Ecommerce Know-How: Understanding Your Payment Processing Statement

While online shopkeepers are specialists in their businesses, they may not be proficient at understanding their payment processing service or its own announcement, which may contain alterations, interchange fees, service charges, fees, and chargebacks.

At its heart, ecommerce is all about the exchange of cash. Clients pay online for goods and services with a credit card, checking account, payment account (i.e. PayPal), or possibly a wire transfer; and consequently merchants supply the goods or services ordered. But in all these transactions there's a payment processor that's assessing charges and fees from each ecommerce merchant for each ecommerce transaction. In this edition of"eCommerce Know-How," a recurring Practical eCommerce attribute, I will walk through the seven segments in a normal payment processing statement, briefly explaining what each segment is and how it impacts your company's bottom line.

Needless to say, payment processors each organize their statements differently and might even offer somewhat different definitions for each charge or fee, but this report should serve as a general guide to payment processing statements.

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Total Amount Submitted

Many (if not all) payment processing statements will begin with a section known as"Total Amount Submitted" or"Total of Payments Submitted," or something similar. This is the income part of the payment processing announcement, and it must recount all the transactions you submitted for processing. The key for this segment is making certain that your accounting sales totals match the"Total Amount Submitted" for the statement period.

Third Party Transactions

Should you accept the Discover Card, Diners Club, American Express, or in some instances payment through electronic check, you may have a section on your payment processing invoice for third party transactions. Most payment processors are really Visa and MasterCard banks (association members) that also process other cards as a service to their clients. By way of instance, payments through American Express fall into this class. When these transactions should be included in the"Total Amount Submitted" segment, chips different these transactions as they may be subject to various fees.

Adjustments

This simple sounding section may be the most confusing part of a payment processing statement since it might use terms such as deposit and refund in unexpected ways.

First, this section is often included for merchants with a money reserve payment account. In a cash reserve account, the payment processor actually holds a number of the merchant's cash, typically $500 to $5,000. When a client payment is processed, the merchant's payment processor (lender ) asks those funds from the client's (issuing) bank. At exactly the exact same time, the merchant's payment processor will subtract an amount equal to the transaction from the merchant's cash reserve account. Oddly this is known as a deposit on several payment processing statements.

Imagine that Jane is the client. She requests $10 worth of almonds out of your online nut shop. You process the transaction and your payment processor, let us say Chase Paymentech for instance, asks the funds from Jane's credit card company. At exactly the exact same time, Chase subtracts $10 from the cash reserve account just in case something goes wrong with Jane's order. This is referred to as a deposit. After a couple of days, Jane's card clears and the issuing bank transfers $10 to Chase. Now Chase puts that same $10 back into your cash account. This transaction is referred to as a refund.

Just be certain that your alterations (both deposits and refunds) generally balance out. But do not be surprised if they're not exactly equal since a transaction that comes in late in the month may have its deposit on a single statement and the associated refund on another statement.

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Interchange Fees

An interchange fee represents the payment processors "cost" for processing a credit card transaction. Payment processors are members of credit card associations (Visa and MasterCard associations). These institutions maintain, govern, and help credit card payment processing, and they set the interchange fees your payment processor must pass to you. While interchange rates can vary (or possibly be removed ) based on risk, most merchants pay some type of interchange fee.

Generally, interchange fees aren't going to be a massive burden. But if your store appears to be paying a lot in interchange fees consult with your chip or try to find a new one.

Service Charges

For many merchants this segment is where the pain starts. Service prices are how your payment processor really makes a living. These service fees can include per transaction fees and discount rates which are calculated as a flat rate (say 2.5 cents per transaction) or as a percentage (like 2.5 percentage of every transaction). These service fees vary greatly among payment processors. The key is to understand what you are paying. If it's more than about 5 to 7% of your total sales, consider searching for a new chip or requesting for a discount.

Fees

The next section on your payment processing statement is as bad as the past, because again it represents money that's vanishing from the bottom line. This section itemizes additional fees billed to your account. Often these charges include payments to hosted shopping carts. For instance, Yahoo! Merchant Services can take up to 25 cents per payment batch as a portion of its fees. Your payment processor will access those fees and finally pay your cart for you.

These fees may also be monthly service fees. Discover Card, as an instance, provides a marketing service that lots of merchants neglect to opt out of. That support will cost $22 per month and shows up in this part of your payment processing announcement if you use it or not. Ultimately, this section may also have other bank fees such as a punishment for having a chargeback that's over and above the amount refunded to the unhappy client.

See this section carefully. Be certain that you understand what every fee is for, and find out how fees may be avoided or reduced in the long run.

Chargebacks and Reversals

The final section in an ordinary payment processing announcement deals with chargebacks. When a client is unhappy, he/she can call her credit card company (the issuing bank) and receive a refund. It doesn't matter whether the customer is wrong or right, your payment processor will strike you with a chargeback and subtract it from your earnings. Nobody likes to find chargebacks on their announcement.

However, you'll have an opportunity to redeem yourself. If you challenge a chargeback and win, your payment processor will prominently display your success in this section for a reversal.

Summing Up

Carefully tracking your payment processing statement can help you identify fees or charges which you may be able to reduce or even eliminate completely.

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