Red Flags to Avoid While Choosing Credit Card Processing Company

Choosing a credit card processing company is a big decision and not one you should take lightly. Each company has different requirements, fees, and tactics. Knowing the red flags to watch out for should help you make the right decision.

Watch out for the following red flags.

Red Flag: The Agent Offers a Qualified Rate

This happens all the time. Credit card processing companies advertise their ‘qualified rates,’ and get businesses to jump on board. Here’s the problem. Most cards don’t qualify for the ‘qualified rate.’ This falls under tiered pricing, which means a majority of your transactions will fall under the non-qualified or at least not the lowest qualified rate. In other words, you’ll pay a lot more for credit card processing than you were originally promised. 

Red Flag: You must Lease the Equipment

Leasing equipment sounds great, right? You don’t have any commitment. If you change your mind or want new equipment, you don’t have to worry about the hefty investment you made in buying it. Wrong. When you lease equipment more of than not, you’re tied into a contract – one that’s likely longer than you’d like.

Leases are a separate contract from your credit card processing contract. Merchants have found themselves stuck in a long-term contract long after they cut ties with the credit card processor. Plus, leasing equipment almost always costs you more than buying it. Let’s say equipment costs $400 to buy it, but you lease it for $50 a month. If you keep it for longer than 8 months, you’ll pay more than it would have cost to buy it. 

Red Flag: They Claim Free Equipment

Who doesn’t love free, right? Watch out, though the equipment may not be as free as they make it sound. Sure, you won’t pay for the equipment, but what you will pay is much higher fees. Check your credit card processing rates versus other providers to see if they’re higher. Even if the rates aren’t higher, they may sneak in other fees that you don’t notice unless you read the fine print.

Free equipment may also come with a minimum amount processed requirement. If you don’t process enough, they may charge a fee that’s a lot more than what you’d pay for the equipment if you bought it outright. 

Red Flag: The Processor Pushes Tiered Pricing

Tiered pricing, which we discussed above, is one of the toughest pricing models. You can’t predict your credit card processing fees and may often be shocked at the costs, depending on the type of cards buyers use. If the salesperson pushes the tiered pricing, there’s a good chance they make a lot more off your transactions than they would if you choose flat rate or interchange-plus pricing. If it seems too pushy – look elsewhere. 

Red Flag: Lack of Transparency

There are a lot of fees with credit card processing, but that doesn’t mean any company should hide the fees. Transparency is the key. If you have to ask a million questions just to learn the pricing basics, look elsewhere.

If you look around, you’ll see some companies show their rates on their website without you inputting any information. Others put the bare minimum and yet others don’t provide any information – they make you call. It’s those companies you should avoid. When you call, you’ll face pushy salespeople and may find yourself agreeing to programs you otherwise wouldn’t have if you were able to see the pricing on your own. 

Red Flag: Lack of Customer Support

Customer support is crucial to your success. If a company doesn’t have customer support on demand, look elsewhere. If you can’t answer your customer’s questions or issues within a few minutes, they’ll likely go elsewhere. Look at the type of customer support each processor offers. Is it online only or do they offer 24/7 phone support? Is there an online chat option? Think about how you want to talk to customer support and see if they offer it. 

Red Flag: Termination Fees

Unless you want to be tied into a specific term, watch out for termination fees. They often cost as much as your monthly fees when you process credit cards. Instead, look for month-to-month contracts with no termination or early cancelation fees. If you lock yourself into a contract, you’re stuck with the same provider for several years (or the term of the contract) with no way out unless you want to pony up the termination fee. 

Red Flag: Account Setup Fees

There shouldn’t be a setup fee. Most programs are plug-and-play, taking merchants a matter of minutes to complete. If there’s a setup fee, ask what it’s for and what they provide with it. If they can’t account for it, there’s no reason to pay it and you should look elsewhere. 

Red Flag: Monthly Minimum Requirements

Unless you’re 100% sure of the amount you’ll process each month, don’t commit to a minimum monthly requirement. If you do and you don’t process enough, you’ll pay a serious fee which may total more than you would pay regularly. 

The bottom line is, do your homework. Know what to expect and what to look for from each merchant services provider. If something doesn’t seem right or if the sales agent seems to be holding back information, look elsewhere. There are many credit card processing companies available today, each of which provides a variety of benefits that suit different merchants. This isn’t a one-size-fits-all approach – look for the provider that caters to your needs and has a contract that suits your company’s needs.

This is a guest post by Lou Honick. He is the CEO of Host Merchant Services. Prior to founding Host Merchant Services in 2010, Lou was the founder of HostMySite.com and received numerous awards including SBA Young Entrepreneur of the Year, Inc Magazine 30 under 30, and multiple listings on the Inc 500. As a serial entrepreneur, all of his companies have operated on a singular devotion to outstanding customer service and support. Lou is a respected expert on the topics of customer service, payments and fintech, Internet technology, and entrepreneurship.