A merchant requires knowing several facts while looking out for new processing services with regard to a merchant account. One has to consider authorization fees, interchange, qualification rates and discount rates. The number of potential fees to be paid is a big list.

Many merchants get intimidated with the apparent complexity and volume of the various charges involved in merchant processing. The processing fees involved with a merchant accounts starts with effective rates. The effective rate refers to the total percentage of the gross sale which a business pays as part of the processing fees of a credit card. An effective rate is the most important factor in the cost incurred by merchant accounts. While shopping for a merchant account, the effective rate seems to be less expensive when compared to other charges. The effective rate allows merchants to forecast after calculating the total processing expenses incurred in processing credit cards. The calculation of the effective rate for merchant accounts of already existing trades gives accurate results in comparison to the result obtained for a new trade. This is because the estimates are obtained with the help of the processing history. This does not imply that new businesses should not take into account the effective rate.

The effective account is a vital cost factor. However, the effective rate calculated by new businesses should be considered as the conservative estimate. It is quite simple to find the effective rate if an existing account. A merchant only needs to find the fraction of the expenses over the gross debit and credit card sales. The gross sale must be divided by the total processing cost for a particular month. This result needs to be multiplied by 100.

Example: $ 32 in fees / $1000 in sales * 100 = 3.2%

If the charges for effective rates are higher than the discount rates, the merchant must make adjustments to make money. In such cases, it means that the non-qualified and mid-qualified surcharges are being applied on the merchant account. Is large discrepancies are noticed between the effective rates and the qualified rates, it is best to ask inquire from the provider how this gap could be closed.

For calculating the effective rates of new merchant accounts based on the available processing history can be done by applying processing statistics like the fraction of non-qualified and mid-qualified transactions, the signature versus the PIN debit transaction, etc to the fees and rates of new accounts. Obtaining the effective rate for new business merchant accounts is not very easy due to absence of processing history and inconsistent buckets. However, conservative estimates still hold importance for new business merchant accounts. The actual techniques for calculating effective rates are highly involved.

A merchant account provider needs to take necessary details from a merchant in order to provide an accurate and reasonable effective rate. If the merchant account provider fails to do this or have no knowledge about effective rates, it is advisable that a merchant looks out for another merchant account provider.

Contact one of our helpful account representatives to assist you in the setup of a high risk merchant account or offshore merchant account for a high risk merchant.