A woman stands behind the counter at a bakery and holds out a handheld credit card scanner so the customer across the counter can scan his card. The woman has dark blonde hair pulled into a bun and she wears a navy blue apron over a white T-shirt. She is smiling broadly at the customer, who is out of focus in the foreground and partially offscreen. The checkout counter is covered with loaves of bread. Bread also fills angled shelves on the wall behind the counter.
Following card processing best practices, like verifying card security information and encouraging card-present transactions, can help reduce processing fees. — Getty Images/pixelfit

Reducing merchant credit card fees can improve your bottom line. But your strategy depends on your transaction volume, industry, and customer base. Use these tips to lower the costs of processing credit cards.

Choose a credit card processor with a surcharge program

A payment card surcharge or checkout fee is when a business passes the credit card processing cost (the interchange rate charged by card networks) to customers. It can’t be added to prepaid cards or debit card transactions, nor can you apply it to payments by customers from Connecticut, Massachusetts, or Puerto Rico.

Strict rules must be followed, including notifying the card networks (like Visa and Mastercard) at least 30 days before beginning a surcharging program and informing consumers online and in-store at the point of sale and on the receipt. Small businesses should also weigh the pros and cons of surcharging, as it could impact your customer experience.

Credit card processing companies offering surcharge programs include:

  • Helcim: Eligible merchant accounts receive zero-cost payment processing via the Helcim Fee Saver program.
  • Square: Small businesses must notify the credit card networks and manage compliance when using Square.
  • Stax: Leverage technology-automated compliance to pass 100% of credit card fees to customers through Stax.
  • Heartland Payments: Small businesses can offset the cost of accepting credit cards via Heartland Payment’s credit card surcharge payments program.
  • Elavon: Choose merchant- or acquirer-managed surcharge plans with merchant accounts through Elavon.

[Read more: A Guide to Understanding Credit Card Processing]

Verify addresses for lower credit card fees

An address verification service (AVS) is a system used during the checkout process. It confirms that the cardholder’s billing address matches the one the customer enters. AVS reduces fraud and chargebacks, especially for big-ticket items and e-commerce transactions. Consequently, Visa offers a lower interchange rate to merchants who conduct an AVS check.

Give a cash discount to customers

Unlike a surcharge program, a cash discount is a marketing and sales technique. Small businesses increase the prices of goods or services. They “reward” customers who pay with cash by discounting the items at the register. If desired, you can extend the discount to those paying by check. The posted price, whether on the menu or sales tag, is the actual cost, and customers paying by cash receive a lower price.

This is an important distinction. The Truth in Lending Act defines a discount as "a reduction made from the regular price." In contrast, a surcharge is "any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means." Cash discounts may reduce your card processing transaction volume and increase cash payments. However, it can be off-putting to customers, so review the benefits and drawbacks before introducing a cash discount program.

Always examine your monthly statement

Many credit card processors increase fees or add charges to your account, like minimum processing or maintenance fees. Look over your monthly invoice to see the total costs of processing credit cards. Sometimes, you can negotiate charges unrelated to processing or decide to switch to a provider who doesn’t tack on additional non-processing fees.

[Read more: 16 Common Credit Card Processing Terms and Definitions]

AVS reduces fraud and chargebacks, especially for big-ticket items and e-commerce transactions.

Add a service or convenience fee

According to Fiserv, businesses can charge customers for the “privilege of paying for a product or service using an alternative payment method that is not standard for a business.” For instance, if your gym typically sells memberships in person, you can give customers the option to pay by phone with a credit card and charge a convenience fee. Visa, Mastercard, American Express, and Discover have rules regarding these charges, so you must read and understand their guidelines before implementing a convenience fee.

Alternatively, many small businesses add service fees to cover costs unrelated to payment processing. In return, these charges can offset some merchant credit card fees. These may cover delivery, labor, fuel, carryout or packaging, or other business expenses.

Encourage ACH payments

Automated clearing house (ACH) payments are direct bank debit transactions or electronic bank-to-bank transfers. This method is more reliable and faster than physical checks and doesn’t incur interchange fees. Most merchant service providers offer low rates for ACH transactions, ranging from 0% to 1.99%. Others only charge a flat fee. Encouraging ACH payments is ideal for small businesses with membership or subscription pricing models.

Follow credit card processing best practices

Something simple like forgetting to submit your transactions at the end of the day can increase your interchange rates on those payments. Over time, these extra charges add up. Form good habits by understanding how payment processors adjust fees.

Reduce credit card processing fees, specifically your interchange rates, by:

  • Settling transactions daily: Card associations often provide the lowest interchange fees when merchants settle sales within 24 hours. Therefore, you should always send your batch of authorizations nightly.
  • Increasing card-present transactions: In-person payments using an EMV (Europay, Mastercard, and Visa) terminal decrease your costs. Users can swipe, insert, or dip their cards.
  • Entering card security information: Always enter the customer's security and billing zip codes and require it for online payments. The more details given, the lower your interchange fee.

Increase your credit card processing volume

As the old saying goes, if you can’t beat them, join them. The bottom line is that credit card processors give you better rates when your processing volume increases. If your company is just shy of hitting the next tier to be eligible for lower rates, it could be worth encouraging customers to pay via credit card. On your end, it gives you negotiating power, and you can use it as a competitive lever in marketing.

So broadcast that your small business accepts mobile payments like Samsung, Google, and Apple Pay. Add that PayPal or Venmo logo to your email signature lines. Remind customers on your social media channels, post notices in your store, and add a banner to your website. Let clients know you want to make paying convenient and support their preferred methods.

[Read more: Why Text Message Payments Might Be Good for Your Business]

Negotiate with your merchant service provider or look for a new one

Credit card processors that charge a flat fee, like Square or PayPal, only negotiate rates if your company processes more than $250,000 annually. Payment providers using tiered pricing models or interchange-plus rates base fees on several factors, including transaction volume, years in business, and your fraud risk profile.

Demonstrate your value by showing sales projections. You can also ask them to match rates or lower non-processing fees. Don’t be afraid to walk away if you’re overpaying (just watch out for early termination fees). Head back to the drawing board and select a provider with a pricing model suitable for your small business.

Prevent fraud and decrease chargebacks

Fraudulent activity and chargebacks cost your business and merchant service providers money. Worse, the processor could place you in a high-risk category or terminate your agreement. Show that your company is less risky, and you can decrease your credit card processing fees.

Improve fraud detection while preventing chargebacks by:

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