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Bad Credit
How to pick the right processor |
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Written by Amanda Ryder
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As a florist, credit and debit cards are essential to running your business. They are the preferred payment method for the majority of Canadians and a safe and quick way to take orders online and over the phone. Many of you likely receive calls on a weekly basis from credit card processing companies promising low rates and tempting you to sign up with their contract. But beware – there are unethical companies out there and it’s easy to fall into their trap, but very difficult to get out.
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Signing up with the wrong credit and debit card processor could leave you trapped in an expensive contract.
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Sarah Flowers*, owner of an Ontario floral and giftware shop, knows this all too well. Back in 2007, she signed on with a company that offered a program with a monthly, $20 flat fee that covered her card transactions, her machine rental and any other related costs for a two-year term. Soon after, Flowers discovered that things weren’t so clear-cut.
By signing with this particular card processor, she was subsequently tied into a four-year leasing agreement and a separate contract with a credit card processing company. “I had no idea until of course, all the charges started coming out of the account...It went from $20 to basically $150 or more a month,” says Flowers. For the past two years, she hasn’t received regular monthly reports and, when she does get a statement, it doesn’t clearly identify why she’s been charged particular fees.
Currently, Flowers is struggling to get out of her contract. She’s been told she can get out by paying a flat fee, but Internet searches have proven that it hasn’t been so easy for others and she’s skeptical. Flowers and a few other local retailers who are dealing with the same company have now approached the police to see if they can help rectify the situation. By sharing her story, she’s hoping to prevent other florists from falling into the same trap. “I’m assuming there’s probably all kinds of other people in this situation who can’t afford to get out of it.”
Flowers is correct in the assumption that she’s not the only one in this situation. “We have had hundreds and hundreds of calls from business owners who have been taken advantage of by some very unethical card processing companies,” says Dan Kelly, senior vice-president at the Canadian Federation of Independent Business (CFIB). “There have been a lot of companies that have popped up overnight and are selling card services – they have somebody else process the transaction for them.” Arman Patel, Flowers Canada’s executive director says he’s also fielded a number of calls from florists trapped in a contract and plagued with escalating fees.
For busy retailers, a phone call promising lower credit and debit card processing rates can no doubt be tempting but both Kelly and Patel recommend that merchants be cautious and do some researching. Here’s a list of steps that florists should follow when they are looking to sign up with a new company.
1) Ask around
Do a check on this new supplier. “It’s always a good idea to ask for names of other customers of the particular supplier so you can call and check to see what someone else’s experience has been like with them,” says Kelly. “Many people skip that step and end up going off on their own.” You can talk to local business groups, retail associations like CFIB or industry specific groups like Flowers Canada which has it’s own credit card program for members.
2) The fine print
“The biggest complaint that we’ve heard in this industry is that there are some players, some credit card processors, that will go out and offer a really low rate, but when you read the fine print, the rate can be subject to change at any time,” says Kelly. In this situation, the rates jump dramatically just months after signing the contract. When the retailer sees the charges, they call the company, ask to cancel the contract to go with another company and discover they are locked into a long-term contract with large exit penalties.
3) Know the rates
Flowers Canada executive director Arman Patel says one of the biggest hurdles when it comes to these contracts is understanding the rates that will be applied to each transaction. The credit card processor typically gives rate quotes for a number of areas, but these are two that Patel says to take particular note of:
a) The base rate for a standard credit card such as a Visa or MasterCard.
b) The interchange rate, which applies to premium Visa or MasterCards that have some type of loyalty program attached to them. This interchange rate is also applied
to standard credit cards when a transaction is made over the phone and the card is
not present.
To get a good grasp on how the rates will affect your bottom line, Patel advises that you ask the company to apply these numbers to your shop. “If I’m a florist, I want to force the credit card processing companies to go through every purchasing scenario in my shop and get the rate for that transaction so now you know what you will pay on every
order,” says Patel.
4) Too good to be true
If a company promises to slash your current rates in half, then you have to question how this is possible. The most important phrase to look for when signing a contract is ‘rates subject to change.’ These four words are standard in almost all credit card contracts but Kelly says you want to read the details as to what is an allowable increase. “The biggest question to ask is how long is this rate locked in for? That’s the real test. Most companies will tell you that they can’t guarantee the rate,” says Kelly. When Visa and MasterCard change their rates, the credit card processor must also change their rates and will likely pass the cost on to you. “That part is well accepted. But what’s happening now is a lot of credit card processors are using that opportunity to increase their rates themselves, or are just doing that anytime they want. There have been several fly-by-night operations in this business.”
5) Legal help
Kelly recommends that florists seek out legal advice beforehand to prevent having to seek it out at a higher cost down the road. “It’s not a bad idea to spend a little bit of extra money and have your lawyer look at the contract too.” Doing so will help clarify any of the smaller details and give you peace of mind that the contract is legally sound.
6) You can negotiate
When you see the contract, know that you can work with the company to make changes in your favour. “Very few florists or retailers negotiate these contracts. They assume that when you get sent a contract, you sign it. You can ask for changes, typically with the term and the penalties. And they will change that if you ask or if you negotiate with that,” says Patel.
Once you finally decide to sign an agreement with the company, it’s important that you always keep a close eye on your statements. “Once we get in a pattern with a certain amount and a certain bill – especially if you have it set up for automatic withdrawal or payment – you forget about it and don’t pay close attention to it. This is one area where a company cannot afford to let the statements stack up on the desk and not go through them,” says Kelly. Reviewing the monthly statements allows merchants to hold the credit card processor accountable and helps the retailer compute the average cost of a transaction. “That’s a really important area because they need to know, they need to be on high alert to ensure that they don’t get hit with any unwarranted fee increases,” says Kelly.
If you do get caught in a situation and the credit card processor is acting unethically, Kelly recommends that you contact your industry association or retail association to see if other retailers are experiencing the same thing. There’s strength in numbers. Another option is to go to the police and report the fraudulent activity. Finally, Kelly says being persistent can sometimes pay off. “We’ve had members who just hound the processor until they let them out of the contract with a reasonable exit fee.” If you strike up any kind of exit agreement with the company, be sure to get it in writing.
When dealing with credit card processors it’s crucial to do as much research as you can. “I would say the best thing to do is to get some advice from people that the merchant trusts. If they have a good bank manager, it may be worth talking to the bank manager about who they would recommend as a card processor,” says Kelly. Other sources could include local associations and business owners.
The good news is that help may be on the way – the federal government has recognized that this is a problem and has included a measure to prevent these types of situations in the credit and debit card code of conduct draft that was released last November. It contains a provision that will allow merchants to exit a contract without penalty as well as rules to encourage more disclosure on average rates. As we learn more about this code in the coming months, Canadian Florist will keep you updated, here in the magazine and online at www.canadianfloristmag.com.
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