things they aren't so forthcoming on.

The problem many small businesses run into is that the fees and rates they end up being charged in order to accept credit and debit cards from their customers are much higher than they thought they negotiated.

Phillip Parker, a credit card services provider expert with CardPaymentOptions.com, said there are a number of clauses in a credit card services contract that their provider might not be so quick to share with them. They include:

  • Withholding funds: Merchant services providers can withhold funding on a business's transactions and establish cash reserves — cash deposits used to cover potential losses due to fraud or customer chargebacks — without providing prior notice.
  • Withdrawing funds: When a business grants a provider access to electronically deposit funds from their credit card sales into their checking account, they are also giving them access to withdraw funds without prior notice. Withdrawals can include funds for cash reserves, fees owed and penalties.
  • Early termination: Most merchant account contracts lock merchants into a service agreement of one to five years. These contracts include early termination fees that usually range from $200 to $500 but, in some cases, obligate the merchant to pay any fees that would have been assessed throughout the remainder of the contract, which may add up to thousands of dollars.
  • Equipment: While they will encourage leasing options, the cost of buying equipment is often one-tenth the cost of leasing it. In addition, most equipment leases (countertop terminals, POS terminals, etc.), which are separate from the merchant account contract, include noncancelable lease terms of one to five years. In such cases, merchants must choose between paying a large lump sum to get out of the lease or continuing to pay the monthly fee until it expires.
  • No Interchange plus: Most providers will not offer merchants Interchange-plus rate pricing, a much less expensive transaction fee alternative. Merchants should ask for Interchange-plus when setting up a merchant account.
  • Has to be in writing: Many merchant account contracts state the provider will not honor anything an agent promises regarding pricing or contract provisions that are not actually in the contract, even if it's apparent that the agent intentionally mislead the business owner or omitted important details.

Parker said in order to protect themselves from being caught off guard by unknown fees, business owners need to find a credit card service provider they can trust.

"Research the provider of which you considering doing business," Parker told BusinessNewsDaily. "If the company has unfavorable contract provisions or business practices, other merchants will have filed public complaints."

In addition, Parker said there are some keywords that business owners should be looking out for in any credit card service contract they sign.

"Watch out for any provisions that state you must pay 'damages,' 'Liquidated Damages,' or any language that obligates you to pay a fee or another undefined amount for canceling service prior to the contract's expiration," he said. "You could be in for a nasty surprise if you need to cancel your service early."

Our sister site, Business.com, has a list of the best rated credit card processing services.

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.