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.)