As a merchant, you likely know the importance of reading your credit card processing statements. However, taking the time to read your statements does not do you much good without the proper knowledge in how to approach it. When you read your credit card statements without effective practices in place, you run the risk of paying more than you should. If you understand how credit card statements work and you understand the different fees involved, you will better be able to maximize your budget and profit-making potential. With this in mind, here are 3 helpful tips to reading your processing statements.
1. Questions to Ask While Reading Your Credit Card Processing Statements
The first thing you need to establish when it comes to reading your statements are the particular questions you need to be asking. These questions will help you read your statements purposefully and ultimately ensure that you are not paying more than is necessary. These questions include:
- What is the base cost that you are paying?
- What markups are you paying?
- Can your base cost be lowered?
- Is there any room for competitive pricing in your markup?
If we were to condense these questions into one basic purpose statement it is to know what you are paying and if there is any room for improvement. Letting these questions guide you as you read your statements will help you make sure that you are making the most of your money and make you more successful in the long run.
2. Knowing the Barriers
Another tool at your disposal when it comes to effectively reading your statements is to know the common barriers to proper understanding. The first common barrier is a lack of knowledge. Particularly, it is a lack of knowledge in knowing what you are looking for. You will need a proper knowledge of how the different fees work. Asking the questions we mentioned above as you read your statements will help you here.
Another barrier to understanding your statements is a lack of consistency. This barrier is a little more difficult for you to control due to the fact that it is a lack of consistency among the various merchant service providers and how they organize their statements. This presents a significant problem to you, the merchant, but learning how the different credit card companies work will help you navigate these treacherous waters.
Lastly, there is the barrier of a lack of transparency. A lack of transparency in credit card statements is another way that these companies make it difficult for you to understand them. Some processors hide base charges in what is called tiered pricing. Read on to see how to get past this barrier to a clearer, more transparent understanding of your processing statements.
3. Understanding Your Processing Statements
In order to properly understand your statements, it is helpful to break it down into a couple of steps. Let’s take a look at those steps below.
- Understand The Components of Cost: There are two major components to cost when it comes to processing companies. These two components are base cost and markup. Base cost is made up of interchange and assessment fees. An interchange fee is the fee that goes to the bank and assessment fees are for the credit card companies. Base cost remains the same regardless of your provider and is not negotiable. As the other component of cost, markup is where processing companies will get you. This includes any additional cost to the base price. Though markup can be a cause of annoyance to merchants, it can also be used to your advantage. Markup is one of the only negotiable components to cost.
- Understand the Different Pricing Models: There are two different pricing models we want to specifically look at: tiered/bundled and interchange plus/pass-through pricing. Tiered pricing is the most commonly used pricing model and can be identified on your statement as qualified, mid-qualified, or non-qualified. They can also likely be spotted by the shorthand “qual“, “mqual“, or “nqual“. Interchange plus provide more useful information in spite being more complicated. These pricing models are known for either a consistently low discount rate or itemized interchange charges.
In conclusion, understanding how cost is structured on your statement is key to understanding your processing company. The goal is to distinguish the base cost from the markup. This will help you determine how much you are paying in markup costs and ultimately give you the tools for understanding where there is room for negotiation.