The credit card game

Regardless of your restaurant’s size, there are many benefits of having the ability to process credit card transactions. By accepting multiple forms of payment, you give your customers options and improve their experiences. You also attract a new group of customers to grow your business. In addition, card processing is an efficient, convenient payment solution that helps you improve cash flow by ensuring timely, automatic deposits to your account. Value-added services—such as gift card and prepaid card programs—can provide a new channel for generating profits and increasing your revenue. Check protection services can help you limit your risk from bad checks.

Weighing the Factors

While price is important, don’t let it be the driving force behind your credit card purchasing decision. First, review the service offerings of several credit card transaction service providers. Then consider these other important aspects of your buying decision:

Customer support is the most essential, because problems with credit card processing can quickly impact your bottom line. The best way to learn about a provider’s level of customer service is to obtain customer referrals from current clients. Request referrals from merchants that are comparable to your restaurant in size and similarity of customer habits. Then ask these important questions: Do they have to wait several minutes before reaching a customer support rep? Are their needs serviced quickly? How does the provider handle chargebacks? Also ask the provider about their level of support: Do they have phones staffed 24-7? Do they charge per incident?

Many factors can influence the fees you pay for the privilege of accepting charge cards. Among those factors: the length of time you have been in business, the percentage of your sales that you make over the Internet, the type of restaurant you operate, the number of years you’ve been a restaurateur, your personal credit rating, the average dollar amount of each sales transaction, and the total dollar amount of sales per month. Service fees tacked on by third-party providers or by their salespeople can also add to your costs.

Some companies advertise discount fees less than 2%. Usually, these lower fees are for swiped transactions (sales made by running the customer’s credit card through a machine). Therefore, when comparing processors, be sure to fi nd out what all of the fees will be. Compare not only the application fees and the discount rate, but also the initial cost of equipment, transaction fees (the fee you pay on top of the discount for each transaction you process), monthly minimums, voice verification charges, address verification fees (if extra), monthly statement fees, and any other costs you will incur. A difference of 10 cents on the transaction fee is equivalent to one-half of 1% on the discount rate if your average sale is $20.

Pay close attention to the cost of equipment or software for processing the charges, too. Identical software and comparable hardware can vary in price by $600 or more, depending on whom you purchase it from. If at all possible, do not lease equipment or software. Buy it at the start. By leasing it, you often set yourself up for three or four years of non-cancellable lease payments and wind up paying thousands of dollars more than necessary.

Be sure to carefully read all application forms and contracts mailed to you. Read all of the small print. Several companies will charge you if you want to stop processing charges through them in less than two to three years. What the salesman says on the phone may not be what the application actually says. If there’s a dispute, what will stand up is what is on the printed contract you get, not what you say the salesman told you. Check to see under what conditions the company can terminate your account, and whether there are monthly minimums or maximums.

The Application Process: What to Expect

Depending on which company you’re dealing with, you may have to provide any or all of the following: a copy of your business license or certificate of DBA (doing business as); profit and loss statements; copies of previous years’ tax returns; and a photo of your office.

If you’re not using a bank or financial company you recognize, make sure you verify that the company you are investigating is legitimate; there are con artists and scammers who set up fake processing companies just to collect setup fees, and then vanish. Contact the Better Business Bureau to check the company’s status if you are unsure, and if you find a credit card transaction service provider on the Web, make sure you get a physical address and a phone number.

Restaurant owners with small ticket amounts are usually wary of a merchant processing account due to pricing concerns. They seem to overlook the idea that paying for merchant processing is an investment in their business, and they may be surprised to learn that accepting credit/debit cards is not only convenient for their customers, but will ultimately help increase their bottom line. By taking advantage of small-ticket pricing offered through MasterCard and Visa, the per-item cost on card transactions under $15 has a lower-per-item fee.

Michael J. Rasmussen is the owner of Rasmussen Tax Groupin Conway, Arkansas. Visit for additional insight into restaurant-specific tax strategies and technology programs.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained here is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent advisor.