Credit card processing fees are tricky for many merchants to grasp. Most businesses have to pay a percentage of their monthly sales volume to cover a processor’s rates. That means that for every $100 that a retailer sells on credit, it must pay anywhere from $1.50 to $2.00.
For many merchants, this sounds like a fair way of doing business. Car dealerships are another story, though. These companies sell big-ticket merchandise that run up huge processing fees. Say someone wanted to buy a car for $30,000 on credit. If the dealership’s rate hovered around 1.75 percent, it would have to pay a little over $600 in processing fees for that car alone. An average dealer only makes about $1,000 to $2,000 on each car sold, so that means credit card charges could steal up to 50 percent of these merchants’ profit.
This makes credit card processing understandably difficult for car dealerships. Fortunately, there are ways to simplify this issue. Read on to learn how dealers can minimize risk and make the most of their processing agreements.
Review Terms before Signing an Agreement
It takes good faith to sign a contract, but it takes more than just hope to get a good deal. Credit card processing is like any other industry. Some service providers genuinely try to offer their customers a fair deal, while others are out to shake down innocent merchants. Misinformed dealers might end up in a binding agreement with the latter if they don’t take a close look at the terms of their deals before they sign them.
The payment processing industry is competitive. If dealers can’t find the right plan, they can rest easy knowing that there are hundreds of other service providers that have better options. With enough research and diligence, nearly any car dealership can benefit from the right deal.
Avoid Extra Charges
Car dealers may find strange charges on their first monthly statements, even if they pay close attention to their contracts prior to signing them. That’s because credit card processing firms usually charge extra for necessary fees and services. Merchants may end up paying unexpected terminal fees, surcharges, and other harmful expenses.
This creates obvious problems for car dealerships. For businesses that already suffer from low profit margins, extra fees are unacceptable. Furthermore, unexpected costs can throw a budget into complete disarray. Dealers can look for a plan that doesn’t charge extra fees, but they may have trouble finding one.
Look for Chargeback Protection
Chargebacks pose both short- and long-term threats to car dealers. When a dealership receives one of these penalties, it has to cover the amount with money from its merchant account. If money’s tight and the account can’t cover the balance, the dealership may default on the charge, which can carry dire financial consequences.
These penalties’ long-term effects are even worse. Dealers that face too many chargebacks may not be able to apply successfully for merchant services. Avoid these problems by seeking plans with reasonable chargeback protection and taking steps to limit the penalties you incur.
Choose an All-Inclusive Pricing Plan
An all-inclusive pricing plan can help car dealers overcome all of these obstacles. Customers only pay a flat rate, so they don’t have to worry about extra charges or fees every month. Many plans also come with extra perks such as chargeback protection and more. With all of these benefits, dealers won’t have to receive confusing statements ever again.