Not everyone understands that nonprofit organizations have to pay credit card processing fees just like any other type of entity. The thing to remember is that the board and others who are involved in the operation of the entity do have options. With the right approach to card processing, it is possible to keep the fees associated with the transactions lower. Here are some ideas on how to approach the creation of a plan for accepting credit and debit cards, and what the organizers need to know.
Evaluating Basic Options with Merchant Accounts
A merchant account is a type of financial account that allows the nonprofit business to accept credit cards as payment for services or goods rendered to buyers. It’s possible to establish an account with a financial institution like a bank or a credit card company. Once the account is up and running, specific brands of credit cards can be processed using the account.
Looking closely at the terms and conditions that govern the processing arrangement is essential. Even if a program seems to be a perfect fit, it pays to identify every fee found in those terms and make some projections.
Some of the fees will be easy to identify. For example, the setup fee associated with establishing the account is often a flat charge and will only occur once. Evaluating the processing fees will be more difficult, depending on how the plan is structured.
For example, the plan may come with an introductory fee structure that will remain in effect for the first six months of the relationship. During that time, the processing fee for each brand of credit card accepted will be a smaller percentage of the actual transaction. At the end of the introductory period, the terms may dictate that a fixed percentage is assessed on each transaction, up to a maximum amount of transactions per calendar month. Any transactions processed over that amount are subject to a higher processing fee.
In this scenario, the management team at the nonprofit organization will want to project the average number of credit card transactions the company will process per month. In some cases, that projection will need to account for seasonal upswings in consumer purchases. If the business is not likely to exceed the number of transactions that are processed at the lower percentage, the plan is viable. If not, it makes sense to shop around for one that offers lower fees for a larger volume of transactions.
Considering the Idea of Merchant Surcharging
In recent years, the concept of merchant surcharging has become more popular. This approach involves applying a processing fee to the total amount paid by the customer. Various terms are used to identify the surcharge, with checkout fee being one of the more common.
Choosing to add a surcharge does help to offset some of the cost of accepting credit card payments. Keep in mind there are limits on how much that surcharge can be. As with the credit card processing fees charged by the merchant account provider, the surcharge is usually a percentage of the customer’s purchase.
There are regulations that must be followed in order to add this fee to the transaction. Many states have statutes in place requiring merchants to disclose that such a surcharge will be assessed before the transaction commences. This is managed easily by posting signs in prominent spots in the nonprofit’s shop or adding the announcement on the checkout page of a website.
Some states do not allow merchant surcharges at all. Before assuming this is a viable way to keep the processing costs a little lower, find out if those laws apply to the organization. If so, it will be necessary to look for other ways to make the overall cost of accepting credit cards more affordable.
What about Third-Party Processing?
Another approach that should be investigated is third-party processing. One of the benefits of this approach is that there is no need to set up a merchant account. Some third parties offer terms and conditions that are highly competitive with the programs offered by merchant account providers. The only way to know for sure if this strategy is the more cost-effective is to sit down with a representative of the processor and learn more about setup costs, transaction fees, and how quickly the funds are credited and transferred to the client’s bank account.
Keep in mind that third-party processing may or may not come with some of the perks offered by a merchant account. One that stands out is the detail that appears on the actual credit card charge. Instead of including the nonprofit’s name, the name of the third-party processor or some generic designation is more likely. That may be confusing for the buyers. If a buyer cannot easily identify the charge as a legitimate one, that can lead to filing a dispute with the credit card company, the initiation of a chargeback, and an ensuing set of circumstances that leaves no one feeling warm and fuzzy.
Remember that this is not always the case. Some third-party processors do provide branded web pages for payment submission and even offer branding on purchases made in a brick and mortar setting. By walking through the specifics of a typical transaction and discussing different ways to structure the account, it is possible to come up with a solution that fits the need of the client.
The bottom line is that it’s up to the team at the nonprofit to evaluate solutions for credit card processing carefully. Never hesitate to ask questions when something does not seem to be clear, and listen closely to the responses. Don’t hesitate to compare the merits of a merchant account with the benefits offered by a third-party processor. Always know what laws and regulations apply to merchant surcharges and understand what must be done to ensure the charge meets those stipulations. While this means investing the time and effort to compare and evaluate each aspect of the processing carefully, the result will be a choice that serves the nonprofit organization well for many years.