Thank one of my merchants for this suggestion.

If you’re a brick-n-mortar business, and you’re using terminals to run your credit card transactions, you may have experienced the discomfort of a terminal dying. You may have needed to funnel large numbers of customers to other cash lanes, causing gridlock at your registers and annoying both your employees and your customers. Or, God forbid, you only had the one terminal and now you’re stuck with no easy way to do business.

Having an extra terminal is such a simple way to avoid those problems.

Now, obviously, there are a few things to know beforehand.

First, if you’re leasing your terminals (which Robb and I DO NOT recommend), the month-over-month cost of a terminal you’re not using probably isn’t worth it. (Again, don’t lease terminals unless you absolutely have to. Good terminals can be had for under $300, whereas a lease will be roughly $20/month or more for years on end.)

Second, you just might not have a couple hundred dollars lying around to get the spare. No biggie. But when you can afford it, seriously consider it.

Third, there’s usually a fee to swap a broken terminal for a new “spare”…but it’s usually much less than a new terminal without the trade in.

Here’s proof of that merchant’s foresight: They’re a big performing arts theater that has eight terminals. Six are for ticket windows that get flooded right before a performance. One is for orders taken in the back office. And the last one is a spare. My contact mentioned they’ve always kept a spare because losing any of those terminals creates a huge backup at the ticket windows and has even delayed performances.

After nearly a year, I received a call one day saying, “John, we need to swap out a terminal. We’re using our spare.” Two days later they had a brand new “spare” that cost only 1/3 of the original terminal’s price (we honored the broken one as a trade-in), and they never missed a beat in their processing.

Don’t you love happy endings?

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I am writing this post for new or young businesses that have very little experience with merchant accounts. Let me start by letting you know where I get my knowledge on this subject.  Many of my new clients have been in business for three to four years.  When I first speak to them the first thing they do is send me their merchant account statement to review.  My knowledge comes from these statements that are normally filled with exorbitant and hidden fees.

Here are five things to watch out for when choosing a merchant account.

1. Watch out for credit card terminal leases – if you go this rout it will help your short term cash flow but the terminal will end up costing you 400% – 600% more than if you just purchased the terminal. For more information see this article.

2. Watch out for proprietary terminals and payment gateways – these are products that only work with a certain merchant account provider. The good names you want to see on your terminal are Hypercom, Verifone or Nurit and authorize.net or Skipjack for your payment gateways.

3. Watch out for bucket pricing – typically if you the phrases “qualified”, “mid-qualified” and “non-qualified” are on your statement, you are paying more than you need to for a merchant account. For information see this article.

4. Watch out for incredibly low rates – If you are promised a rate anywhere below 1.6325% + $.10, which is the base wholesale cost for a swiped Visa transaction, there is something going on that will not be a benefit to you. For more information on this subject go here.

5. Watch out for early termination penalties – just like in the cell phone industry, these penalties are very common in this industry. If you work hard you should be able to find a company that will provide a month to month agreement or one that only requires a thirty day cancellation notice.

If you think it is too early to get a merchant account here is a good post to read.

If you have been in business a while or are doing at least $10,000 a month go here and fill out the form and I will contact you shortly.

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Can you say proprietary?

How about “proprietary credit card data capturing device?”

To explain what I am trying to get at let’s start with the definitions of the words in that phrase above:

pro·pri·e·tar·y = indicates that a
party, or proprietor, exercises private ownership, control or use over
an item of property, usually to the exclusion of other parties.

cred·it card dat·a captur·ing de·vice
= credit card terminal

When you put these words together what you end up with is a credit card terminal that only works for a particular credit card processingnetwork. On top of that the companies that make such products usually have contract with an early cancellation fee and lease the terminal to their clients for three to four years!

So let me paint a picture for you. You, the merchant, are somehow sold on a rate of 1.39% from a credit card processor. But of course to get such a rate you have to lease a new machine and sign a four year contract. You sign the paperwork, your new terminal arrives the next day and off you go, looking forward to saving all that money because of the wise business decision you just made.

Then your first statement arrives. What’s this? The 1.39% only applies to 35% of your transactions?! The other transactions come in a rate somewhere between 2.79% to 4.23%! On top of that your lease is $39 a month ($39 x 48 months = $1872!). Now what do you? You want out of this contract and you want out now. Problem is you are stuck with a four year contract with an early cancellation penalty and a terminal that only works with this provider and you still owe 41 months of payments on it.

So what is the solution? I have no idea. I am just trying to warn you to watch out for such a scenario and make sure it does not happen to you. Just remember this time tested, well know wisdom – if it is too good to be true, it usually is. Consider yourself warned!

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The main reason to not lease merchant account terminals is that you are upside down before the ink is dry on your lease agreement. For example: a $39 lease for 48 months will cost over $1,800. The brand new terminal may be worth $400 or $600 but within months it rapidly depreciates to used equipment prices of $300 or less, but you still owe $1,700. Ouch!

The next reason is leases often automatically renew and contain a buyout clause at the end
of the term that must be acted upon to terminate the agreement. Watch out for a fair market buyout clause. Fair market is vague, but even if it is capped at 15% of the original lease, in four years you may end up paying as much as the equipment would cost new.

I could give you a few more reasons to not lease credit card terminals but do you really need any more?  Besides, I have a much better option; if you already have a merchant account request a rate review.  If your account meets certain guidelines I am able to provide a free terminal, including free shipping and as always, NO CANCELLATION PENALTY.

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Software Advice helps businesses in the construction, medical and retail industries make the right technology decisions. Using the Software Advice website, buyers can identify and compare software products that meet their unique requirements. After building a “short list” of best-fit products, buyers can request demonstrations, price quotes and other information. Software Advice can be found on the Web at www.softwareadvice.com. The company is headquartered in Big Sky, Montana.

Source: Company press release

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