Flat Rate Credit Card Processing: The Gist
The mechanics and methods of flat rate credit card processing are not all that difficult to grasp. As the name implies, the fee charged to a merchant using flat rate credit card processing is fixed.
This means the fee each month to your provider is the same, regardless of how many sales you made. By comparison, some merchant services providers have a varying rate, usually by percentage depending on the size or volume of the orders. The obvious benefit is easy predictability of your monthly processing bill, enabling the merchant to better cover the cost of credit card processing within their retail prices.
What are the Details about Flat Rate Credit Card Processing That You Should Know?
How Flat Rate Credit Card Processing Works
With a subscription flat rate credit card processing model, a merchant or business entity settles the precise interchange fees plus an arbitrarily fixed monthly or annual fee for the processor.
Most of the time, there is an additional “per transaction” fee tacked on that is also at a fixed amount, rather than by percentage, size, or volume.
The flat rate credit card processing option is especially ideal for SMEs. This is also true for startups getting their feet wet.
The fees for flat rate credit card processing are consistent and static. The client would be paying the provider a smaller total charge for transactions. This is particularly true if the flat rate credit card processing fees are applied for every bulk transaction made.
As the fees applied are the same, bigger orders on a regular basis make this an ideal option.
With that being said, not all types of businesses or merchants would be best served by using a flat rate credit card processing model.
Pros and Cons of Flat Rate Credit Card Processing
While a flat rate credit card processing option is a simple, cost-effective solution, some providers take advantage of this. For instance, if the business or merchant conducts many, small transactions often, the flat rate credit card processing would prove to be constricting to the processor, which is good for you.
To illustrate, if the client chooses a flat rate of $1000 applied to 100 transactions, the payment amount of $1000 applies at the end of the cycle.
But, if the fee was percentage based (say for instance, around 2.5%), if those transactions were for $10 each and there were a total of 100 transactions during that cycle, the fee would only be $250 for the same number of transactions processed during the same term.
Another scenario that some unscrupulous providers do is creating alternative payment options that are obviously not ideal for their likely clients alongside their offer of a flat rate credit card processing option.
This may seem counter-productive on the surface, but this is actually an underhanded strategy. It is a method to convince the potential client that “this is the way to go”. The client would later discover that this was to lure them into a committed subscription.
However, certain clauses as part of the flat rate option are easy to ignore yet they apply at a certain threshold. Often, this would be to “bump up” the client’s subscription model from a smaller rate to a higher rate if conditions are applicable.
In some other cases, the provider de-emphasizes the fact that the agreement and fees can be changed at any time.
It is very likely the client would be complacent due to the savings that they are making or will make before the realization kicks in later.
The Necessity Of Flat Rate Processing
Flat rate credit card processing is a common choice. But it is not always the best one for a business or merchant to decide in using.
How often and how much the fees would contrast vs. the potential loss by being tied down to a flat rate credit card processing cycle or subscription should be done very closely. Our specialists can estimate both scenarios for you to assist you in choosing the lowest cost option for your business type and expected card activity.
While flat rate credit card processing can be a great choice for some businesses, it should not be taken at face value.
If you would like to discover more interesting topics related to credit card processing or planning on conducting your business for wholesale transactions, you can find more resources and information on our website.