Finance: Hidden Charges

iStockphoto.com

Most day spas accept credit cards, even though they pay a portion of the transaction fee to offer this convenience. To be able to process credit cards, businesses obtain a merchant account with an Independent Sales Organization (ISO). ISOs match businesses with companies that run transaction processing equipment. While some ISOs and payment processors are fair, others charge exorbitant fees or other hidden costs.

Snuggling up to merchant account contract may not sound so cozy, but reading the fine print can warm up your P&L statement during this economic freeze. Here are basic points for reviewing these contracts, which are summarized from a "Money Matters" column by Phillip M. Perry that originally appeared in the August issue of DAYSPA.

Termination fees
Early termination fees are often disguised or buried in technical language. Expect to pay a certain fee, but have a limit in mind. "The amount shouldn't be ridiculous—$250 or $300 is reasonable—but I've seen contracts that call for $1,000 or more," says Bob Becker, a consultant specializing in merchant services processing programs.

Full disclosure of transaction fees
Many companies charge higher rates for everything except common "charge card-present transactions" when the client physically presents the card at the time of purchase. If your spa incorporates online booking or retail, find out about additional fees incurred for specific transactions.

Equipment fees
Consider purchasing equipment to save money. Even a nominal $30 monthly fee can add up over the course of a 36-month contract.

Cost-plus financing
Until about two years ago, merchants generally charged markups using a traditional multi-tiered pricing system. But now experts suggest businesses shop for a cost-plus financing schedule, which marks up the actual interchange rate of each transaction. That can reduce the cost of accepting each transaction anywhere from 15% to 35%, according to Bill Hearon, president of Effective Payment Management (www.effectivepaymentmanagement.com).

Fee increases
Another fine-print section worth reading with bifocals: Merchant account contracts. They often contain language that allows companies to impose periodic fee increases, even without warning or justifiable cause. "The contract should state that the processor won't raise fees for any reason other than an increase in the interchange rate paid to banks," Becker says. He adds you should be able to cancel the contract without penalty should the rates increase beyond the standard interchange fee.

Get More Information

• "Merchant Processing 101" by Robert Becker. A tutorial that helps you determine if you're getting the best deal on your merchant account. $28.96 through www.merchantprocessing101.com.
• Effective Payment Management, a Princeton, New Jersey-based consulting firm, publishes online articles on how to shop smart for a merchant account. Visit www.effectivepaymentmanagement.com.
• Braintree Payment Solutions, a Chicago-based payment processor, provides information about what to look for in a good contract. Visit www.braintreepaymentsolutions.com.

Back to the Main Business page

Previous article, Charitable Donations