Beanstalks Aren't the Only Things That Grow, Jack...

I apologize for my industry... a lot.

One of the things that is often the toughest point to get across to potential clientele is that the rate they signed up for a few years ago, is not necessarily their rate now. I often have to show them their current statements showing what they are paying last month and compare it to the contract that they signed three, two, even one year ago. It's often much, much worse when they have not switched for four or five years.

"But I have a contract...?!"

Unfortunately people believe two things: 1) that just like leasing an apartment, that rate is the rate for the term of the contract, and 2) that if they look at the sheet with the rates on it, they do not have to read the rest of the contract. The problem is that the contract says the rate can change. It might as well say that the rate will absolutely change, and that right soon. When businesses have our firm review their rates they are often aghast at what they see and how much they save. Most often it's between $500-$2,000 annually, but in the past fiscal year we have seen businesses overpay by $4,000, $8,000, $11,000, and $22,000+ for a single year. What's worse is that while some are large, others are just average size businesses paying through the nose and not even knowing it.

In these cases we tell people that they more than likely weren't duped, and probably had a fine rate in the past, but they didn't watch it. Well my grandmother had a saying, "Whatever gets measured, gets improved." Boy howdy. Our industry shows that on average 84% of businesses do not read their statement. They throw it in a box, a drawer, and say that eventually they are just going to plow through it. They never do. Included in that group are the 'stenographers.' Bookkeepers and business personnel that open it, but all they do is copy two or three numbers to a spreadsheet, but they don't read it.

An industry paper (which is a VERY boring periodical... avoid it) reviewed a senior man who has been in the industry for about the past thirty years or so and is richer than Croesus where he spoke of his one main job which was the creation of his company's monthly merchant statement. The thing that really made the article interesting was his statement that [he] "couldn't read his competition's statements." In other words they are made to contain as much data and as little information as possible. This is because it is to work hand in hand with the knowledge that no one reads their contract. Well guess what? If you don't read your contract, and you don't read your monthly statement (which is designed not to be read), then when your rate is climbing up, you'll never know it.

Again, I apologize for my industry, but a lot of the burden is square on the businesses' shoulders. They should read the contract and they should read the monthly statements. If you can't read your statement, ask your merchant account rep to come over and explain it to you line by line. If they don't have the time, channel Donald Trump, fire them right then, and get someone who will. My firm actually helps our clients by auditing their account for them every 11.5 months; however, we are not the only ones. I have heard of two other groups that also do this and that's only counting North America. The objective is to allow the business to do what they are in business to do, and take some of the work off their plate.

Responsibility though always rests with the business and they need to learn what they need to do. Education as always is the key. Most do not read their statements as they are designed not to be read, but you do not have to spend three hours with a slide rule and an advanced mathematics degree breaking down your statement every month. There are two methods that we call the '30-Second Audit' and the '6-Second Audit'. Anybody can do either, and both should be done every month. Do them both every month and you will see the spikes as they happen in your account. The rest is up to you.

Call or email us and even if you are not with our firm we will teach you these audits at no charge.

Bigger Doesn't Always Know Better...

I have spent so much time talking to people and their companies, from large to small, that I really don't get shocked anymore. We often deal with significantly larger groups and I have to warn junior agents that just because they are bigger, doesn't mean they know better.

"But they have people."

I have spoken to numerous groups at length and just last week spent time with a company that had 500+ stores; and they did the unthinkable: they leased their machines. What is worse, they were setup on a monthly minimum which is only done when you are given a free terminal placement (opposite of leasing a terminal wouldn't you think?), or in essence were double-tagged for the same machines I would have given them for free. In short, they paid a little over $100k in four years that they didn't need to pay.

And it happens everyday.

I use it to help train my people to shoot for the rafters. After all, the brass ring is only there for one reason, so that you will reach for it. However, I also warn larger groups that there is always room to sharpen the pencil. After all, the only way I was in front of a 500+ store company was that they were over paying in the first place.

Per usual there are multiple places to look for corrosion:

Terminal Fees

Terminal Fees for out of date machinery

Contract fees

Additional lines that are unneeded

3-Tier vs. Interchange Plus

Multiple income streams smashed into one account

Mid Qualified Charges

Non Qualified Charges

and finally...

Discount Rate and Per Transaction Fee

Know what you process, how you process, and look for overages. If you can't read your statement, get your merchant provider to explain it and the overages to you. After a while, they will starting popping out at you.

The Painful Truth About Signing Up...

...Reprinted from 2007 by popular demand...

OK, so maybe you signed up for a merchant account a year ago and your business is already taking credit cards; or you are just now looking into it. Either way, learn for the next sign up or the first one. Sit down, and oh... you may want a drink.

First and foremost, one of the worst things about the industry is the salesmen. Chuck, Alicia, whomever, I'm sorry but it's true. 99% of merchant account sales people give the rest a bad name. Why? Because they make money by up-charging you the client. This is not always the case, just in 99.99999999% of all cases I have everseen. After all, there has to be an incentive plan for keeping these guys and gals hitting the bricks.

Well, here's an incentive: a sign-up fee. A sign-up fee? Are you kidding me? You want me, to pay you, in order for you to make money off me? I am supposed to pay you for that?!

...Anyhoo, this is a fee that goes one place and one place only: the saleman's pocket. Oh yes, make sure you know this. The only reason that it is on the contract is so that they can scratch through it with a pen and say, "but because it's you, we are going to waive that fee". How sweet. However, if they think they have a nice, fat fishy on the line they will charge it and simply put it in their pocket. Yay! Sushi's on me tonight!

This I cannot be clear enough about. If you have someone who wants to charge you a fee to get set up when their company will be getting a percentage of your hard earned money for the rest of the contract, you need to introduce him and his plaid, reversible, polyester jacket to the door. Would you pay a fee to a car company in order to be able to pay them for a car? "OK, let's see... that Ford costs $26,000, but I will need you to pay us a $100 fee in order for us to be able to give you the privilege of buying from us." Goodbye and get out.

I have seen so many established businesses doing high sales that have paid this fee that I cannot imagine the level of salesperson that would actually charge it . Seriously, their bio would have to start, "Leaving a trail of slime wherever he goes..."

Bottom line: your business is worth something and there are fifty other companies out there willing to take very good care of you simply in order to beat out the other guy. My daddy always said, "Vote with your feet." In other words, if you don't like it, there are a lot of other choices out there.

Cut Your Phone Bill With Wireless

Now, this is sadly not a solution that works for everyone, but for those it does it's gangbusters.

When wireless first starting hitting the market, it had a limited niche. It was for trade show people and traveling salesmen. Later even contractors jumped in on the game as now they could get retail rates by taking the terminal to the client on site. However now there is a whole new list of retail clientele lining up to get wireless where you would have never thought.

Ever been to the mall?

Mall kiosks can be great business these days. I know of several people that have several each. They do well, but they have their own trials and tribulations as well. One such issue is the cost of a phone line. This particular customer happened to serendipitously mention that it cost him $60 a month just to run a phone line to his kiosk. That's $60 a month before any phone calls are made whatsoever. What's worse is he had family with kiosks in differing malls, some of whom had monthly phone rates as high as $75. We even saw one that paid (those with sensitive heart should leave the room...) $120+ a month before any calls were made.

Wireless is a good choice for these merchants as even though it's more expensive than a standard terminal due tom its $15 per month wireless fee and $0.05 extra per transaction, it saves bucket loads of cash for otherwise unnecessary expenditures.

The reason it even has the $15 a month wireless fee added as it is basically a credit card terminal with a cell phone Frankensteined in. The $15 pays for an unlimited cell phone plan. Before you ask, the answer is an emphatic "No". You cannot use this terminal to call home or order a pizza. It is an unlimited cell phone plan, but the only calls it makes is to the processor you work with. No one else.

I have to say, I always love it when a customer is overjoyed at the good news you have for them such as, "Besides all the other fees I am reducing, I am dropping your phone line costs down from $60 or more a month to $15."

I have been promised that they would dance at my wedding...

Paying for Someone Else's Coupon

You clip a manufacturer's coupon for a $1 off a gallon bleach. You go to the store. You select the bleach which is $1.79 and take it with your coupon to the cashier who then subtracts the $1 and the new bill before tax is $0.79.

Who pays for the coupon? The store? No. They electronically capture all the coupons for the month and forward them to Johnson & Johnson or Proctor & Gamble or what have you. Then they get a check for the amount of the coupons that were offered by the manufacturer, and the process repeats. Not the circle of life Elton John sung about, but still the world goes on turning...

However the story changes completely if we change one thing. You go to the store, you buy whatever you buy with no coupons. You go to the cashier. You give them your Sky Miles card, Rewards card, Bonus back card, Cash back card (whatever) and give it to the cashier who rings you up. You get your sky miles, bonus points, cash back, whatever, the company who gave you the card gets all the glory, and who foots the bill? The card company right? After all its their card, kind of like going in their with their coupon right?

Wrong.

The business where you bought your groceries, gas, meal, clothes, crafts, insulin, business supplies and everything else just picked up the check. And they had no choice. If they take Visa and a customer goes in with a Visa rewards card of any type, it cost them substantially more money than if you had a regular card. Why is this? Why is the local burger joint where you go every Saturday about the crack of noon paying for your Delta Sky Miles? If you're using your Delta Sky Miles card shouldn't Delta be picking up the extra?

If you are a business beware. Better yet, be aware. Be aware of where your fees are going. This is not your merchant services group gouging the day lights out of you. It's the deals made with MC-Visa, Discover, and Amex. What's worse if you take Visa at your place of business, you CANNOT turn away a Visa Rewards card without running the risk of being delisted. Delisting means your merchant account just got cut and you can no longer accept credit cards. It is a damning process at best.

Be aware. Know that your business pays for someone else's coupon. Know that your Rewards card punishes businesses you like to shop at. Be aware that people are foolish and make bad decisions that look good for the present and are very bad for the future. We are continuing this trend of punishing businesses by now making Rewards debit cards. The cards that used to save businesses money will soon help tighten a stranglehold.

If you think this is OK, go back and look at the housing market over the last four years. Predatory lending was great for the people doing the lending, but a beast can only be beaten so many times before the back is broken. Forgive the ugly sentiment.

And forgive me for editorializing, but America's businesses have always been the ox that pulled us out of the mud. We can strangle them or reward them. One gets us out; the other drowns the ox with us.

Double-Tagged for Fees

I apologize for my industry. A lot.

This is one of those cases...

I am with a customer and I am looking over what they are doing now; as in how they process and the fees they pay before I take it over. In the course of the conversation, the customer tells me about how they are paying a lease for a machine. I explain to them how this is unneccessary as there is a way to get a free machine [see: Terminals are Generally Free] if they will sign up for a minimum, which I know they will easily clear as I have already reviewed their monthly numbers. That's when they inform me they pay a minimum.

Let's review that a moment: (Lease) + (Minimum) = Fees Double Tag

How? Simple, but we have to understand the components.

Lease: A monthly fee for a specified term which pays for the usage of a credit card terminal which a business does not own. Example: $48 a month for a terminal for 48 months.

Free Placement Credit Card Terminal: A credit card terminal given to a business to use which the business does not own. Paid for by a Minimum set on the account which is garnered generally from fees that the business would pay anyway. Example: If a business does a $1,000 a month in credit cards, they would generate about $25 in fees for the processor. The processor then gives them a machine to use for the duration of the life of the business as long as the processor gets its $25 Minimum a month in fees.

Account Minimum: A base dollar amount guaranteed to the processor for the usage of a credit card terminal which a business does not own, and is gathered first from processing fees of the account. This generally works hand in hand with a Free Placement Credit Card Terminal to pay for its use.

Confused? Let me say it like this: a business needs one, or the other. Not both. A lease pays for a machine. A minimum pays for a machine. If a business pays for both, they are paying twice for the same thing. Imagine getting an electric bill and a power bill in the same month for the same service. If your business leases a machine, the machine is paid for via the lease. If you add a minimum, then you are guaranteeing you will give them money for a machine that is already paid for via the lease. If you have a Free Placement machine and they put a minimum on your account to cover it, AND try to add a lease, the lease would be there to pay for a paid machine.

Simple Rule: Minimum or a Lease. Not both. And a Minimum should get you the machine for free. Always get a free placement over a lease.

The reason there are all of these double tags is quite simply that the merchant company gets a bonus if you sign a minimum. If a business is doing $10k monthly, then they obviously do more than $1k a month required to get a free placement. However, the merchant company makes a lot more money if they sign you to a lease. The problem is people get greedy. They want both.

They shouldn't get it.

No Contract Term, No Cancellation Fee...

But please don't read the paperwork!

Please forgive the very insinuating picture I used with this, but many people actually believe what people in my industry say without backing it up by reading the fine print.

Buyer beware...

I recently spoke to a business and he asked me my term of contract. I told him 3 years. Standard. Some people try to slip in four, but's dirty pool. He told me that my competition said they had no term. That there was no contract period. I replied that I would bet my car against whatever he had in his pocket be it lint, a stick of gum, and a paper clip. He asked me why I was so sure and I informed him that MC/ Visa required a contract. A contract not only locks them in, but protects them in many cases as well. Imagine a customer that is told he will get 1.71% and $0.15 per transaction. It's a decent rate, but when his deposits to the bank show that 10% was taken out has has no leg to stand on... because he has no contract. The numbers changed since he signed. The real reason that MC/ Visa will not allow n account with no contract is that their would be no guarantor. The merchant could do anything and not be help responsible.

(By the way, he signed with the other guy and called me 2 months later furious that he had been taken advantage of and wanted me to explain it to him.)

Plain and simple: There must be a contract. With any contract, there is a contract term.

In the same way, people are often duped when they are told this, but unfortunately they rarely read the paperwork. One of the last cases I worked on a man was told that his terminal would have no cost, but he signed the paperwork including the lease stating that he would be charged $32.95 a month for four years. he didn't know wheat to say when I pointed it out to him except to repeat that he was told there would be no hardware fee.

As well, he was told there was no termination fee. Of course there was, and there always is. Read the fine print. Truly it is only fair for a company to charge a termination fee. Why? There is no cost to setup. More accurately, there is no cost to you the merchant to be setup, but there is a cost. If you were to leave quickly, the cost to the companies involved would stack up quickly. Most reputable firms will charge about $300 to terminate. This number however will normally degrade over time as they not only get their fees, but recoup the costs. Normally after the second year the cost is $100, $50, or nothing. The way to make it nothing is generally to call the group that has your account and ask them to close your account for you. If you call your processor directly and close your account, you could get hit with the whole fee. Call your merchant group, and they can generally get you out for free.

The real reason there is a termination fee though is this and only this: the industry does not want you hopping about like a frog on a hot plate. In the early '90's the long distance wars created such a company-hopping environment that millions were lost. Everyone started under cutting their fees so greatly just to get clients to stay that they undercut sustainability. It all eventually crashed.

The long and the short of it is this: the sales person can say anything, but paperwork is where the noose is found. Read it. Know it. Understand that some requirements and limitations are fair. Just make sure that they are no so high that you hang yourself.

Terminals Are Generally Free

Free.

That bears repeating: Free.

Why do I take the time to say it like that? Frankly, in my industry I setup two types of businesses. One is opening its doors for the first time and has never taken credit cards. The other has been open for years and has taken plastic for years. 95% of what I deal with is the latter. They are in business now, have a history of card usage, and unfortunately a history of over paying for their hardware.

One of the last businesses I have spoken to had a chain of 500+ stores and most of their machines were still on (all had been on at one time) a lease. The lease was for $48 a month per machine for 4 years. they could have gotten their machines for free, but instead they paid $26,736 a year or $106,944 over the course of the 4 year agreements when they could have gotten it for free.

How it works

First of all, almost any merchant service provider worth his salt (or her salt ladies) will get you the machine for your business for free if you process $1,000 monthly. They do this by giving you a monthly minimum that you must meet of $25. That does not mean you only have to process $25, it means the processor must earn $25 in fees. That means if you process $1,000 in a month you should have about $25 in fees more or less (as always it depends on your rates: higher rates earn the the fees more quickly, lower rates more slowly, ...but you knew this already didn't you?).

Now this is different from a lease in several key ways:

• A lease is for a set period of time. Even if your business fails you have to keep paying a lease until your four years run out.
• If you have a lease you pay for your terminal no matter how much you do a month. Seriously, if you have a lease of $48 a month and you process $5,000,000 a day; you will have to pay all the fees on the $5m + the $48 lease.
• Most leases are non-cancelable. this is so that if you find a better merchant rate, your still stuck paying your old company for your lease.
• Leases often have provisions stating that non-performance is not an option for cancellation.
• Leases are often significantly higher per month than rentals, flat out purchases, free placements, or anything else.

The only real provisos I can mention here are these: First and foremost, does your company do $1,000 per month? Are you close? If so go for free placement, because unless you melt it down to slag, they will generally replace it free twice a year (ask your provider to make sure). This includes if you drop it, fry it via a lightning strike, or spill coffee on it. The second is: do you need more than one machine per location?Normally they will give you one for a $25 a onth minimum/ $1,000 a month in processing dollars, but most will only place a second one for free if you process $100k monthly. I know it doesn't make sense, but it's their ball game. Either way, most businesses need one and can get it.

Free.