Mid-Year Credit Card Check-up

The start of a year is a time to plan, but a mid-year checkup is the time to ensure you have credit card expenses in check. Identifying your Net Effective Rate and comparing that to prior periods, or simply bidding out your credit card processing, can help ensure you finish your year on-plan.

Identifying your Net Effective Rate Identifying your Net Effective Rate is one of the easiest concepts, but is seldom used by businesses when analyzing credit card processing costs. The Net Effective Rate is simple:    total fees paid    ÷    total sales volume processed. For example, if you had $300,000.00 in credit card sales this year and the total fees charged for processing that amount was $7,500.00; your Net Effective Rate is 2.50%.

Now that, you’ve identified your Net Effective Rate, what is the next step? That depends on what information you have available to you. All you need is the total credit card sales for the past year or so and the total fees paid for each of those months. If you don’t have the information handy, you can contact your accountant or credit card processor. If you have the information available, compare that to the same time frame as last year. You can also compare that to the entire year last year.

Because Visa, MasterCard, and Discover can make changes to their rates as often as twice per year or more, the Net Effective Rate can fluctuate from period to period. If your Net Effective Rate has increased by a significant amount (0.15% or more), we would recommend having an independent analysis completed. If it is less dramatic, it still may be worth the review, just to make sure everything is OK.

Bidding out your Credit Card Processing

We recommend working with a local provider that is industry certified. In most cases, it is best to take your three most recent credit card processing statements and have a local merchant provider perform an analysis.

Your bidding process should search for the following:

1. Short or no-term contracts
2. No early termination or other fees assessed at the end of the contract
3. Interchange & Assessment Pass-through based pricing
4. Expedited funding (next-day deposits, if possible)
5. No equipment leasing
6. Ability to work with the processing equipment or software you already have

Local card processing companies tend to appreciate your business a little more than large national firms. They also have a local reputation to worry about, where large national firms suffer fewer consequences if they’re caught taking advantage of a small business.

With everything you need to get done on a daily basis, you could be tempted to skip a mid-year credit card processing review. But it’s worth the time and can help you save money.