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Credit Card Processing Statement Mysteries Solved: How to Read Your Credit Card Merchant Statement

Updated on July 2, 2012
Don't be frustrated by your credit card processing merchant statement.
Don't be frustrated by your credit card processing merchant statement.

Credit card processing fees and statements are all too often a jumbled mess of engineered confusion. Considering that 70-100% of your business’ bottom line is effected by your credit card processing rates isn’t it about time you understood what you are being billed for to accept credit cards and where you can cut costs to increase profits?

That is exactly what we will do in this article.

At the end of every month business owners sit down to take on the dreaded task of documenting every penny spent and looking for ways to make their business more efficient and more profitable. For many, this will require a stiff drink….

Have you ever picked up your credit card processing bill, looked at the jumble mess of indecipherable lines, got a headache or just mad, and logged the bottom line as a cost of doing business? Most merchants have. Every merchant services provider has their own twist on how to present their charges and as the saying goes there are a lot of ways to skin a cat. Lets make this month different!

When you look at your merchant services statement you should have 3 major goals:

1. What is your Effective Rate of Credit Card Processing
2. Find and understand the base cost known as Interchange and assessments.
3. Separate credit card processing monthly or annual fees

By taking these easy steps you will not only have a better understanding of your credit card processing rates but you will be able to leverage that knowledge to save your business hundreds if not thousands of dollars.

1. What is the Effective Rate of Credit Card Processing for your business?

Effective rate is one of the simplest yet most overlooked ways to look at the true cost enabling your business to accept credit cards. Effective rate can be defined as your gross, or overall, cost to accept credit cards as a percentage of your credit card sales. It is very easy to calculate and should always be the first step you take when reconciling your bills at the end of every month because this percentage is a “hard” cost that needs to be worked into your business‘ margins.

How to calculate effective rate to accept credit cards.
How to calculate effective rate to accept credit cards.

To Calculate the Effective Rate of Accepting Credit Cards:

Simply take the total amount of your processing charges and divide it by your total sales and multiply by 100. For instance if your statement gave you the following numbers:

Total processing fees of $200
Total credit card sales of $8000
Your effective rate would be 2.5%

This rate will vary depending on your business’ average sale amount but for most business should be relatively consistent on a month to month basis. The only way it will be thrown off is if you suddenly went from making many small transactions to doing fewer but larger transactions OR if your statement contains monthly or quarterly fees. One thing can be almost certain and that is that if your Effective Rate is more than 3% you need to have a reputable merchant services provider analyze your statement and have your current processor provide details so you can compare the results. Once you have your effective rate it is time to break the charges out into categories so that you can see what fees are fixed (or non negotiable) and which ones you could negotiate to save money.

2. Understand the Cost or Interchange of your credit card processing.

Interchange is a difficult concept for many business owners and understandably so. Instead of getting hung up on the intricacy of the hundreds of credit card rate categories and how they are determined, it is sufficient to define Interchange as the Non-negotiable portion of your credit card processing rates. Interchange Cost is determined by the major card brands and the card issuing banks and will make up a majority of the cost to accept credit cards.

How you will discover Interchange Cost will depend on how you are being billed for your merchant services. There are many ways in which you could be billed but below we will cover the 3 most utilized.

Tiered Pricing or Bundled Pricing is by far the most utilized billing method. There are 2 ways to determine if your business is being billed on a Tiered or “bundled” pricing structure. If you see the words Qualified, Mid Qualified, or Non Qualified (or any abbreviations of such like “qual” or “MQual” etc…) like this:

Do you understand your merchant services credit card processing statement?
Do you understand your merchant services credit card processing statement?

Then you are on a tiered pricing structure. The upside to tiered pricing is that on the surface it is an easy structure for business owners to understand. The downside is that since there is no regulation on what credit card is considered a “qualified” or “non-qualified” card type, merchant services providers often use this type of billing to hide rates and fees. Because there is no way to determine which card types are placed into each category it is very difficult, if not impossible, to determine what portion of this rate is interchange cost. The best thing to do as a business owner who wants to truly understand what they are paying for in this case is to call your processor and ask them to quote your account on an Interchange Plus basis. This will give you an exact picture of your credit card processor’s mark up. If they refuse to quote Interchange Plus pricing to you then it is probably time to get a new merchant services provider.

Interchange Plus Pricing

If you are on Interchange Plus pricing your bill may appear more confusing but it is actually the only transparent way to understand the cost of your credit card processing. To identify an Interchange Plus processing statement look for itemized interchange charges for the various card types such as this:

Are you on Interchange Plus Pricing for your merchant services?
Are you on Interchange Plus Pricing for your merchant services?

or for a low discount or processing rate section like this:

How to understand your credit card processing merchant services bill.
How to understand your credit card processing merchant services bill.

With Interchange Plus pricing you can simply take the total Interchange and assessment charges and set them to the side because this is the base cost of processing that is not negotiable. It will include all charges for the card brand assessments (or access fees), Interchange Rate, and Interchange per item charges. All the remaining fees and rates are what your credit card processor is charging for the their services.

The Dreaded Bill Back Method

Some merchant services providers utilize what is called the Bill Back method to charge for their merchant services credit card processing. This method makes it next to impossible to determine your true rates and fees and rather than trying to explain it lets just say that you are most likely not getting a good deal on your processing. In short the credit card processor will charge a flat rate like 1.8% for all transactions but to cover the cost of interchange and profit they assess the charges for one month in the following month clumping them into a number of transactions or total volume. Most processors utilizing the bill back method will code the previous month’s bill back charges with a BB. It is not uncommon for merchants with credit cards processing accounts that are billed back to have an effective rate north of 4%. If you are not sure how you are being billed or if you are on the bill back method the Merchant Doctor would be happy to dissect your bill for you so that you can understand what you are being charged to accept credit cards.

One way to identify if you are on the Bill Back Method is if you see one consistent low rate across all your transactions like this:

Credit card processing rates defined.  Tiered Rates.
Credit card processing rates defined. Tiered Rates. | Source

If you see this on your statement then look further down the statement and look for fees that have a "BB" in the coding for the charge. This means that you are on Bill Back pricing and need to ask for your processor to change your billing method to Interchange Plus or change credit card processors.

Credit card processing fees
Credit card processing fees

3. Separate out the Credit Card Processing Fees

Now that you know what type of credit card processing rate you are being charged it is time to separate out the monthly and annual fees that you may be charged. These can include but are not limited to the following application, per authorization, per transaction, set-up, statement, service, annual, minimum, and club fees. These fees are mostly profit and can be negotiated or eliminated.

To make it simple, with a traditional merchant services account, you should never have to pay for an application, set up, or annual fee.

Statement fees are a reasonable charge that are passed onto business owners. These fees should not exceed $10/month.

Service fees may or may not include 3rd party services and statement charges so have any service fees clarified and reduced or eliminated if possible. This is a fee category that is often used for pure profit and may not represent a service.

Per Authorization and Per Transaction fees are NOT the same. Most retail businesses should not be set up on a per authorization basis this can cost you money since you are being charged for every time a card is swiped versus being billed a per transaction fee. A per transaction fee is only applicable to transactions that are actually completed. Some businesses like certain bars will most likely be set up on a per authorization basis because they authorize a lot of transactions on a nightly basis. This time on the network’s servers does cost money.

Many merchant service providers offer some type of “merchant club” that offers discounts on or free supplies, warranties, and discounted services such as phone service and office delivery services. These clubs are not a benefit to ALL businesses so look at the services offered and see if the club is an asset to your business if it is then see if you can maintain your membership for a smaller monthly fee and if you are not going to use the services offered then simply ask to cancel your subscription.

Monthly Minimum fees. Most commonly there is a $25/month minimum placed on merchant accounts. Ask your service provider where your approximate break even point is (or the amount of Visa/MasterCard transactions that you need to process) in order to not have to pay towards the fee. Also ask if you have received any free benefits from having the monthly minimum (like a FREE Terminal). If you have not received any benefit and your business is not meeting the minimum amount ask for the fee to be removed or at least when your account is eligible to have the fee removed.

Don't be puzzled by your merchant services credit card processing statement.
Don't be puzzled by your merchant services credit card processing statement.

With this information you no longer have to be intimidated by your Merchant Services Credit Card Processing statement.

If you found this article helpful then please share it on your social media site and you will love our other posts that demystify and empower you to make sure that you are getting a good deal on your credit card processing. Better yet if you are not happy with the amount you are paying for your credit card processing then simply visit our Get A Quote page so that the Merchant Doctor can show you what we can do for your business with our Low Rate Guarantee. Join us on FaceBook, Google+, Twitter, or LinkedIn

Credit Card Processing Statement Part 1

Credit Card Processing Statement Part 2


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