Credit, but only where it's due

By any measure, credit and debit card usage is increasing. At the end of 2004, there were 1.7 billion general purpose and proprietary credit, debit and pre-paid cards in circulation, according to Nilson Research, a credit card industry analyst. That year alone, the cards accounted for $2.3 trillion in consumer purchases.

In addition, the cost of card acceptance continues to increase for owners of carwashes and detail shops. These costs — which can range from 2 percent for a basic credit card transaction, to 5 percent or more for so-called “Signature Cards” — are in some cases the third-highest expense for business owners.

At the same time, the factors driving credit and debit card processing costs are often not well-understood or well-explained: Statements are confusing, costs are obscured, charges are difficult to reconcile and middlemen are plentiful.

What is an owner to do? More consumers using cards, combined with higher costs to process cards, results in lower profit for owners of carwashes and detail shops.

Here are a few tips and tricks to get your card processing costs under control.

• Take the time to understand your account statement.

  As noted above, card processing statements can be very confusing. Ask questions. Make sure your card processing company takes the time to explain your statement and walk you through the accounting behind their service charges.

  If the sales rep won’t invest the time in your relationship to do this, you are probably getting a bad deal.

• Be aware of hidden fees, surcharges, and middlemen. There can be several different middlemen between you and your money, and as many ways a card processing company can surcharge their customers.

  Ask lots of questions and make sure the answers make sense to you. If they don’t, move on to a different processor.

  n Be cautious about accepting the “lowest rate.” The base interchange rate that most merchant processing companies will quote is for processing a plain-vanilla Visa or MasterCard transaction. But most card growth is in affinity cards, rewards cards and signature cards — for which the interchange is significantly higher. Be sure to know what kind of cards you see in your business, and make sure your rate is just as competitive for those cards which represent growing components of your processing costs.

• Don’t get fooled on expensive equipment leases or add-ons. Be very careful when your card processing company offers you a leasing deal.

  The typical card processing terminal costs $400, yet merchants are known to get locked into four-year, $50 per month, non-cancellable leases! That’s a total of $2,400 for a $400 machine.

  Be even more careful when considering add-on services. Should you want to issue free gift cards and agree to add $30 per month to an already high-cost credit card terminal lease, what you're really doing is agreeing to pay $1,440 for gift cards (48 months X $30 per month).

• Remember, card processing services are mission critical. If you are like most carwashes or detail shops, your card processor probably handles the majority of your revenues. Don't be fooled into buying those services like they were soap, shampoos or cleansers. Do your homework and proceed cautiously before entering into a long-term relationship.

  Make sure your representative will be there for you when things go “bump” in the night, and especially should your card processing system crash in the middle of a busy weekend. Know who will be there to fix it for you.

• Upgrade your point-of-sale software.

  Visa and MasterCard are serious about protecting card transactions from fraud. Merchants who do not comply with their security regulations face significant fines – as high as $40,000 per month.

  Check with the vendor of your point-of-sale software to ensure the software version you are running is in compliance with the credit card industry’s current security standards.

• Know your rights! Owners of carwashes and detail shops have the same rights as large retailers when it comes to card processing. The Merchant Bill of Rights, proposed by credit card industry players including merchant acquirers, retail trade organizations and manufacturers of card-processing equipment, have proposed ten fundamental rights for all small business owners.

  These rights ensure fair treatment, competitive costs, solid credit card security, reasonable equipment costs and top-notch customer service for small and mid-sized merchants.

By taking these simple steps, and doing your homework when shopping for card processing services, you will save significant dollars – and lots of aggravation – later on.