Unfortunately, costs for accepting credit cards are increasing as well. Law firms understand there is a cost for accepting credit cards, but few really understand exactly what they are paying and why. Therefore, firms can underestimate the true impact that accepting credit cards has on their business’s profitability.
The good news is that a basic understanding of the credit card processing business — how it works, the types of fees and who is making money on your credit card sales — can go a long way in curbing the effect on your bottom line. In fact, informed law firms can reduce fees by up to 40 percent.
CREDIT CARD FEES 101
One reason many firms overpay is that accurate information regarding the procedures — account setup options and real operating costs — is not readily available. A few of the common pitfalls law firms must navigate include confusing and costly rates, incorrect account setups, unnecessary elective fees, overpriced equipment, and punitive contracts that lock businesses into long-term agreements.
Many law firms never receive the processing rate they believe they negotiated. Rather than having the true cost structures dictated by the card associations (called interchange), many businesses have seemingly low “tiered” or “qualified” rate plans. However, only select credit card transactions will meet the requirements for these low sales rates. Transactions that do not meet these requirements will be classified as “nonqualified” and excessively penalized. The result is processing costs go up, possibly exceeding what a business expected to pay by 40 percent or more.
Even when a law firm is fortunate enough to have true interchange rates with their merchant program, typically the merchant account is not optimized, and they still end up paying 25 to 40 percent more than they should.
Elective fees — annual fees, PCI surcharges, excessive authorization fees, lease and rental fees, reporting fees, etc. — further increase costs for the business. For those who lease their equipment, it is not unusual to end up paying as much as five to ten times more than the equipment is worth.
Simply rebidding credit card acceptance services usually does not result in the savings most firms are seeking. Merchant sales groups are too good at this shell game of hiding fees, and often a law firm will end up in an even more punitive program.
Knowledge is power, especially in the credit card acceptance world.
The best defense for a law firm is evaluating the merchant account at least annually to identify ways to reduce costs and risks. Here are seven tips that should help you protect your bottom line:
Adopt an Interchange Pass Through versus a bundled-rate (e.g. “qualified”) program. Interchange Pass Through programs separate interchange fees from other fees, like processing and sales channel fees. With a cost-plus-pricing approach, the fees are more clearly delineated, making it easier to see and monitor what you are being charged.
Make sure the merchant account is optimized for the firm. Even an Interchange Pass Through program may not maximize the efficiency of the merchant account. Be sure the account is set up correctly for your type of business, with tools tailored to your industry. Correct account setup that is optimized for your firm can be the single greatest area of cost savings.
Understand all fees. Many fees are elective and can often be reduced or eliminated completely. If it is not an interchange fee or industry-dictated fee, it should be questioned.
Remove punitive contract termination penalties. Review merchant account contracts and understand the terms for terminating the account. Work with vendors who do not penalize your firm for canceling a merchant account.
Do not lease equipment. Leasing credit card and check processing equipment is expensive. In many cases, businesses pay five times more for equipment when they lease. Seek to purchase outright.
When selecting a credit card processing solution, or when evaluating your law firm’s current solution, remember that knowledge is power. With an optimized solution, your firm can obtain all the benefits of accepting credit cards while avoiding the excessive costs and penalties.
If you are uncertain whether your firm has the most optimized solution, seek assistance from a knowledgeable advocate. Risk and the potential for higher fees varies broadly from industry to industry, particularly for those outside of the retail and restaurant spaces.