Lower Your Card Processing Fees

This story appears in the October 2006 issue of Entrepreneur. Subscribe »

Ever feel that credit card processing fees are taking an exceptionally large bite out of your profits? You may be right, says Bob Carr, CEO of Heartland Payment Systems, a card processing company based in Princeton, New Jersey. "Transaction costs have increased to the point where some merchants are paying as much as 3 percent of the total sale," says Carr, who recommends five steps to manage processing and reduce the costs of credit card processing.

1.Understand your bill. Know what services you are getting and how much you are paying for each one. "Most [business owners] don't know this is something you can negotiate once you understand the billing," says Carr.

2.Scout out surcharges. At a minimum, processing fees involve the credit card company, the bank that issued the card and the processing company. "There can be up to 10 middlemen between the merchant and their money," says Carr. "Ask your processing company, 'Who am I paying, and what are they doing for me?'"

3.Know your numbers. Fees differ by card type, so learn which ones your customers use most often, and negotiate processing accordingly. "Merchants [can] get quoted a lowball rate on one category, such as debit cards, and pay a much higher rate on others," Carr explains.

4.Buy, don't rent. Processing equipment suitable for small businesses can be purchased outright for $300, yet many merchants fall prey to leases priced at $40 to $50 per month or more.

5.Shop around. Says Carr, "The best way to buy is the way the big guys buy: talking to multiple companies and negotiating the lowest possible price."

Jennifer Pelletis a freelance writer specializing in business and finance.