Annual Fee

An annual fee, simply put, is a fee charged by a payment processor on a merchant account once per year.
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Annual Fee

An annual fee, simply put, is a fee charged by a payment processor on a merchant account once per year. This is a flat fee imposed usually only for high risk accounts.

How Common are Annual Fees in Payment Processing?

There are costs associated with credit card processing services but this fee is not one that is typically assessed. It is uncommon but can occur with high risk accounts.

If you are a particularly high risk business, you may need to have a high risk merchant account.

High risk merchant accounts are needed for businesses that have a high average ticket value, are subject to a higher than average amount of chargebacks or may be part of an industry that is considered high risk for payment processors.

These are usually the only merchant accounts that would have an annual fee.

A more common model is a monthly fee, that is assessed each month on your statement. Most payment processors charge a monthly fee as opposed to an annual fee.

It would be good practice to review your end of year or beginning of the year statement to see if you have been charged an annual fee.

Payment Processing Pricing Models

There are several credit card processors to choose from, and at first glance, they all appear to do the same thing: allow you to process credit cards.

Looking closer, you will see that card processors vary significantly in their pricing models.

Some processors offer different rates depending on how the transaction was conducted: online versus in store retail. Some offer low flat rates per transaction and a higher monthly fee. Others offer slightly higher rates per transaction but no monthly fee or a very nominal fee.

Your business’ sales patterns will ultimately determine which pricing model would best benefit your business. Your patterns may evolve over time if your sales increase or decrease or if your products or services change.

Fee Schedule

A transparent payment processor will be able to share a fee schedule document which will clearly outline what fees your merchant account will be agreeing to and an explanation of each.

You can use the fee schedule along with your recent sales data to estimate the monthly costs of card payment processing.

It is always good to do this estimation so you are not surprised when you receive your first statement.

Additional Fees

Don’t forget, each credit card network also charges its own interchange fee, which will be deducted as well. Fees generally range from 1.5-2.5%, with each network varying slightly. American Express is the outlier, with fees all the way up to 3.5%.

As a result, some merchants choose not to accept American Express card payments. Some merchants may impose a fee for using a credit card in order to recoup their fees. Also, some may set a minimum purchase amount needed in order to pay with a card so that a low-value transaction is worthwhile for the business to conduct.

The Big Picture

There is a lot to consider when selecting a payment processor, with rates and fee structures being among the most important factors.

Be sure to read agreements carefully. Payment processors should always be transparent about the charges that will be on your merchant account.

If you have a question about the fees on your merchant account, always discuss it with your payment processor.

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