The Hidden Fees of Credit Card Processing
Increase the Profitability of Your Law Practice
If you signed up for credit card processing, you’ve probably stared at your statement in bewilderment. “This seems more expensive than I thought it would be,” you might have thought to yourself.
Our research shows that many lawyers who run boutique law firms of fewer than ten employees are so busy handling their day-to-day issues that they don’t adequately and properly address their credit card transactions and corresponding costs. This happens not only to small law, but also to CFO’s who manage larger legal practices. In my twenty years in the payments industry and experience dealing with many law firms, I have found that the legal industry faces the same issues as a retailer or restaurant. After all, business is business.
Accepting credit cards—namely Visa, MasterCard, Discover, and American Express— helps a company in many ways. However, it is important to avoid the pitfalls associated with taking a credit card for payment. Just like we need to maintain our health by exercising regularly, law firms must exercise their financial acumen when analyzing whether or not they have the best credit card program for their practice.
Yes, the word “program” is critical as there are different appropriate programs and solutions depending on the needs of the firm. “What is your rate?” is the most common question we hear from potential clients; however, the base rate is only part of the equation. The credit card industry has numerous “hidden costs” which can and will inflate credit card costs. Unfortunately, most lawyers and company administrators are unaware of these additional fees and how they adversely affect the bottom line.
Credit card fees are confusing. Visa, MasterCard, Discover, and American Express maintain different rate structures depending on the type of card and on how a transaction is processed. The associations that manage the interchange fees present rates in different forms such as qualified, mid-qualified, and non-qualified. Credit card companies also have other fees such as batch fees, debit fees, annual fees, voice verification fees, and address confirmation fees. I think you understand the point: This can get really tricky and confusing!
Also, many credit card companies will offer a low introductory rate, which to a layperson will seem too good to believe or at least better than their current deal. However, what will actually be unbelievable will be the “downgrades” or penalties that a business will have to pay—often without even realizing it—because there are so many additional issues that you have to consider besides a low base rate.
The most cost-efficient program is called “Interchange Plus Pricing” which charges the true interchange cost and will ensure that your business is receiving the best fee structure. In order to run your firm in a financially astute manner, you must know your “effective rate” which takes into consideration all charges vs. your “base rate,” (the initial rate you’d discuss with your credit card company.)
Another important issue that payment processing companies rarely raise is how long it’ll take until your money is deposited into your bank account. Some take as long as 72 hours! However, why should you have to wait three days to get your money? It is critical to select a processor which provides law clients with “next day funding” on all card types including American Express.
Other questions you should ask: Is your discount fee taken daily or monthly? Is your money properly deposited into your trust account or your operating account? Mistakes involving set-up and deposits into the proper accounts can jeopardize your licenses. Think about the savings on interest and increased cash flow if your fees were removed at the end of each month. It certainly adds up. Addressing the issues I’ve highlighted will help greatly with your cash management.
Also, keep in mind that many firms are now using mobile devices to capture the credit card payment at the point of sale. Lawyers can visit their customers out of the office and literally take the payment on their iPhone or Android. With a simple swipe of the card, the monies will be in your bank account the following day.
Finally, it is important to note that switching processors is not difficult. In fact, it only takes a few minutes. In most cases, there is no fee to switch, and you just have to fill out a brief application. Why not start saving money today for your law firm? It is a much better investment to spend your money on improving your firm’s profitability instead of wasting money on the high and hidden costs of your credit card processing fees.
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