Article contributed by Jeffrey Shavitz
I have worked with over 20,000 business owners with the goal of them understanding a crucial element of their business: Credit Card processing.
Total Food Service has asked us to analyze the data from our look at those credit card processing programs with a goal of understanding and bringing some additional savings to your operation in 2023. We’ve found that the pace of life for today’s restaurateur, CEOs and entrepreneurs find them engulfed in putting out the fires of daily operations. Consequently, the attention to credit card transactions and the corresponding costs are not being properly addressed.
It’s obvious that credit card acceptance with the explosive growth of takeout & delivery continues to rise as a form of payment. However, it is important to avoid the pitfalls associated with taking a credit card for payment and understand different issues that will affect your profitability.
The approach, I want you to take is to look at this exercise as the update of a program or system, not just an attempt to find the best price for yet another line item on your restaurant’s P&L. Yes, the word “program” is critical as there are different programs and solutions depending upon the needs of your restaurant. What is your rate is the most common question asked? Yet the “base rate “is only part of the equation. The credit card industry has numerous “hidden costs” which can, and will, inflate credit card costs. When analyzing your credit card statement, there are over 500+ Interchange fees, gateway fees, PCI fees, annual fees, regulatory fees, transaction fees, cross border fees, (and many others) that comprise your “effective rate”.
As more technology and SAAS based solutions enter the restaurant space (i.e. Toast, Lightspeed, Revel, UpServe, Clover, TouchBistro, just to name a few), it is becoming more confusing to analyze credit card fees as many of these above solutions bundle a flat and/or blended rate into their monthly SAAS fee.
It’s easy to jump to the conclusion that all Interchange fees are the same. Yes & No! You can visit Visa and MasterCard and see many published Interchange fees. Yes – these rates are all disclosed in black and white; however, it is important to “optimize interchange” which, in layman’s terms, means ensuring that all transactions are “optimized” and hit the lowest interchange fee. For example, if a consumer pays their restaurant bill on a corporate card vs. a rewards cards vs. a personal credit card will create different fee classes and corresponding costs for the merchant. For instance, are the majority of your transactions swiped (card present) or manually entered, or transacted through a mobile app and/or the internet). Think about your restaurant and determine the percentage of swiped transactions, take-out orders and mobile transactions throughout the month; depending on this blend will determine the most advantageous way to set up your merchant services’ program.
Visa and MasterCard maintain different rate structures for different types of cards and how a transaction is processed. Reading a merchant services’ statement to many is like reading a foreign language to many. After 20+ years of analyzing statements, I still get confused; without sounding presumptuous, if I confused sometimes reading a statement accurately, I am confident that the majority of financial executives will also have a difficult time properly analyzing their fees.
Hidden fees continue to enter the payment industry. Not having a transaction fee does not necessarily ensure the best rate structure. Processing and POS companies will “bundle” their rate, combining the discount rate and the transaction fee to give businesses the appearance of a better structure. Many credit card companies will offer a low introductory rate, which to a layperson will seem too good to pass up. However, as a restaurateur buyer beware because those “downgrades” or penalties for a restaurant can be steep.
When it comes to your credit card program, access to cash is king! You need to find out and we would be happy to help you confirm just how long it is taking for the money from your credit cards: 12, 24, 48 or 72 hours to get into your account. Why should you have to wait three days to get your money, doesn’t 12 hours sound better? Next day funding is critical to help with cash flow issues.
The second issue with timing is when is your discount fee taken, daily or monthly? Think about the savings on interest, the float of your money plus increased cash flow if your fees were removed at the end of the month? It certainly adds up and these issues will help greatly with your cash management.
We have also recently uncovered another way to bring credit card fees in line. This new payment processing program enables restaurant owners and all businesses to legally “pass on” the credit card processing fee to the consumer. Here’s how it works: Let’s assume the dinner check is $100. If the customer pays with cash the bill is $100. If they opt to use their credit card, the total price of the bill will be $103. We noticed that there is a legal difference per Visa/MasterCard regarding a “Surcharge” vs. a “cash discount”. This loophole, which we can teach you will enable you to actually pass the payment of the “cash discount” onto your dining patrons.
There’s a common expression in business “if it ain’t broke – don’t fix it.” I know when you run a successful restaurant, there are no shortage of vendors, staff and patrons to listen to. As a fellow entrepreneur and business owner, change is scary and switching from your current processor / POS system may have issues. What I am suggesting is that whether it is us or another firm, I would like you to consider bringing in an expense auditing firm to uncover the mistakes and hidden fees that are prevalent in the payments industry. I don’t want you to replace your POS, just get a simple audit to confirm or uncover exactly what is going on.
Running a business is complicated and as executives, we have a myriad of responsibilities for our company. Why not start saving money today by evaluating your credit card processing program to drive increased profitability to your bottom line!
Jeffrey Shavitz has spent 20+ years in the payment processing industry and has helped over 20,000+ merchants in a variety of industries ranging from Fortune 100 companies to independent business owners. Jeff ‘s first company, Charge Card Systems Inc. grew to over 500 salespeople before being sold to First Data. Currently Jeff is President of Merchant Advocate Ventures, an expense auditing firm that analyzes credit card processing fees without the need to change processors and/or POS systems. To date, MAV has saved its clients over $250MM in processing fees. Jeff has written 6 business books and “Size Doesn’t Matter – Why Small Business is BIG Business” hit #1 on amazon. Jeff is offering TFS readers a free analysis of their current credit card system and fees. Contact information is jshavitz@merchantadvocate.com / 201-245-4545 and personal website is www.jeffshavitz.com.
