By Rich McIver

Without a doubt, credit card processing plays an essential role for any small business in today’s economy. Plastic card purchases comprise 66% of all U.S. transactions and as cash payments decline, this percentage is only destined to increase.

Signing up for credit card processing is very much like signing up for a cell phone account. You’ll be presented with a contract consisting of five to ten pages of fine print. However, unlike a cell phone contract, the merchant has the power to negotiate a credit card processing contract. For this reason, it is important for all small business owners to understand the terms listed in their contracts. Here are five credit card processing contract terms that you should always negotiate before signing:

1. Setup Fee

Most companies don’t charge setup fees, and those that do are almost always paying it as straight commission to the salesperson. There isn’t very much setup involved for small business credit card processing, so it doesn’t cost the processer much more than the labor costs of the initial phone call establishing you as a client. 

Therefore, you can almost always have a setup fee removed from your credit card processing agreement. The salesperson may not enjoy cutting their commission, but will usually agree to do so in an attempt to sign your business. 

Remember to keep in mind that if you’re having your processor install a multi-station POS system, this will require significant setup. You will likely be charged for this service, but feel free to negotiate the fee down.

2. Equipment Leases

Most credit card processing companies offer the option of purchasing equipment in full or leasing it from them at a monthly fee. There are other times when they try to sneak a lease fee into your contract despite providing the equipment to you for “free.”

It is usually a better business plan to buy credit card processing equipment yourself than participating in a leasing program. You could end up paying two to three times the cost of the equipment if you lease from your merchant service provider. It is also not likely that you will be able to take your equipment with you if you decide to switch providers. Leasing equipment can also sometimes give the credit card processing company leverage to keep you locked in to a contract.

3. Equipment Insurance

Another fee related to equipment that credit card processers try to push on merchants is equipment insurance. Like many insurance plans available, this service could potentially never be used and can end up costing you more than your equipment is worth. If you feel it necessary to include equipment insurance in your contract, try to negotiate the fee as a reasonable annual fee versus a continuing monthly fee.

4. Cancellation Fee/Liquidated Damages

Cancellation fees are commonly intended as a form of leverage for the processor to keep your business locked in a contact. At one point or another, we’ve all had the experience of wanting to switch to a cheaper service, but the $100-plus cancellation charge was so hard to swallow that we let the existing service continue.

Luckily, the cancellation fee (also known as a liquidated damages fee) can usually be negotiated completely out of the contract. The salesperson will typically give you less push back writing this fee off since it’s normally a fee that only the credit card processor receives.

The exception to this is if the processor provides you with free equipment (with a value of, say, $300). It would then be reasonable for a processor to want to make back at least the value of the equipment ($300) before you cancel their contract. With that in mind, a cancelation fee could be negotiated in a way that the fee reduces each six-month period, so that it is ultimately gone by year three.

5. 1099-K Fee

Every year credit card processors are required to submit to the IRS a 1099-K that reports a merchant’s gross sales for the year and includes a monthly breakdown. Although this is a federally regulated requirement, many credit card processors add in a monthly or yearly “Regulatory Fee” to the merchant’s contract for maintaining and completing a 1099-K. Although your processor may not want to remove this fee, knowing that you have the option to ask them to remove this fee or negotiate the rate could end up saving you hundreds in the long run.

Credit card processing can be complicated for small business owners and not fully understanding contract terms can often end up costing hundreds or thousands of dollars in extra fees per month. It is wise as a business owner to use the power of negotiation to your advantage when signing up for credit card processing. Don’t be embarrassed to push for better contract terms in your credit card processing agreement.

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About the Author

Rich McIver is the founder of Merchant Guide LLC, a service that assists small businesses owners in obtaining merchant accounts with competitive credit card processing rates. Follow Rich on Facebook and on Twitter @mnegotiators.