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What to Know About Small Business Credit Card Processing Fees

Credit card processing doesn't have to be confusing. By understanding what to expect, you can learn to navigate small business credit card processing fees.

5 min read

Have you ever watched TLC's Extreme Couponing? Each episode profiles someone whose coupon obsession gets their shopping bills down to almost zero. It's enough to make you wonder how much money you could be saving, too. 

Couponing isn't a realistic strategy for most people, let alone small business owners. But if you're looking for a way to save on business expenses, credit card processing fees do represent a major variable.

Read on to learn which fees you should expect to pay, and which fees might be negotiable.

Why Do Small Businesses Pay Credit Card Processing Fees?

The first question you might ask about credit card processing fees is: What do they actually pay for? 

Credit card processing fees represent the cost of accepting credit cards. People often use "processing fees" as a general term. In reality, it may refer to several separate fees, rather than one fixed rate. 

When a customer swipes their credit card, merchants don't get the funds immediately. Instead, the transaction goes through a series of steps. Communication between the merchant and the customer's bank helps prevent fraud by verifying credit card purchases. 

So, where do credit card processors fit in? You can think of credit card processors as the middlemen. They handle all the communication between your bank and your customers' credit card providers. Credit card processors charge fees to cover the cost of this labor. 

There's one final thing to note about fees: They're influenced by risk. In general, higher risk transactions come with higher fees.

For example, big ticket items like electronics or antiques may be considered riskier. Fortune tellers, flea markets and pawn shops are considered risky, too. Your credit card processor will have policies that determine your business' level of risk.

credit card small business processing

Which Small Business Credit Card Processing Fees Should You Expect? 

While some fees are negotiable, others represent the cost of doing business. There are three key credit card processing fees all small businesses can expect to pay:

  • Processing or transaction fees
  • Chargebacks
  • Retrieval fees

Let's take a closer look.

The first non-negotiable fee you will encounter is a processing fee. This may also be known as a transaction fee, because most credit card processors charge a processing fee of 2-3% per transaction. 

Processing fees encapsulate several expenses, including an interchange fee, an assessment fee, and some form of price markup. Rates are influenced by a constellation of factors. The customer's credit card provider, the transaction's risk level and the credit card processor's operating costs all impact rates. 

Chargebacks occur after a transaction has been finalized. The most common scenario is when a merchant refunds a customer who returns an item. Occasionally, chargebacks are the result of a mistake, such as a duplicate charge. Along with returning the customer's money, merchants also pay a fee per transaction.

Retrieval fees are sometimes called "soft chargebacks." These fees occur when a merchant is asked to provide additional information about a sale. Possible causes include incomplete transaction information or another error. If a customer's bank flags a transaction as suspicious, the fraud investigation might trigger a retrieval fee, too.

A sale may or may not be canceled as a result of the retrieval process. Either way, merchants should expect to pay a fee to cover this expense. 

At a minimum, small businesses can expect to pay these three types of credit card processing fees. Still, the benefits of accepting credit cards far outweighs the costs.

small business credit card processing fees

Which Small Business Credit Card Processing Fees Should You Avoid?

Along with the core costs of accepting credit cards, other fees are up to your credit card processor's discretion. At worst, some fees can serve as red flags. 

At the top of the list, never work with a processor that demands expensive equipment rental fees. Today, most small businesses need minimal hardware to accept credit card payments. Over time, rental fees can add up to more than the cost of purchasing equipment. 

Next, look out for expensive cancellation fees. Some credit card processors require lengthy contracts. Others charge a penalty if you decide to choose another provider within a certain period of time.

Cancellation fees come in two forms: A flat rate or a percentage of estimated sales for the remainder of the contract. Either way, they can add up fast. Look for a credit card processor that won't penalize you for leaving.

Finally, beware of qualified rates. This language can signal tiered pricing. Though sales reps may tell you that tiered pricing is a way to offer lower rates, it can actually lead to higher total costs. Despite a low starting rate, you may discover that virtually none of your transactions qualify for the low rate you were promised. 

At GoSite, we've waived all fees, other than a few industry standards. If you're interested in learning more about just how simple credit card processing can be, take a look at our free fact sheet below! 

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