person holding tablet and credit card
Choosing the best credit card processor means researching the processing fees and knowing what happens in the event of a chargeback. — Getty Images/max-kegfire

In today’s digital world, many consumers prefer to pay for both large and small purchases by credit card. If you don’t accept credit card payments at your brick-and-mortar business, you’re missing out on a lot of potential sales— and, of course, for e-commerce retailers, card-based online payments are the only way to go. This makes a credit card processor or online payment platform a necessary investment for most modern businesses.

However, credit card processors can be pricey. There are many hidden fees and risks for chargebacks you should understand before choosing the right one for your business.

Credit card processing fees

Perhaps the biggest downfall of accepting credit card payments is having to cover credit card processing fees. Depending on the processor you choose, these can be hefty costs.

Here are some of the most common fees:

  • Setup fees are usually a one-time fee, typically ranging from $50 to $100, that some companies charge for setting up the credit card processing system.
  • Interchange fees are percentages of each transaction made, typically 2-3%.
  • Monthly statement fees are those used to cover the mailing of your statement.
  • Monthly minimum fees are those required if you did not meet your minimum monthly fee set by your processor. These fees are usually between $10 to $25 per month.
  • Early termination fees are those charged if you break contract, which typically range from $300 to $1,000.

[For more information on credit card processing check out our credit card processing guide.]

As a business owner, you’ll want to do your due diligence by researching these potential charges, since credit card processing companies may not always disclose these fees upfront. Ask sales reps and get quotes from a few different companies to see what the best fee structure is.

The more chargebacks you get, the higher the fee and risk of losing your account.

What are credit card chargebacks?

Chargebacks are another common—and costly—issue for businesses who accept card payments. These occur when a consumer requests a reimbursement for a purchase, or when a bank identifies a possible fraud, and initiates a forced refund from the merchant’s bank. This usually happens when a customer cannot receive a refund directly from the merchant.

How much is a chargeback fee?

When a chargeback happens, the merchant is hit with a chargeback fee, which typically ranges from $20 to $100. The more chargebacks you get, the higher the fee and risk of losing your account. If you’re experiencing many chargebacks, you might want to investigate the root cause.

Chargeback rules and time limits

Consumers generally have between 60 to 120 after their days after their purchase to file a chargeback, and merchants have about 45 days to respond or dispute it. The merchant’s bank will then review the matter and determine whether arbitration is needed.

If the chargeback is deemed valid, the merchant will then have to provide necessary documentation to prove its position and have the charge cleared. If the merchant fails to do so, however, it will be charged with the fee and the funds will be removed from its bank.

How to avoid chargeback fees

Sometimes, chargebacks are inevitable, especially in the case of fraud. However, you can lessen their occurrence by practicing the right prevention methods.

The best way to prevent chargeback fees is by adhering to policies and guidelines of each payment processing network. Typically, this involves obtaining verification (like a signature) from a customer; ensuring the credit card being used is not expired and is signed on the back; and adhering to PCI rules and current security standards, like EMV readers.

Additionally, ensure your customer receives the merchandise or service as expected. For instance, if you are an e-commerce business, this means shipping the products in a timely manner. That way, no consumer will have the motivation to force a refund.

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CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Published April 23, 2019