When setting up a payments system for your business, it is important to do your research. Not only is it critical for you to get paid for your products and services, you also need to know how each potential option affects your bottom line. Interchange plus pricing and tiered or flat rate pricing both have their benefits, but it is also smart to understand how each works so you can make the best decision for your operation.
Interchange plus pricing is traditionally reserved for large companies and has the lowest possible costs for accepting cards as a form of payment. Fees applied to transactions are upfront, with rates determined on a per-card basis. Tiered pricing is the most common form of pricing for credit card processing services. This is also known as “bucket pricing,” and prices are usually high enough to cover fees.
We frequently review contracts for our clients. It allows them to get another set of experienced eyes on an important document without the expense of an attorney. We read the document finding clauses and language that may be gotchas, referring them to an attorney for further review if needed.
We’ve noticed a trend recently. Contracts are becoming onerous, in some cases, predatory. We see this trend in everything from leases to service contracts to partnering agreements. Many contracts are becoming one sided in favor of the party writing them. We’ve seen an increase in otherwise smart business people being stung by outrageous contract provisions. They sign these agreements because they are assured they are the same as contracts they’ve signed before. The behavior we’ve seen falls into a few basic areas.
Fee death: This is where you are nickel and dimed for every possible charge that the contract maker can imagine. A client’s recent partnership agreement had an 80 – 20% net profit split in the client’s favor. However, hiding in the paperwork was a 40% overhead fee, tens of thousands of dollars in marketing costs and a bunch of small, mostly unnecessary, charges. The true net profit to our client was 19%. The deal was exactly the opposite of what the client expected.