Figuring out how best to accept credit card payments from your clients can be a daunting (and intimidating) process. From deciphering all the techno-babble about complicated fee structures and minimums to choosing an account that gives you the maximum amount of control over your money - you'll be swimming in murky water at the best of times (and you've got to watch out for sharks).
So with that said, what follows is a comprehensive, inside look at how credit card processing really works, along with some affordable options that won't cost you an arm and a leg.
The phrase "merchant service" has developed an ominous connotation among solo professionals for good reason. Most people associate the phrase with ludicrous fees, minimum-transaction volumes, equipment rentals and restrictive contracts. And all too often, that notion is entirely justified.
In fact, several professionals simply avoid accepting credit cards, because it's just one less hassle to deal with. Unfortunately, this can actually cost them quite a bit of business, although they may not realize it. It's a fact that providing your customers the option of paying with credit will increase sales (in this case, client volume) in practically every industry.
Furthermore, the main advantage for attorneys' accepting credit cards wouldn't so much be the increase in client volume as it would be the end of waiting for checks in the mail, not to mention having someone make a bank run to get them deposited. And credit card payments don't bounce either!
The truth is that while there actually are some very affordable (and flexible) services available to solo professionals, they're also very few and far between. And in most cases, they're not easy to recognize.
So let's explore some of the terminology of the merchant industry for the purpose of demystifying the process of choosing a merchant company that will effectively suit your practice.
Statement Fees: Most merchant account providers will charge you to simply receive your billing statement. This normally costs $10.00 per month. This is, for the most part, a "pointless" fee for the purpose of generating additional revenue for the merchant company, as it more than covers the cost of distributing a statement. However, not all companies have a statement fee.
Monthly Minimums: Several programs include a "minimum," which is not a minimum amount of sales volume, but rather a minimum charge regarding transaction fees. Normally, this is $25.00 per month. This does not mean that a $25.00 sale will waive the minimum.
Transaction Fees: This is a flat fee per transaction through your merchant account. This will typically be around $0.25 per transaction, although different credit cards-such as American Express and Discover-will charge a transaction fee as well.
The Annual Fee: The majority of merchant services will employ an annual fee, which can range from $45.00 to $95.00. Again, this is simply a premium for using the service.
Program Fees: Also called the "monthly fee," this is simply a monthly premium ranging from $5.00 to $25.00 per month to accept credit cards via the merchant service in question.
Discount Rates: Also known as the "flat rate," this is a percentage of every sale that is automatically commissioned to the merchant service and split between it and its processor (if it's a third party). This will range from 1.95% to 5.95%, depending on the nature of the service.
The Cancellation Fee:The majority of merchant services do utilize a "minimum term of duration" within their account contracts. Canceling the contract before its term has expired will cost anywhere from $95.00 to $250.00, sometimes more.
Equipment Lease or Purchase: In general, you're required to either lease or buy the (expensive) equipment needed to process credit card "swipes." Leasing equipment can range from $29.00 to $79.00 per month, with an average term of between 36 and 48 months. These leases cannot be cancelled. In addition, you will be paying the relevant state tax on those payments; and to top it off, most companies will charge an extra $3.00 per month or so for a "Loss and Destruction" waiver. At the end of the lease, you must either return the equipment in good condition, or you must purchase the equipment for at its current market value. The purchase price will be something like 15% of the aggregate lease payments (for a 36-month term).
As you can clearly see, all of this can add up to a substantial amount of money; and if you do default on the equipment lease, it will show up on your credit report.
Accepting credit cards doesn't seem too exciting at this point, does it?
However, as I had mentioned previously, there are some affordable options within the merchant industry that actually cater directly to solo professionals and part-time business owners.
For example, did you know that you can accept credit cards-without any equipment at all-by simply using your cell phone (or BlackBerryTM)?
Not only is this type of system totally mobile, most of these services are uniquely affordable. One in particular, Accept by Phone, has a very minimal monthly fee with a discount rate of 3.95% of each sale. Such services are able to bypass all the other fees because of the way that transactions are processed. The automated call-in system allows the vendor to authorize and process the payment within a matter of seconds.
Additionally, this service does not have a minimum term or a cancellation fee - and it can be custom-configured to operate within the compliance regulations of your State Bar when it comes to making deposits into trust accounts to avoid commingling of funds.
Glenn Garnes, attorney and webmaster of LawyerLounge.com, recently reviewed this service:
"I can't tell you how many times I've been on the road, at the courthouse, or out of the office when someone wanted to make a payment; and I delayed my ability to accept it by having to ask them to send a check. I also can't tell you how many times that check was late or never came in the first place.
"If you bill for your fees or if you have a collections practice, this [type of system] is the perfect way to increase your cash flow conveniently and cost effectively, not to mention how it improves your profile in the eyes of your client."
Now, even if you would be processing most of your payments at the office-and if you needed equipment-there are also a variety of cost-effective services that suit that need as well. Just make sure that you take a very close look at the terms and conditions of the service in question.
Remember that the most crucial element of any merchant service is the term of the contract.
A particular service may be offering free applications, low fees, etc.; but make sure that it's not because it plans on locking you into a two-year contract.
Unfortunately, this is how most merchant companies make their money.
However, you're no longer at the mercy of the merchant industry; you've just taken a behind-the-scenes look at how the whole system really works. You can now investigate accepting credit cards from your clients with confidence, knowing that it truly is possible to make life easier by allowing your clients to pay with credit-especially those that are "cash-strapped."
It's simply a matter of finding a service that caters exactly to your needs as an attorney.
About the Author:
Chris Rempel is a business consultant who recommends using Accept by Phone, Inc. http://www.accept-by-phone.com.