Next Day Funding: What It Means and When It's Necessary (Or Not)

Every now and again I discuss "next day funding" with a merchant in the course of a consultation. It's something I generally don't offer and few merchants ever mention, but once in a rare while it is a sticking point that the merchant holds as an important aspect of the service.

Case in point, I was chatting with a merchant this morning who must pre-order and pre-pay for product that she sells a "parties" set up in people's homes as sales events. Because she does not keep much inventory on hand until she has an idea about how much she is likely to sell, she is often out of pocket when she begins a sales event and needs to immediately recoup her expenses in order to pay her bills before it becomes an additional expense that cuts into her profits. Because of this, she is essentially attempting to pay her balance before it becomes due, to presumably somewhat mixed results.

Why a Merchant Should Never Pay Over 4% in Total Processing Costs

How to spot a bad processing deal 101

It's true: I've spoken with merchants who thought that they were paying a fair price on their processing service even though the aggregate total they were spending for a month of processing was coming out in the range of 5 to 7%. That's right, because they had been with the same service for years and it was provided by a "reputable" company (or even their own bank), these merchants assumed that they were paying market rates and not getting ripped off. But they were wrong.

One of my clients, a plumber, had been paying over 7% when the "discount" rates and transaction fees and monthly fees had all been added together. When he told me this I responded that I was sure he must be mistaken, that no legitimate company should be setting him up at rates that high for his business. But there were his statements, clear as day, and he had been with this same processor for over a decade, just handing the company his hard-earned cash.

All a merchant has to do is check their bottom line. If your total costs to process exceed 4% for any given month and you swipe cards in a retail environment, you have a bad processing deal. Period. Go ahead and figure in the cost of PCI compliance, too. If you're still over 4%, there is a better option on the market. Even if a merchant is primarily processing keyed-in transactions via the Internet, phone or mail order, the total costs should normally be under 4% as well. (Because of some additional costs to process through gateways or shopping carts online, those expenses may need to be removed from this discussion. However, many businesses do spend much more than necessary on gateway fees, so those ought to be examined carefully as part of the bottom line.)

Cash Advances for Merchants

"Merchant Services" are generally understood to center around the processing of payment data from bank cards or gift cards and the like. There is another aspect to these services, however, that some businesses benefit from in ways that can quickly help them expand, cover shortfalls or otherwise access needed resources without having to go through a lengthy process or get tied into bank loans or mortgages.

By getting a cash advance from their processing company, merchants are able to put funds directly into their bank account and have the balance automatically paid off over a short period of time simply by automatically deducting a percentage of the credit card sales made by the merchant's customers (or, to look at it another way, to pay a higher percentage on sales to cover the repayment of the advance).

An advance program can be used to purchase additional inventory, do necessary repairs or upgrades, or simply pay some bills. Funds can be delivered usually within 5-10 business days. Sometimes even in as little as 72 hours.

This is good for merchants who need the money quickly, those with little collateral or if they have limited access to other areas to get the funds. 

In order to get access to this type of funding, a merchant will generally have to work with a sales agent from the processing company they use. These cash advance programs are great for sales agents, because they generally will share in the profits made on interest, get a nice upfront bonus from the processing company, or both.

Agents Beware: What to look for when approaching new merchants

As a general rule, I am more inclined to warn merchants away from unscrupulous agents or sales representatives. There are some instances, however, where an honest sales rep might want to pause before pursuing a relationship with a merchant. This posting is for the sales representative who needs to be wary before setting up an account he or she might regret.

When should a sales agent avoid a merchant?

It seems almost counter-intuitive to suggest that sometimes a sales rep might be better off not making a sale. And certainly this post will be somewhat different in perspective than my previous exploration for merchants on whether a sales rep should be trusted. But as with most relationships, business or otherwise, this is a two-way street. Coming into a business cold, an agent will want to look for signs that the merchant is going to be worth pursuing and not end up wasting time and resources that could be better spent elsewhere.

After all, sales reps do not want to risk being involved in legal action or be subjected to threats or libelous statements. No agent wishes to end up out of pocket at the end of a deal or go through a process that can only end in damaging the agent's relationship with his or her own processing company or service provider.

Mobile Payment Processing Options Growing

The options available for merchants of any scale to process credit cards have been growing at a rapid pace. In fact many service providers in the industry have been tripping over themselves in their attempt to keep pace with innovations and also carve out their niche to give the appearance of being a better deal than their competitors. Essentially, there is little difference between the majority of services offered on the mobile market, but the small differences may be significant enough to make one or another of the options a better fit for any particular merchant.

An important point to mention here is that the industry and products are changing. This is a snapshot of offerings as they are available in May, 2012. The broad strokes are likely to remain intact for a while, but it never hurts to double check the industry trends. Also, because the big, bad Visa and MasterCard corporations adjust their Interchange rates and fees every six months or so, pricing may fluctuate over time.

"Mobile" payments used to be relegated to the likes of PayPal, which meant processing from your computer at relatively high rates or perhaps using a phone service that required calling in and using touch tone entry of the card number, also at high rates. Other PC based solutions existed that allowed for card swipers to be attached to a laptop, and these usually required service providers that had merchants hooked on long-term contracts. And there were high-priced mobile terminals that were built around cell phone chips that came with expensive monthly fees.

Technological Revolution Drives the Mobile Processing Industry

Then the smartphone began opening up the realm of mobile computing. With many phones and tablets on the market today being more powerful than the laptops of just a few years ago, it makes sense that this power would be harnessed to do more work for every aspect of business. Innovative companies like SquareUp were strong out of the gate with a product that merchants were hungry for. Online pioneers like PayPal have been slow to catch up, while numerous processing companies have stepped in to fill the gap between the expensive mobile processing solutions and traditional lower-cost merchant services contracts.

What Should Make A Merchant Want To Change Processing Companies?

Merchants must ask themselves why they would consider changing their processor. Perhaps even before the next sales representative walks through their door, seeking their business, it would be a good plan to have the answer in place

Nobody likes wasting their time

As an agent in the field, I can assure any merchant out there that nobody in a sales position enjoys wasting their time. If a sales rep is going to put in the effort to sign a merchant, he or she is going to appreciate knowing the merchant's actual wants and needs. And the merchant will save both time and money by being aware of his or her own expectations. In actuality, if the agent is honest and the merchant is above board, both are on the same side. Many merchants feel adversarial toward sales reps of any stripe, often with good reason. Being on the same page, however, is a win for both the merchant and the rep. The rep may not see the huge profit or windfall initially hoped for, but the relationship should be much more solid and the retention of the client much more likely.

Top Reasons To Consider Switching Credit Card Processors

Consider this check list as a starter only. Every merchant will have different issues that they want to consider and different values attached to each. What ranks as most important to one merchant (i.e., cost savings or next day funding) may be of little importance to another. And it may be that if a merchant has ten things on the list, one or two of them might be flexible options if the other 8 or 9 are going to be handled well.

Should Sales Reps Be Trusted? Four Ways To Spot A Lie.

Just for the record, most of the time it is probably not in a merchant's best interest to automatically trust a merchant services sales rep. I'm throwing it out there based on my personal experience interacting with both people within the processing companies and the merchants I've met through daily interaction. This isn't to say that sales reps are mostly untrustworthy, but they should earn a merchant's trust and in this industry that is not always easy.

How to spot a lie from a merchant services agent

To be fair, I honestly believe that many sales reps in the merchant services industry are simply ignorant with regard to what they are selling. I've been on that end of a claim, though not for long. In fact, the first "Team Leader" that I worked with used to tell me that I was too smart to be a salesman because I kept talking business owners out of the deal. My question to him was always the same, "aren't we here to save the merchant money?" And Team Leader's answer was always this: "what's important is that the merchant believes he is saving money. We want happy merchants."

Maybe it's just me, but I am happiest when I know I've been treated with honesty and integrity. I am mighty unhappy when I have the sudden realization of having been "sold a bill of goods." And I never wanted any of the merchants I worked with to feel that way, either. Besides, I wanted to provide services to businesses that I actually patronized, that thrived in my own neighborhood. If I set these places up with bad service agreements it would be plenty difficult to show my face out on the street.

Lie #1: I can't quote you a rate

Whenever a sales rep is in a business establishment, he will be quite anxious to find out the current rates that a business is being assessed. This is the crux of the business pitch. A big gasp will generally ensue upon examining a statement, perhaps even some eye rolling or head slapping. It's simply amazing how high those rates are! But what rate am I offering? Oh, I can't tell you that without examining your processing statements first.

Really?

When Does It Make Sense To Switch Credit Card Processors?

As a field sales rep in the credit card processing industry, it is important to understand when it is really in a merchant's best interest to switch processing companies. It is even more important for the merchant to be aware of when it is the proper choice. Let's be honest, a sales rep wants the merchant's business. The merchant should simply want what is best for his or her bottom line.

Fear of Change

Most merchants suffer from the same basic phobia with regard to anything involving their banking situation. "If it ain't broke, don't fix it" seems to sum up the excuse for retaining the status quo. To a certain extent, this is reasonable thinking. Functioning processing that gets funds deposited where they are supposed to be is the primary concern of many merchants. A processor that has done this for some time is a known commodity and therefore is also in the merchant's comfort zone. This does not  necessarily mean it is the correct option for the merchant.

When deciding whether to make a change away from a company that has been successfully processing on behalf of a merchant, there are always a few considerations:

• Contractual obligations or cancellation fees
• Ease of transition
• Guarantee of rates and fees
• Terminal purchase, lease or rental
• Reprogramming time requirements
• Customer loyalty or working relationships
• Fair treatment
• Company perception
• Trust

And the list really can keep growing quite easily.