The industry of credit card processing is a necessary evil.

As a business owner, you need to be able to accept credit cards as a form of payment for your products. To do this, you do not talk with MasterCard, Visa or Discover. You have to work with a processor, and there is a fee to do this.

The processor provides the terminal or device that accepts the credit card and the gateway to get the money from the customer’s bank to the merchant’s bank. There are good processors and there are bad processors. So to make sure you have the upper hand, here are tips for you, the merchant.

Contracts

Require that the processor has NO CONTRACT—make a deal that it is month-to-month with no cancellation fees. Make sure it is in writing.

Why, you ask? It all comes down to one word: Leverage. You want to have the leverage, not the processor.

Once you sign the documents, the managing bank, commonly called the processor, can raise your rates whenever they would like, no matter what the representative says, because it is in the paperwork you signed that you probably didn’t read.

An example is the processor adds an annual fee of $100. (This happens.) You, the merchant, can’t complain—you just have to pay it because you are in a contract and do not have any leverage.

If you do decide to leave, there will be a cancellation fee—usually between $250 and $500. Or maybe you get the one where the sales representative puts in a cancellation fee of $7,000. The processor is not motivated to do anything because they make money whatever you do.

If you do not have a contract, you have the leverage, and so you can inform the processor that you have the option to either change processors or they can eliminate that fee to keep you as a customer. It’s all about leverage.

The same is true with contracts on equipment, such as the credit card terminal. Do not rent or lease your equipment—always purchase your equipment. Processors make way more money on merchants who lease equipment rather than merchants who buy it. In fact, there can be more profit on leasing the equipment than there is on the processing side of the business.

Consider this breakdown on leasing equipment: The processor tells you the price is $35 to $50 a month. Then you find out it is a four-year lease, so you’ll spend between $1,680 and $2,400 for a terminal you could have purchased for less than $300. So always purchase your equipment.

However, I do not recommend buying used equipment on eBay or similar sites—there are compatibility considerations that may make that used equipment worthless.

No such thing as ‘free’

Remember the old adage, there’s no such thing as a free lunch. This refers to the idea that it is impossible for a man to get something for nothing. What you think is free isn’t.

The new thing is “no contract and the equipment is free.” Sounds great, doesn’t it? … until you find out what is really happening.

The representative will tell you that that is correct: There is no contract and the equipment is free. He forgets to tell you that if you do not process with them for three years that they will charge you $800 for the equipment, and it will be deducted out of your bank account.

This is the same equipment you could have purchased for $300. So now the processor will be able to raise your rates, and they do not care if you complain because they will make money whatever you do.

Follow the rules

In summary, make sure you are not in a contract with your processor, and be careful when they tell you something is free. By following these two rules, your experience with credit card processing will be more efficient and profitable for you.

Happy processing!