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By Korry D.
If you own a restaurant in 2019, you know how important it is to offer your customers the convenience of paying by credit card.
In an increasingly cashless society, people want the choice to swipe, tap, dip, enter their PIN, or use their phones to authorize mobile payments.
As an accommodating merchant, you want to give your customers what they want – even if credit card fees become one of your biggest business expenses.
That’s why it pays to be prepared when entering into an agreement with a payment processor, the company that provides you with payment terminals and the service that clears and routes credit card transactions.
There’s only one problem.
The fee structures associated with accepting credit cards are head-swimmingly complex.
There are processing fees, flat fees, and situational fees. Some are negotiable; some aren’t. Entering into an agreement with a payment processor is a lot like hiring a contractor to remodel your restaurant: it’s important to get a few quotes and negotiate the fine points.
Now, for some good news.
You don’t have to take a master class in economics to secure a reasonable rate from a reputable payment processor. All it takes is preparation, an understanding of what’s negotiable, and a keen eye to determine the best fit for your business.
Here are 5 steps that’ll help you get the best payment processing rate for your restaurant.
Find out which fees are negotiable and how to get the best price.
Before you even approach a payment processor, it’s important to anticipate the information they’ll need from you to prepare a customized rate.
If you have accurate, concise answers, the process will run smoothly and you’ll be in a better position to negotiate applicable fees. Here are some of the questions a payment processor will ask:
If you’re setting up a payment processing agreement before you’ve opened your restaurant, you’ll need to provide projections.
Rates vary among processing companies but are usually calculated per transaction and range between 1% and 4%. Some payment processors also add a fixed dollar amount per transaction, typically from $0.10 to $0.30.
Payment processing companies typically offer better rates for higher-volume businesses in lower-risk industries, such as large grocery stores, retail chains, and restaurants that do real-time transactions (i.e. nothing with recurring charges or future delivery).
But it’s important to provide these companies with realistic, achievable numbers (your answers to the questions above), to make sure you get the most accurate rate quotes possible.
Now that you’ve put together a package of your numbers or projections and have considered your payment terminal needs, it’s time to shop around for a payment processing partner.
While cost is a big factor when selecting a payment processor, it shouldn’t be the only criteria. It’s important to align with a trusted company that has a good reputation.
There are plenty of payment processors who charge bargain-basement rates but may not provide dependable customer service. You’ll want to strike a good balance between a reasonable rate and a stable, trustworthy company – ideally one that’s affiliated with a financial institution.
While individual fees of different payment processors may vary, they all have a basic fee structure. On every statement, you’ll find three types of fees: processing, flat, and situational.
When you’re comparing companies to each other, take a look at the prices associated with each type of fee. It’s important to understand which are negotiable and which are not.
Payment processors are responsible for capturing fees from credit card brands and issuing banks and providing a routing service. They charge a number of credit card processing fees to recoup the charges and to be compensated for their services.
Flat fees will vary by payment processor. Here are some of the most common types of flat fees.
As their name suggests, situational fees are charged when specific situations arise. They aren’t necessarily regular or predictable, so it’s important to understand the types of fees that could be incurred.
Here are some of the ones to watch for.
For the restaurant industry, payment processors typically provide two types of pricing models:
Most restaurants today use the cost plus model for its transparency and easy-to-understand terms and fees.
Under this model, you’re responsible for the non-negotiable interchange fee (for the type of credit card) plus the payment processor markup. The markup is a fixed percentage of the total check, the card brand fee, and a per-transaction flat fee.
The cost plus pricing model has a straightforward formula like this:
1.54% + 0.10% + 0.10% + $0.25 = 1.74% + $0.25 total processing fees
This type of simple formula makes it easy to compare processing fees from company to company.
When reviewing quotes from payment processing companies, it’s not always possible to compare apples to apples. Some processors may charge low fees in one place but higher somewhere else. Some may include hardware such as electronic credit card readers (or terminals)in the agreement.
Take a look at the flat and situational fees as well. Using our negotiating cheat sheet, focus on the ones that are negotiable and consider asking for a better rate on some or all of them.
You’ll also want to look at contract termination terms. You may decide the flexibility of a shorter-term contract outweighs the benefits of a lower cost elsewhere.
When you’ve narrowed it down to one or two payment processors, it’s time to make sure you’re getting the best deal possible. Here are some tips on negotiating:
Don’t just take a cursory glance at the quotes you’ve gathered from payment processors. Pore over them so you understand exactly where and how they’re making money. A low rate on one credit card fee may be neutralized with an excessive fee elsewhere. You should be able to list the pros and cons of each quote before you head to the negotiating table. Use our cheat sheet to help you keep track of what the fees are for and which ones are negotiable.
After you’ve gone over the quote with a fine-toothed comb, book a call or in-person meeting and ask the sales rep to go over it with you, line by line. Ask them to explain each feature and fee. It wouldn’t hurt to gasp or wince from time to time. Seriously. They may react to your body language or verbal cues with a better price. If not, when you arrive at each negotiable fee, ask for the best price they have. Point out what their competitors are charging.
If you’ve uncovered a better price elsewhere, share it with the payment processor you want to work with to see if they can price-match. Even if they can’t meet the exact price, they may be able to offer perks like free payment terminals or a shorter contract. This may be worth more than a lower fee.
Take your time when reviewing quotes from payment processors. Don’t let them rush you into making a decision. Consider sharing them with an accountant or lawyer to help you find the right overall fit.
When you think you’ve negotiated your contract to the lowest possible price and the best possible features, take one further step before you close the deal. Be absolutely sure that they are giving you the most optimal pricing. It’s surprising what a simple question can accomplish.
When you consider the number of credit card transactions your restaurant will ultimately process every day, it’s well worth the time it takes to understand credit card fees and negotiate them to within an inch of their life.
The best payment processing rate for your restaurant is out there. It’s up to you to find it.
As the former Senior Product Marketing Manager at TouchBistro, Korry helped restaurateurs navigate the complicated waters of payments by deeply understanding both restaurants and the payments market. He has a passion for hockey, beer, and hot wings, and loves when all three happen at once.
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