Anyone that’s had to deal with cbd s and credit card processing will tell you that the subject can get pretty confusing. There’s a lot to know when looking for new merchant processing services or when you’re trying to decipher an account that you already have. You’ve got to consider discount fees, qualification rates, interchange, authorization fees and more. The list of potential charges seems to go on and on. The trap that many people fall into is that they get intimidated by the volume and apparent complexity of the different charges associated with merchant processing.
Instead of looking at the big picture, they fixate on a single aspect of an account such as the discount rate or the early termination fee. This is understandable but it makes recognizing the total processing costs associated with an account very difficult. Once you scratch the surface of cbd s they aren’t that hard figure out. In this article I’ll introduce you to an industry concept that will start you down to path to becoming an expert at comparing cbd s or accurately forecasting the processing charges for the account that you already have.
Figuring out how much a cbd will cost your business in processing fees starts with something called the effective rate. The term effective rate is used to refer to the collective percentage of gross sales that a business pays in credit card processing fees. For example, if a business processes , in gross credit and debit card sales and its total processing expense is . , the effective rate of this business’s cbd is . . The qualified discount rate on this account may only be .
, but surcharges and other fees bring the total cost over a full percentage point higher. This example illustrate perfectly how focusing on a single rate when examining a cbd can prove to be a costly oversight. The effective rate is the single most important cost factor when you’re comparing cbd s and, not surprisingly, it’s also one of the most elusive to calculate.