Libby James | BUSINESS ADVICE
the volume
of transactions your
RISK FACTOR 2: Charge-back risk
Charge-backs occur when customers dispute a credit card transaction, leading to a refund and potentially incurring additional fees for the business. Kitchen and bathroom companies may be more susceptible to charge-backs because of the nature of their industry. Dissatisfied customers or misunder- standings regarding product quality, installation, or delays can result in charge-backs. Consequently, payment processors view this industry as having a higher charge-back risk, which may lead to increased processing costs. TIPS:
• CLEAR COMMUNICATION: Maintaining open
and
PAYMENTS so expensive?
CARD Why are
Libby James, the founder of
merchantadviceservice.co.uk, specialises in high-risk merchant accounts. Having
regularly dealt with KBB clients, she offers her insights into the costings surrounding card processing overheads and how you can deal with them
often encounter higher card processing costs compared with businesses in other industries. This can be attributed to several factors, including the volume of high-ticket sales and charge-back risks. As a result, kitchen and bathroom merchants are deemed higher risks, which therefore increases card payment fees. In this article, we will explore these factors in detail, while providing tips on securing favourable terms for your merchant account, and the potential benefits of switching accounts.
W
hen it comes to accepting credit card payments, kitchen and bathroom companies in the UK
RISK FACTOR 1: High-ticket sales
Kitchen and bathroom companies typically deal with higher-priced products and services compared with many other businesses. Renovations, installations, and custom designs often come with significant price tags. As a result, the average transaction value for these companies tends to be higher, leading to increased processing costs. Card processors typically charge a percentage fee on each transaction, meaning that higher-priced transactions result in higher fees. TIP: NEGOTIATE VOLUME DISCOUNTS: When negotiating with payment processors, highlight
transparent communication with
your customers can help reduce the likelihood of any charge-backs. Clearly outline your products, services, delivery timelines, and any associated
policies to manage customer
expectations effectively. • RESOLVE DISPUTES PROACTIVELY: In the event of a customer complaint or issue, address it promptly and professionally. Taking proactive measures to resolve disputes can often prevent charge-backs from occurring.
RISK FACTOR 3:
Lengthy time between transaction and delivery In the kitchen and bathroom industry, there is often a considerable time gap between the initial transaction and the delivery
business
processes. This can provide leverage to negotiate lower percentage fees for high-ticket purchases.
of products or completion of
services. This delay can lead to higher card processing costs for several reasons. First, payment processors typically hold funds for a certain period to mitigate the risk of charge-backs during this time (known as a rolling reserve). Second, the longer the gap between the transaction and the delivery, the higher the chance of customer disputes or changes in circumstances, which can result in charge-backs. TIP: SETTLEMENT TIMES VARY BETWEEN PROVIDERS: However, these can be negotiated, which in turn helps with cash flow. High-risk merchants with a good transaction history can often achieve next-day settlement terms for a small additional fee. If you’re unhappy with your existing terms, speak with your current provider or consider reviewing your merchant services contract elsewhere.
Understanding the factors that influence higher card processing costs is essential for managing your finances effectively. You can negotiate favourable terms with your payment processor by acknow- ledging the impact of
risk. Considering regularly
switching merchant accounts can help you optimise costs, increase transparency, and potentially enhance the overall payment processing experience.
Get the best terms on your merchant account
Interchange plus pricing: This is a payment processing model that
separates interchange fees
(charged by credit card networks) from the processor’s mark-up. This pricing structure allows businesses to see the exact interchange fee they are paying, enabling better cost
August 2023 •
control and understanding of the overall processing costs. Compare processors and negotiate better rates based on your transaction volume.
Switching accounts: Switching merchant accounts allows kitchen and bathroom companies to
explore different payment processors and potentially find more favourable terms. However, before making the switch, consider the following... A. COST SAVINGS: By researching and comparing different processors on a pound-for-pound basis, you may find one that offers lower processing
fees, reduced charge-back fees, or better terms overall. B. ENHANCED SERVICES: Switch- ing accounts allows you to explore additional features or services that may be more tailored to your needs, such as robust reporting tools or integrations with other software platforms.
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