When it comes to credit card processing, two pricing structures stand out: flat rate and interchange plus. But is one better than the other? How do you know which is the right fit for your business? To determine what may work best for your business let’s first learn what each type is and what the pros and cons are for each. (Merchant Service)
What is Flat Rate Credit Card Processing?
Flat rate credit card processing This type of payment processing charges a flat fee per transaction. This method of payment is growing in popularity because it’s easier and more predictable for businesses to pay for their transactions.
Which Types of Businesses Can Benefit from Flat Rate Credit Card Processing
Flat-rate credit card processing is a good option for small businesses, online businesses, as well as restaurants. Flat-rate processing is easy to understand and is a great choice for new businesses that are just starting to use credit card processing. Flat rate processing is best for businesses that process low volumes of transactions per month.
Types of Flat Rate Credit Card Processing
There are two types of flat-rate credit cards processing:
1) Flat-rate per-transaction processing: This processing type charges a flat fee for every transaction, regardless of how large. This is a good option if you have a lot to process.
2) Monthly flat-rate Processing: This processing charges a fixed monthly fee, regardless of how many transactions are processed. This is a good option for small businesses that process a lot of transactions per month.
What are some of the benefits of flat-rate processing?
Flat-rate processing can be the easiest pricing model to grasp. Flat-rate processing charges a flat fee per card swiped. This pricing model comes with many benefits.
- No monthly charges: Companies that do not bill monthly for services don’t usually charge a flat fee. This is particularly good news for small businesses that need to process irregular credit card transactions. Perhaps your business model is focused on making one sale every few months. It’s not worth paying a monthly processing fee if you don’t use the service in most months. This applies to seasonal businesses as well. Many merchants who do not offer flat-rate processing for credit cards are required to sign a contract that lasts at least one year. Businesses that work seasonally will end up paying more for processing in the off-season.
- Simple processing statements: Flat-rate processing also simplifies your monthly processing statements. Interchange-plus pricing companies, for instance, can send lengthy statements that include a lot of rates, depending on which interchange rate is being used for each transaction. Flat-rate processing eliminates the complexity of computing interchange fees and provides a clear view of what you will be paying for each transaction.
- Transparent pricing: Flat-rate processing is a way to get a clear idea of the costs you will be paying. Others might charge additional for their point-of-sale tools or add on fees like compliance fees. Companies such as Square do a great job consolidating many features and services into one simple processing rate. The account can be opened for free, and you will only have to pay if you make a sale.
What are some of the cons to flat-rate processing?
While flat-rate processing can make sense in some cases, there are some drawbacks to be aware of if you’re considering providers that offer flat-rate pricing.
- More expensive: In general, flat-rate processing fees tend to be more expensive than interchange plus processing fees. Interchange-plus pricing tends not to be as expensive overall per transaction. Flat-rate processing means that you pay a flat price for all apples regardless of their weight. Interchange-plus pricing, on the other hand, is like paying for an Apple based on its weight. In this example, weight refers to the hundreds of interchange fees that could be charged when a credit card transaction is completed. Flat rates are determined by processing companies. They decide on a price point to make a profit, even though every transaction uses the highest interchange rate. Flat-rate processing means that businesses will pay more for transactions using lower interchange rates.
- Not suitable for high-volume, regular processing: Flat-rate processing costs more than interchange-plus pricing per transaction. Therefore, the higher your volume, the higher you will end up paying flat-rate processing premiums. Although it may seem that flat-rate processing would be more expensive than standard pricing, interchange-plus pricing is a common way for providers to charge a monthly fee. To save money with interchange-plus pricing, your business must be processed in a consistent, high volume each month. If your business makes steady transactions each month, flat-rate processing will likely be more costly than interchange-plus pricing.
- No custom pricing: The lack of custom pricing can also increase the price of flat-rate processing. Processing companies that use interchange-plus pricing models will often offer lower processing rates because their merchants process more transactions. These rates can make a significant difference in the overall cost of a company’s growth. While flat rate pricing is increasingly popular, some processors still offer interchange-plus pricing. This pricing model is more complicated, but it can be beneficial to businesses that process large volumes of transactions. Flat Rate Credit Card Processing for Small Businesses: Is it Right?
When deciding whether flat-rate credit card processing for your business is right, there are many factors you should consider. The volume of your business’s transactions each month is one of the most important considerations. A flat rate is a better option if you process large amounts of transactions each month. It will also be cheaper than other processing options. If you only process a few transactions per month, however, a flat rate may not be the best choice as you might end up paying more fees than with other types of processing.
What Is Interchange Plus Pricing?
Interchange Plus pricing considers interchange fees charged to credit card issuers. This pricing model is more transparent than flat-rate processing, as it allows businesses to see the exact amount they are charged for each transaction.
Interchange Plus pricing may be more expensive than flat-rate processing for some businesses, but it may offer more savings for others. Before deciding which option is best for you, it is important to weigh both the benefits and disadvantages of each.
Here are the pros and cons of Interchange Plus Pricing
What are some of the benefits of Interchange Plus Pricing?
- Transparency: While it has the potential to make your credit card statement more complex with interchange plus you’ll always see the fees paid for each transaction. This can help you to compare prices to make sure you are getting the best price.
- More Affordable: Some transactions are more affordable. For example, debit card transactions typically are less expensive than credit card transactions.
What are some of the cons of Interchange Plus Pricing?
- Harder to predict the monthly cost: Interchange plus is more complicated. Since each transaction has a different cost due to the amount of the transaction it is harder to predict what your monthly fee will be.
- Some transactions have a higher cost than others: Elite Cards have high interchange rates associated with them. The processing fees added to these cards may be more expensive than a flat-rate model.
Which is best for your business: interchange plus or flat-rate pricing? It all depends on your processing volume and individual needs. A payment processing specialist can help you decide which option is best. They will help you choose the best solution for you and save you money.
The best pricing option for your business will depend on many factors such as the size of your company, your products and services, and how many transactions you process each month. To find the best option for your business, speak to a credit card processing specialist. (Merchant Service)
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