The fine print on personal credit cards can drive a person crazy, and the language for accepting credit cards for your business isn't any different. While you don't need to be a contract lawyer to understand the terms and conditions from your credit card processor, you do have to thoroughly read the contract so you understand how it (and the processor) will affect your business and its bottom line.
From confusing credit card processing rates to lengthy service contracts and complicated compliance issues, 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 how to make the process simpler.
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 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 … as funny as it seems, they really do not know much about the industry."
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.
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2. Pricing models
Credit card processing pricing also often confuses business owners 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.
Businesses should determine the type of pricing credit card processors offer and whether they can afford those fees, given their cash flow and their customer base. Ebrahimi also advised business owners to get as much specific information as possible about the processor's rates to avoid surprises later on.
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, business owners risk the shock and hindrance imposed by hidden fees and service limitations. 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.
4. PCI compliance
Credit card processing security is no joke. Failure to protect customers' data won't just harm a business's reputation, it can cost the company significantly in terms of 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 don't verify whether their credit card processor is compliant or not.
Ebrahimi urged business owners to verify PCI compliance with the processor they are considering using. "Card data security is of utmost importance to your customers, so it's essential to understand this area," he said.
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 [that] I found [the] most confusing, and is usually a cause for lost profits, is dealing with expired or canceled 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 technological 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 creates several 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."
Additional reporting by Sara Angeles. Some source interviews were conducted for a previous version of this article.