A case study on how to increase profits by closely monitoring credit card fees.

By Vito Pagano 

CEO and Founder, Independent Merchant Group

 

Busy small business owners know there are never enough hours in the day to get everything done, but one crucial activity is often overlooked – monitoring credit card fees.
But neglecting your card fees and not reviewing statements may be costing your small business big profits. It is more common than you think to have hidden charges, inflated fees and outright errors. If left unmonitored, you could end up needlessly paying tens of thousands of dollars annually to credit card companies.

Britt Faunce, CFO of Georgia-based Square 1 Art, LLC, knows first-hand the value of closely monitoring card fees. The family-run business offers creative school fundraising ideas and easy art based fundraisers for U.S. elementary schools.

“When I joined Square 1 Art, to monitor our merchant services fees we simply reconciled the overall fees to our charges,” says Faunce. “We didn’t compare month to month base rates for each card type. Square 1 Art had signed up for services about 1.5 years before going online, so the rate had jumped due to inactivity and the change wasn’t caught until well past the rate increase.”

During Square 1 Arts’ peak season, the company processed more than 6,000 online transactions daily – nearly all by credit card. Although processes were in place to manage internal costs and accounting, there were negative surprises with their merchant processor, even though their overall relationship with the financial provider was good.

Faunce decided to seek out an independent auditing company that could assist with the complexities of their existing merchant services pricing structure. What happened next was stunning.

“Through their investigation, the independent auditing company was able to uncover a significant change in our underlying base rates which had occurred just prior to our fall 2014 busy season,” asserts Faunce. “This resulted in an approximate $20,000 overcharge. Through conversations with our merchant provider and independent auditor, Square 1 Art was able to get that $20,000 refunded.”
Locating an independent auditor was ideal for the small business because it allowed them to get out of what Faunce calls “the merchant services ‘rat race’ of shopping providers every few years to see if a better deal was available.” By utilizing the services of an independent auditor, Square 1 Art was able to keep its existing processor – and actually improve their relationship with them. In addition, the independent auditor does not charge any fees up front – they work on a contingency-based model of realized savings.

This has allowed the small company to focus on their business and, interestingly, their merchant provider has started to offer them other services and floated the idea of reducing their baseline charges as the small company continues to grow.

Faunce reiterates “paying the wrong rates to credit card companies can add up unnecessary costs incredibly quickly.” But by spending a just few minutes each month scanning credit card company statements and then emailing them to the auditor, he can rest more assured.

Credit card transaction fees have become a substantial expense for many small business owners – both brick & mortar and for web-based businesses. Swipe fees from card issuers are the fastest growing expense for retailers, while card-not-present transactions typically cost the seller more – depending on the volume of transactions, the seller’s line of business, risk factors and other criteria. So what’s a small business to do since almost all are in a position where they must accept credit cards? Here are a few tips:

Review monthly processing statements: Don’t just blindly pay your statement each month. With the levels of fees and surcharges buried in the fine print – it is up to the business owner to stay on top of it – or hire an independent auditor who specializes in this for assistance. Sometimes the processing companies are not offering you all the industry discounts and incentives.

Communicate: Banks and processors often fail at revisiting the growth or changing needs of a small business. Merchants must actively communicate with their bank or processor to avoid erroneous fees and hidden surcharges.

Make the right choice: Look for a bank or processor who pays attention to your needs and who listens.

Reduce transaction fees: Be sure to calculate the percentage of your credit card sales which are going to transaction fees, have an annual review with your processor, and use up-to-date technology in all business realms.         

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About the Author

Vito Pagano is the president, CEO and founder of Independent Merchant Group (IMG) – www.imgaudit.com – providing businesses located nationwide with merchant services auditing. IMG is not affiliated with any bank or credit card processor; they are an entirely independent company and the nation’s largest merchant services auditing and consulting firm.

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