Choosing the Right Credit Card Processing Program for your Law Firm
Basis points. Card not present or card present. Cost-plus. Interchange. Flat rates. Tiered rates. Debit or credit. Low risk and high risk. PCI compliance. Underwriting policy. Merchant account reviews. Surcharges. Providers. Facilitators.
If these terms have you scratching your head, know you’re in good company. The world of payment processing is complicated and multi-layered.
At LegalPay, we know this world can be complex. But we’re here to help you unravel it a bit, so you can make the best business decision for your law firm. Let’s start by going over two of the more popular types of credit card processing programs: interchange cost-plus and flat rate.
To understand the plan, you’ll need to understand the basic parts of credit card processing.
Every credit or debit card has different acceptance costs—think about the bank that issues a card to a cardholder—sets their own interchange rate. This covers the issuing bank’s risk of providing the consumer with credit and their administrative costs. Some cards carry more risk than others. Debit cards, for example, are very low-risk cards because funds are debited directly from the consumer’s account. On the opposite end are rewards and international credit cards. These cards are great for consumers because they offer airline miles and cash rewards, but they are very risky for card providers and, by extension, pricey for the businesses who take them.
As a merchant, you are paying processing fees that are a combination of the interchange rate, plus the processor’s markup, and other fees like assessments.
Now that you understand who the players are, let’s go over a couple of their pricing options.
Rate Pricing Plan
What it is:
A flat rate plan refers to a credit card processing model presented as a single, flat rate. Flat rate plans try to encompass over a thousand credit and debit card types and their interchange fees into one or two rates that they charge your law firm. It masks the complexity behind credit card processing.
This is the game plan for facilitators like PayPal, QuickBooks, and Square.
This is easy for merchants because you only need to track two rates: the card present rate and the card not present rate.
Who it’s great for:
Businesses whose actual fee, or the interchange rate plus other fees, are more than the flat rate being charged. This is typically the case with new businesses or businesses with small transaction sizes.
As a special bonus, facilitators like PayPal and Square don’t require you to apply for a merchant’s account, so it’s fast and easy to get started. A great solution when your to-do list seems never-ending when managing a law firm.
Why it’s great:
It’s simple and straightforward, so it’s easy to predict. Its simplicity is the flat rate plan’s greatest asset. Keep in mind, as your business and volume grow, the flat rate plan may be too expensive to use.
Interchange Cost Plus Plan
What it is:
It’s the interchange rate set by the card issuers, plus the cost of processing the credit card, and card brand assessment fees. Easy peasy. The interchange rate is variable by card. So, if you accept cards with lower interchange rates (like debit cards) you will benefit from paying the actual cost of the card.
Who it’s great for:
Really, it’s great for every business, but especially for mature businesses—like law firms—with high volume. As a mature business, you’ll have enough transactional history to understand which types of cards you typically see and then calculate how much you’ll pay to receive them.
If you’re currently on a flat rate processing plan, you can easily find savings by switching to cost plus, without raising any client fees. You’ll only have to keep your eye on one number, the markup to cover the cost of processing the card. How simple is that!
Merchants tend to shy away from cost plus because it makes you look at the details of your credit card processing. By looking at your statement, you’ll see which cards you take the most and calculate your actual costs.
Also, a detailed report means that you know where your processing fees are going. Interchange cost plus plans are incredibly transparent, making this the most cost-effective pricing model, and the closest a business owner will get to wholesale.
Why it’s great:
A cost plus plan is how you get true debit pricing. We know that debit cards are the least risky card type, which means that they are usually the cheapest card to process. Under a flat rate plan, they will cost as much as a high risk rewards card. Cost plus helps you find those savings.
Don’t get too overwhelmed with the analysis involved with a cost plus plan yet. Trust us, it’s worth the effort. And LegalPay will help you understand your payment and model how much you will pay with the cost plus plan.
A Simple Comparison
A simple comparison of these two programs shows the potential savings from choosing an interchange cost plus over a flat rate plan. This example compares a $1,000 debit card transaction and it shows the math involved in that transaction. A credit card transaction would use the same formula with the only difference being the interchange rate and maybe the card brand assessments.
Now that you know the difference between flat rate and interchange cost plus plans, which plan do you like more? Where do you think you can save some money?
If you want help reviewing your merchant statement and getting a free quote for your payments processing, visit us at www.mymonify.com.